27 Oct 21. For the first time in many years results from the US majors showed a decline in defense earnings, with the exception of Raytheon Technologies.. Blame has been laid at the door by some for supply chain delays and a rise in Covid infections, but, as BATTLESPACE has noticed in recent weeks, there has been a marked decline in defense contract announcements. Is this cash conservation or a wider decline in defense spending post-Afghanistan by the Biden Administration? Shares in the majors fell across the board by as much as 6% on the announcements.
Boeing
General Dynamics
Honeywell
Lockheed Martin
Northrop Grumman
Raytheon Technologies
TEXTRON
Boeing
27 Oct 21. Boeing shares down slightly on 787, Starliner costs. Boeing Co (BA.N) reported a quarterly net loss after fresh charges on its problem-plagued 787 and Starliner spacecraft programs, masking a small underlying profit as air travel recovers from the pandemic. The 737 MAX and 787 are integral to Boeing’s ability to rebound from the pandemic and a safety scandal caused by two fatal crashes, while its Starliner has fallen behind dominating space rival Elon Musk’s SpaceX. Boeing shares were down 1.6% to $206.40 in midday trading, against a fractionally lower Dow Jones Industrial Average (.DJI).
“We have a clear line of sight to the steps ahead” on resuming 787 deliveries, Calhoun told analysts on a conference call but gave no specific timeline pending regulatory approvals.
Boeing said the price tag for inspections and repairs due to 787 structural defects amassed over the last two years would be roughly $1 bn – or $183m in the quarter, confirming for the first time estimates reported by Reuters in February. It has twice halted 787 deliveries, with the latest stoppage ongoing since May and resulting in an inventory of more than 100 jets worth $9bn cash. Boeing also booked a charge of $185m on its long-delayed Starliner astronaut capsule for NASA’s Commercial Crew Program, due to delays and repairs from faulty fuel valves that sidelined the spacecraft after its August flight attempt. Meanwhile, SpaceX’s Dragon capsule has ferried astronauts and supplies to orbit four times.
Revenue rose 8% to about $15.3bn, fueled by 737 MAX deliveries and growth in Boeing’s services unit as it sees recovery in the air travel market. Boeing delivered 62 of its 737s in the quarter, with some 370 of its 737 MAX jets in inventory, a third of which were for customers in China, executives said.
It is meanwhile building 19 of the jets monthly, up from 16 in last quarter, with ongoing plans to push to 31 per month in early 2022. On the prospect of ramping to 50 or more jets monthly, Calhoun said, “The wild card in this one isn’t demand. It’s all about the supply chain. Whether it’s two, three or four years, I’m not sure. I do think we get there.”
Rival Airbus SE (AIR.PA) is charging forward with planned production increases to a record 64 per month by second-quarter 2023, with possible further increases beyond that. Its plans have produced a backlash from suppliers and leasing companies.
Calhoun struck a cautious note, telling analysts the whole industry would face narrowbody supply constraints from the second half of 2022 and lasting through 2023. Boeing has been producing about two 787 jets monthly at its South Carolina factory with plans to go back to an already slow rate of five a month at some future point – analysts expect that to take a year. On forthcoming jets, Boeing began engine performance flight tests earlier this month on its already years-delayed 777X mini-jumbo, and still expects a first delivery in late 2023, and is evaluating the launch timing of a freighter version, Calhoun said.
Chicago-based Boeing reported a net loss of $132m, compared with a loss of $466m a year ago, but a core operating profit of $59m. An adjusted loss of 60 cents per share compared with analysts’ average estimate of 20 cents per share, according to Refinitiv data. Quarterly free cash flow of negative $507m compared with negative $5bn a year ago, while Boeing’s mountain of debt fell to $62.4bn from $63.6bn. (Source: Reuters)
27 Oct 21. Boeing Reports Third-Quarter Results.
- Continued progress on global safe return to service of 737 MAX and focus on operational stability
- Revenue of $15.3bn, GAAP loss per share of ($0.19) and core (non-GAAP)* loss per share of ($0.60)
- Operating cash flow of ($0.3)bn; cash and marketable securities of $20.0bn
- Commercial Airplanes backlog of $290bn and added 93 net orders
The Boeing Company [NYSE: BA] reported third-quarter revenue of $15.3 bn, driven by higher commercial airplanes and services volume. GAAP loss per share of ($0.19) and core loss per share (non-GAAP)* of ($0.60) primarily reflects higher commercial. Boeing recorded operating cash flow of ($0.3)bn.
“We are driving stability across our operations, investing in our future and positioning our teams to deliver for our customers as the market recovers,” said Boeing President and Chief Executive Officer David Calhoun. “Commercial market demand continues to gain traction with broad-based vaccine distribution and border protocols beginning to open. Going forward, supply chain capacity and global trade will be key drivers of our industry and the broader economy’s recovery. Our portfolio across commercial, defense, space and services is well positioned, and we’re focused on improving performance, while advancing technologies and digital manufacturing capabilities to drive our next generation of products and a sustainable future.”
Operating cash flow improved to ($0.3)bn in the quarter, reflecting higher commercial deliveries, higher order receipts, and lower expenditures. Operating cash flow was also favorably impacted by a $1.3bn income tax refund in the quarter.
Cash and investments in marketable securities decreased to $20.0bn, compared to $21.3bn at the beginning of the quarter, primarily driven by debt repayment and operating cash outflows. Debt was $62.4bn, down from $63.6bn at the beginning of the quarter due to the repayment of maturing debt. Total company backlog at quarter-end was $367bn.
Segment Results
Commercial Airplanes
Commercial Airplanes third-quarter revenue increased to $4.5bn primarily driven by higher 737 deliveries, partially offset by lower 787 deliveries. Third-quarter operating margin improved to (15.5) percent primarily due to higher deliveries.
Boeing is continuing to make progress on the global safe return to service of the 737 MAX. Since the FAA’s approval to return the 737 MAX to operations in November 2020, Boeing has delivered more than 195 737 MAX aircraft and airlines have returned more than 200 previously grounded airplanes to service. 31 airlines are now operating the 737 MAX, safely flying over 206,000 revenue flights totaling more than 500,000 flight hours (as of October 24, 2021). The 737 program is currently producing at a rate of 19 per month and continues to progress towards a production rate of 31 per month in early 2022, and the company is evaluating the timing of further rate increases.
The company continues to focus 787 production resources on conducting inspections and rework and continues to engage in detailed discussions with the FAA regarding required actions for resuming delivery. The current 787 production rate is approximately two airplanes per month. The company expects to continue at this rate until deliveries resume and then return to five per month over time. The low production rates and rework are expected to result in approximately $1 bn of abnormal costs, of which $183m was recorded in the quarter.
Commercial Airplanes secured orders for 70 737 MAX, 24 freighter, and 12 787 airplanes. Commercial Airplanes delivered 85 airplanes during the quarter and backlog included over 4,100 airplanes valued at $290bn.
Defense, Space & Security
Defense, Space & Security third-quarter revenue decreased to $6.6bn and third-quarter operating margin decreased to 6.6 percent, primarily due to a $185m earnings charge on the Commercial Crew program driven by the second uncrewed Orbital Flight Test now anticipated in 2022 and the latest assessment of remaining work.
During the quarter, Defense, Space & Security secured awards for five P-8A Poseidon aircraft for the German Navy and four CH-47F Block II Chinook helicopters for the U.S Army, as well as a Joint Direct Attack Munition contract for the U.S. Air Force. Defense, Space & Security also conducted the MQ-25 unmanned aerial refueling of a U.S. Navy E-2D and F-35C, and delivered a total of 37 aircraft during the quarter, including the first CH-47F Chinook to the Royal Australian Army.
Backlog at Defense, Space & Security was $58bn, of which 33 percent represents orders from customers outside the U.S.
Global Services
Global Services third-quarter revenue increased to $4.2bn and third-quarter operating margin increased to 15.3 percent primarily driven by higher commercial services volume. Operating margin was also favorably impacted by lower severance costs and mix of products and services.
During the quarter, Global Services captured orders for 12 additional 737-800 converted freighters for BBAM, an award for performance-based logistics support of the global C-17 fleet, and a modification award for Chinook infra-red suppression systems for the U.K. Armed Forces. Global Services also announced a partnership to expand capacity for 767-300 Boeing Converted Freighters and was selected to provide training to the United Aviate Academy.
Additional Financial Information
At quarter-end, Boeing Capital’s net portfolio balance was $1.8bn. The earnings from FAS/CAS service cost adjustment primarily reflects an increase in the CAS discount rate driven by pension relief provisions in the American Rescue Plan Act of 2021. Interest and debt expense increased due to higher debt balances. The change in other income was driven by a pension settlement charge recorded during the quarter. The third quarter 2021 effective tax rate primarily reflects a lower pre-tax loss compared to the prior period, as well as benefits from R&D tax credits.
Non-GAAP Measures Disclosures
We supplement the reporting of our financial information determined under Generally Accepted Accounting Principles in the United States of America (GAAP) with certain non-GAAP financial information. The non-GAAP financial information presented excludes certain significant items that may not be indicative of, or are unrelated to, results from our ongoing business operations. We believe that these non-GAAP measures provide investors with additional insight into the company’s ongoing business performance. These non-GAAP measures should not be considered in isolation or as a substitute for the related GAAP measures, and other companies may define such measures differently. We encourage investors to review our financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure. The following definitions are provided:
Core Operating Earnings, Core Operating Margin and Core Earnings Per Share
Core operating earnings is defined as GAAP earnings from operations excluding the FAS/CAS service cost adjustment. The FAS/CAS service cost adjustment represents the difference between the Financial Accounting Standards (FAS) pension and postretirement service costs calculated under GAAP and costs allocated to the business segments. Core operating margin is defined as core operating earnings expressed as a percentage of revenue. Core earnings per share is defined as GAAP diluted earnings per share excluding the net earnings per share impact of the FAS/CAS service cost adjustment and Non-operating pension and postretirement expenses. Non-operating pension and postretirement expenses represent the components of net periodic benefit costs other than service cost. Pension costs, comprising service and prior service costs computed in accordance with GAAP are allocated to Commercial Airplanes and BGS businesses supporting commercial customers. Pension costs allocated to BDS and BGS businesses supporting government customers are computed in accordance with U.S. Government Cost Accounting Standards (CAS), which employ different actuarial assumptions and accounting conventions than GAAP. CAS costs are allocable to government contracts. Other postretirement benefit costs are allocated to all business segments based on CAS, which is generally based on benefits paid. Management uses core operating earnings, core operating margin and core earnings per share for purposes of evaluating and forecasting underlying business performance. Management believes these core earnings measures provide investors additional insights into operational performance as they exclude non-service pension and post-retirement costs, which primarily represent costs driven by market factors and costs not allocable to government contracts.
Free Cash Flow
Free cash flow is GAAP operating cash flow reduced by capital expenditures for property, plant and equipment. Management believes free cash flow provides investors with an important perspective on the cash available for shareholders, debt repayment, and acquisitions after making the capital investments required to support ongoing business operations and long term value creation. Free cash flow does not represent the residual cash flow available for discretionary expenditures as it excludes certain mandatory expenditures such as repayment of maturing debt. Management uses free cash flow as a measure to assess both business performance and overall liquidity.
General Dynamics
27 Oct 21. General Dynamics lowers revenue outlook as profit rises on marine, aero sales. Defense contractor General Dynamics Corp (GD.N) posted a 3% rise in third-quarter profit on Wednesday, boosted by higher sales in the unit that makes U.S. Navy ships and its aerospace division, which makes Gulfstream business jets, but trimmed its annual revenue target by $400m.
“This quarter revenues decrease will impact the year, and we now expect revenue to be around $12.6bn or $400m less than our second-quarter update,” General Dynamics Chief Executive Phebe Novakovic said on a post-earnings conference call. Previous annual earnings per share guidance of $11.50 was unchanged.
Revenue rose 1.5% to $9.57bn in the quarter, but missed an average analyst estimate of $9.85bn, according to Refinitiv data.
Business aviation has picked up from pandemic lows as easing travel curbs and the lure of private flights fills order books for new corporate aircraft. On the call Novakovic said Gulfstream has seen “some upward pressure on pricing” for the jets with backlog reaching a six-year high.
Novakovic said about 75% of her workforce had “either full or partial” vaccination with a government-contractor deadline coming on Dec. 8.
The results follow yesterday’s 11% stock drop at weapons maker Lockheed Martin Corp after it lowered its full-year revenue target, citing supply-chain issues, and figures from Raytheon Technologies (RTX.N), which makes a mix of weapons and commercial aerospace components and which raised its forecast for full-year adjusted profit on encouraging signs in the commercial air travel space.
Novakovic said chip shortages impacted the company’s Mission Systems unit, which makes tanks, and while being mitigated – could last into next year.
Sales in General Dynamics’ Marine Systems unit, which makes nuclear-powered submarines and surface ships for the U.S. Navy, rose 9.6% to $2.64 bn, while aerospace sales rose 4.6% to $2.07bn.
The company delivered 31 Gulfstreams versus 32 a year ago, and said it planned to deliver 40 in the fourth quarter. General Dynamics earlier this month announced two new jets, with its larger Gulfstream G800 set to compete with Bombardier Inc’s (BBDb.TO) Global 7500 and Dassault Aviation SA’s (AM.PA) 10X.
Net earnings rose to $860m, or $3.07 per share, beating an average analyst estimate of $2.98 for the quarter ended Oct. 3, up from $834m, or $2.90 per share, a year earlier. (Source: Reuters)
27 Oct 21. General Dynamics Reports Third-Quarter 2021 Financial Results
- Net earnings of $860 m on revenue of $9.6 bn
- Diluted EPS of $3.07, up 5.9% from year-ago quarter
- $1.5 bn in cash provided by operating activities
- Significant Gulfstream order activity continues
General Dynamics (NYSE: GD) today reported third-quarter 2021 net earnings of $860m on revenue of $9.6bn. Diluted earnings per share (EPS) were $3.07.
EPS grew 5.9% from the year-ago quarter and 17.6% sequentially as company-wide operating margin expanded to 11.3%, up 90 basis points from the previous quarter. Margins were up sequentially in all four segments.
“The company delivered solid third-quarter results, generating very strong cash flow and attractive margins,” said Phebe N. Novakovic, chairman and chief executive officer. “We continue to focus on delivering solid program performance and ensuring the well-being of our people, who are rising above the challenges of the pandemic to support our customers.”
Cash
Net cash provided by operating activities in the quarter totaled $1.5bn. Free cash flow from operations was $1.3bn.
Backlog
Backlog at the end of the quarter was $88.1bn, up 8.1% from the year-ago quarter. Estimated potential contract value, representing management’s estimate of value in unfunded indefinite delivery, indefinite quantity (IDIQ) contracts and unexercised options, was $41.5bn. Total estimated contract value, the sum of all backlog components, was $129.6bn at the end of the quarter.
Orders in the Aerospace segment were strong, with backlog up 22.8% over the year-ago quarter to $14.7bn.
Significant awards in the quarter for the Defense segments included $475m from the U.S. Navy to provide ongoing lead yard services for the Columbia-class submarine program; $195m from the Navy to provide engineering, technical, design and planning yard support services for operational strategic and attack submarines; a contract to provide cloud support services to the U.S. Patent and Trademark Office with a maximum potential value of $190m; $165 m to produce various munitions, ordnance and missile subcomponents for the U.S. Army; $160 m from the Navy to provide maintenance and repair services for the Arleigh Burke-class destroyer, Nimitz-class aircraft carrier, San Antonio-class amphibious transport dock and Whidbey Island-class dock landing ship programs; $150m from the Navy for Advanced Nuclear Plant Studies in support of the Columbia-class submarine program and options totaling $570m of additional potential value; and $540m for several key contracts for classified customers and additional classified IDIQ awards with a maximum potential value of $4.2bn among multiple awardees.
Honeywell
25 Oct 21. Honeywell Delivers 9% Sales Growth And Expands Operating Margin By 180 Basis Points.
– Earnings Per Share of $1.80, Adjusted Earnings Per Share of $2.02, at High End of Guidance
– Organic Sales up 8%; Second Straight Quarter of Sales Growth in All Four Segments
– Operating Margin up 180 Basis Points to 18.6%; Segment Margin up 130 Basis Points to 21.2%
– Deployed $1.5bn in Capital to Share Repurchases, Dividends, Capital Expenditures, and Acquisitions
– Orders up High Single Digits, up Double Digits Ex-COVID Mask Demand; Backlog up 7% to $27.5bn
Honeywell (NASDAQ: HON) today announced outstanding results for the third quarter that met or exceeded the company’s guidance.
“The third quarter was another strong one for Honeywell, with sales growth in all four segments, significant margin expansion, and exceptional execution even as we faced tough challenges in the supply chain environment,” said Darius Adamczyk, chairman and chief executive officer of Honeywell. “Organic sales grew 8%, led by 38% growth in Aerospace commercial aftermarket, 21% growth in Safety and Productivity Solutions, and 29% growth in UOP and 14% growth in advanced materials within Performance Materials and Technologies. Our focus on operational and commercial excellence enabled us to expand segment margin by 130 basis points to 21.2%, exceeding the high end of our guidance range by 60 basis points. As a result, we delivered adjusted earnings per share1 of $2.02, up 29% year over year, achieving the high end of our third-quarter guidance range. Our cash performance was strong, and we remain on track to meet our cash flow commitments for the year. We continued to execute on our capital deployment strategy, repurchasing $0.7bn in shares, announcing our 12th dividend increase in the past 11 years, and completing the acquisition of Performix Inc. to expand our portfolio of automation solutions for the life sciences industry.”
Adamczyk continued, “Our disciplined approach to productivity and pricing helped deliver a strong third quarter despite an uncertain global environment marked by supply chain constraints, increasing raw material inflation, and labor market challenges. We continue to focus on mitigating these challenges in the fourth quarter, while capitalizing on near-term growth opportunities across our portfolio.”
Honeywell updated its full-year guidance to reflect the persistent effects of the macro-challenged environment as well as the third-quarter results. Full-year sales are now expected to be in the range of $34.2bn to $34.6bn with organic sales growth in the range of 4% to 5% due to supply chain constraints. Segment margin is expected to be in the range of 20.9% to 21.1%. Adjusted earnings per share is expected to be $8.00 to $8.10. Operating cash flow is still expected to be in the range of $5.9bn to $6.2 bn and free cash flow is still expected to be in the range of $5.3bn to $5.6bn.
Third-Quarter Performance
Honeywell sales for the third quarter were up 9% on a reported basis and up 8% on an organic basis.
Aerospace sales for the third quarter were up 2% on an organic basis driven by an ongoing recovery in commercial aftermarket demand as flight hours continued to increase as well as by strong growth in business and general aviation original equipment, partially offset by lower defense volumes, which were impacted by supply chain constraints. Commercial aftermarket sales were up 38% year over year and air transport aftermarket sales were up double digits sequentially from the second quarter, demonstrating momentum in the aftermarket recovery. Segment margin expanded 390 basis points to 27.1% driven by commercial excellence, favorable sales mix, and productivity net of inflation.
Honeywell Building Technologies sales for the third quarter were up 3% on an organic basis driven by strength across the building products portfolio and continued growth in building solutions services. Orders were up double digits year over year, driven by strong demand for building projects and products. The services backlog was up over 35% driven by strong global bookings, positioning the business for continued growth. Segment margin expanded 190 basis points to 23.5% driven by commercial excellence and productivity, partially offset by inflation.
Performance Materials and Technologies sales for the third quarter were up 9% on an organic basis driven by demand for process solutions services and thermal solutions, petrochemical catalyst shipments and equipment volumes in UOP, and continued double-digit growth in advanced materials driven by strong demand across the portfolio. Robust demand for services, automation projects, gas processing, and advanced materials drove double-digit orders growth year over year for the second consecutive quarter. Segment margin expanded 260 basis points to 22.2% driven by commercial excellence and productivity, partially offset by inflation.
Safety and Productivity Solutions sales for the third quarter were up 21% on an organic basis driven by another quarter of double-digit growth in the warehouse and workflow solutions, productivity solutions and services, and gas analysis businesses, partially offset by lower personal protective equipment volumes. Orders were up double digits year over year driven by over 50% orders growth in warehouse and workflow solutions, productivity solutions and services, and advanced sensing, which should drive continued growth. Segment margin contracted 70 basis points to 13.2% driven by unfavorable business mix and Intelligrated supply chain challenges, partially offset by commercial excellence. (Source: PR Newswire)
Lockheed Martin
26 Oct 21. Lockheed tumbles 12% as supply chain woes hammer forecast. Lockheed Martin Corp (LMT.N) dramatically lowered its sales expectations for this year and next on Tuesday as the COVID-19 pandemic severely hobbled the top U.S. defense contractor’s supply chain, sending its shares down 12%. The pandemic has crippled many companies’ ability to send and receive the parts and supplies they need to produce a wide range of products, creating shortages, reducing inventories and hammering profits. Lockheed’s chief financial officer said the problem worsened for them over the last two months, as the maker of the F-35 fighter jet lowered its 2021 revenue expectations by 2.5% to $67bn and said next year’s revenue could fall to $66bn.
Lockheed’s poor outlook, just 66 days from year-end, came after it reassessed its five-year business plan “given recent external and programmatic events,” Chief Executive Jim Taiclet said in the earnings report that dashed hopes the United States’ largest arms maker could muscle its way through the pandemic.
Shares of defense stocks fell after the report, with the Dow Jones U.S. Defense index down nearly 6% at midday.
The defense company’s CFO said on a call with analysts that its suppliers “are still dealing with the financial stress caused by the global pandemic.”
A company executive noted suppliers that serve the commercial market as well as the defense market were struggling the most. The combination of fixed costs and falling revenue – the aviation industry in particular has struggled during COVID-19 with the huge drop in travel – hurt the suppliers that serve both markets.
“Management laid out a meaningfully lower growth profile than previously indicated, and growth is a key metric in defense right now,” Seth Seifman, a JP Morgan analyst said in a research note, adding, “the potential silver lining the market may ultimately begin looking for here is that today’s hit to the outlook is drastic enough to set up potential beats going forward.”
On the call with analysts, Taiclet said the company’s sales would go up again in 2023 and increase steadily through 2026.
He also said Lockheed now sees its planned purchase of rocket maker Aerojet Rocketdyne Holdings Inc (AJRD.N) closing in the first quarter of 2022, a bit later than previously expected.
Support for the defense industry could be on the way as congressional committees are set to start their conference on the Biden administration’s 2022 defense policy bill that outlines increased spending.
Lockheed raised its earnings-per-share guidance for 2021 to $22.45, more than analyst estimates of $22.19, as operating profits rose 6.6% versus the same period last year.
The third quarter which ended on Sept. 26 showed sales at Lockheed’s largest unit, aeronautics – which makes the F-35 fighter jet – down 2% from a year earlier, when the pandemic locked down many parts of the defense industry’s supply chain.
Through Sept. 26, the unit made 90 F-35 deliveries, with 36 occurring in the third quarter. Lockheed aims to deliver 133 to 139 of the stealthy jets this year.
In 2022, Lockheed plans to deliver 151 to 153 of the fighter aircraft. read more
Lockheed’s third-quarter revenue was $16bn, 6.6% below analyst revenue estimate of $17.1bn, Refinitiv data showed. (Source: Reuters)
26 Oct 21. Lockheed Martin Reports Third Quarter 2021 Financial Results.
– Net sales of $16.0bn
– Net earnings from continuing operations of $614m, or $2.21 per share, after noncash pension settlement charge of $1.7bn ($1.3bn, or $4.72 per share, after-tax)
– Generated cash from operations of $1.9bn
– Increased share repurchase authority by $5.0bn and quarterly dividend rate to $2.80 per share
– Revises 2021 financial outlook and provides 2022 financial trends
Lockheed Martin Corporation [NYSE: LMT] today reported third quarter 2021 net sales of $16.0bn, compared to $16.5bn in the third quarter of 2020. Net earnings from continuing operations in the third quarter of 2021 were $614m, or $2.21 per share, compared to $1.8bn, or $6.25 per share, in the third quarter of 2020. Cash from operations was $1.9bn in the third quarter of 2021 and 2020.
“During the third quarter, the men and women of Lockheed Martin continued to deliver essential products and capabilities for domestic and allied national defense, and for pioneering civil space endeavors,” said Lockheed Martin Chairman, President and CEO James Taiclet. “At the same time, we continued to advance the state of the art and innovation across key technologies, including Future Vertical Lift, Integrated Air and Missile Defense, hypersonic weapon systems, next generation satellites, and many others.
“In addition, we have recently undertaken a reassessment of our five-year business plan given recent external and programmatic events. Our conclusions, which are reflected in our updated 2021 guidance and subsequent trend information, reflect continuing strong cash flow generation, but a slight reduction in revenue in 2022 and roughly flat to low-single-digit growth rates in both revenue and segment operating profit over the next few years, with increasing growth opportunities in the years that follow.
“Consequently, we are adjusting our capital allocation strategy with two major objectives. First, to expand further our robust reinvestment in the company to serve our customers’ evolving needs through capital projects and independent research and development for mid- to long-term enhanced growth performance. Simultaneously, we plan to reward shareholders with continued dividend growth and meaningful increases to the scale and rate of our share repurchase program. Over the short-, mid- and long-term, we will strive to maximize cash flow per share dynamically, based on revenue growth opportunities, inorganic investments, and share repurchases to take full advantage of our significant cash flow generation and strong balance sheet.”
Third quarter 2021 net earnings include a noncash pension settlement charge of $1.7bn ($1.3bn, or $4.72 per share, after-tax) related to the purchase of group annuity contracts to transfer $4.9bn of gross pension obligations and related plan assets to an insurance company, and unrealized gains of $98m ($74m, or $0.27 per share, after-tax) due to increases in the fair value of investments held in the Lockheed Martin Ventures Fund.
Trends
The company expects 2022 net sales to decline from expected 2021 levels to approximately $66bn and 2022 total business segment operating margin to be approximately 11.0%. Cash from operations in 2022 is expected to be greater than or equal to $8.4bn, which excludes a potential decrease in 2022 cash from operations of up to $2.0bn if the provisions in the Tax Cuts and Jobs Act of 2017 that eliminate the option to immediately deduct research and development expenditures in the period incurred and requires companies to amortize such expenditures over five years is not modified or repealed by Congress before it takes effect on Jan. 1, 2022. Although the company continues to have ongoing discussions with members of Congress, both on its own and with other industries through coalitions, it has no assurance that these provisions will be modified or repealed.
The preliminary outlook for 2022 also assumes continued support and funding of our programs, a statutory tax rate of 21%, known impacts of COVID-19, and the continued acceleration of supplier payments at current levels. No additional impacts to the company’s operations, supply chain, or financial results as a result of continued COVID-19 disruption or implementation of the vaccine executive order have been incorporated into the company’s preliminary outlook for 2022 as the company cannot predict how the pandemic will evolve or what impact it will continue to have. The ultimate impacts of COVID-19 on the company’s financial results beyond the time of this news release remain uncertain and there can be no assurance that the company’s underlying assumptions are correct. Additionally, the company’s preliminary outlook for 2022 assumes no significant reduction in customer budgets, changes in funding priorities and that the U.S. Government will not operate under a continuing resolution for an extended period in which new contract and program starts are restricted. It also does not incorporate the pending acquisition of Aerojet Rocketdyne Holdings, Inc. Changes in circumstances may require the company to revise its assumptions, which could materially change its current estimate of 2022 net sales, business segment operating margin, and cash flows.
The company currently expects a total net FAS/CAS pension benefit of approximately $2.2bn in 2022, which includes total expected U.S. Government cost accounting standards (CAS) pension cost of approximately $1.8bn and total expected financial accounting standards (FAS) pension income of approximately $400m. The estimated FAS pension income amount assumes a 2.75% discount rate (the same rate used for the remeasurement of the defined benefit pension plans impacted by the pension risk transfer transaction in the third quarter of 2021), a 10.0% return on plan assets in 2021, and a 6.5% expected long-term rate of return on plan assets in future years, among other assumptions. A change of plus or minus 25 basis points to the assumed discount rate, with all other assumptions held constant, would result in an incremental increase or decrease of approximately $10m to the estimated net 2022 FAS/CAS pension benefit. A change of plus or minus 100 basis points to the return on plan assets in 2021 only, with all other assumptions held constant, would result in an incremental increase or decrease of approximately $15m to the estimated net 2022 FAS/CAS pension benefit. The company does not expect to make any contributions to its qualified defined benefit pension plans in 2022. The company will complete the annual remeasurement of its postretirement benefit plans and update its estimated 2022 FAS/CAS pension adjustment on Dec. 31, 2021. The final assumptions, including the discount rate and actual investment return for 2021, may differ materially from those discussed above.
Cash Deployment Activities
The company’s cash deployment activities in the third quarter of 2021, included the following:
- accelerating $1.5bn of payments to suppliers in the third quarter of 2021 that were due in the fourth quarter of 2021; compared to accelerating $1.8bn of payments to suppliers in the third quarter 2020 that were due in the fourth quarter of 2020;
- making capital expenditures of $316m, compared to $408m in the third quarter of 2020;
- paying cash dividends of $718m, compared to $672m in the third quarter of 2020;
- repurchasing 1.4m shares for $500m pursuant to an accelerated share repurchase agreement (ASR); compared to repurchasing 0.2m shares for $85 mn in the third quarter of 2020, which includes $26m paid for shares repurchased in the second quarter of 2020; and
- making a scheduled repayment of $500m of long-term debt in the third quarter of 2021; compared to no proceeds or repayments of long-term debt in the third quarter of 2020.
As previously announced on Sept. 23, 2021, the company increased its quarterly dividend by $0.20 per share, to $2.80 per share, beginning with the dividend payment in the fourth quarter of 2021. Additionally, the company repurchased $2.0bn in common stock during the first nine months of 2021 and increased its share repurchase authority by $5.0bn with $6.0bn in total remaining authorization for future repurchases of common stock under the program as of Sept. 26, 2021.
Segment Results
The company operates in four business segments organized based on the nature of products and services offered: Aeronautics, Missiles and Fire Control (MFC), Rotary and Mission Systems (RMS) and Space.
Net sales and operating profit of the company’s business segments exclude intersegment sales, cost of sales, and profit as these activities are eliminated in consolidation. Operating profit of the company’s business segments includes the company’s share of earnings or losses from equity method investees as the operating activities of the investees are closely aligned with the operations of its business segments.
Operating profit of the company’s business segments also excludes the FAS/CAS pension operating adjustment described below, a portion of corporate costs not considered allowable or allocable to contracts with the U.S. Government under the applicable U.S. Government cost accounting standards (CAS) or federal acquisition regulations (FAR), and other items not considered part of management’s evaluation of segment operating performance such as a portion of management and administration costs, legal fees and settlements, environmental costs, stock-based compensation expense, retiree benefits, significant severance actions, significant asset impairments, gains or losses from divestitures, and other miscellaneous corporate activities.
The company recovers CAS pension cost through the pricing of its products and services on U.S. Government contracts and, therefore, recognizes CAS pension cost in each of its business segments’ net sales and cost of sales. The company’s consolidated financial statements must present pension and other postretirement benefit plan income calculated in accordance with FAS requirements under U.S. generally accepted accounting principles. The operating portion of the net FAS/CAS pension adjustment represents the difference between the service cost component of FAS pension (expense) income and total CAS pension cost. The non-service FAS pension (expense) income component is included in other non-service FAS pension (expense) income in our consolidated statements of earnings. The net FAS/CAS pension adjustment increases or decreases CAS pension cost to equal total FAS pension income (both service and non-service).
Changes in net sales and operating profit generally are expressed in terms of volume. Changes in volume refer to increases or decreases in sales or operating profit resulting from varying production activity levels, deliveries or service levels on individual contracts. Volume changes in segment operating profit are typically based on the current profit booking rate for a particular contract. In addition, comparability of the company’s segment sales, operating profit and operating margin may be impacted favorably or unfavorably by changes in profit booking rates on the company’s contracts for which it recognizes revenue over time using the percentage-of-completion cost-to-cost method to measure progress towards completion. Increases in profit booking rates, typically referred to as risk retirements, usually relate to revisions in the estimated total costs to fulfill the performance obligations that reflect improved conditions on a particular contract. Conversely, conditions on a particular contract may deteriorate, resulting in an increase in the estimated total costs to fulfill the performance obligations and a reduction in the profit booking rate. Increases or decreases in profit booking rates are recognized in the current period and reflect the inception-to-date effect of such changes.
Segment operating profit and margin may also be impacted favorably or unfavorably by other items, which may or may not impact sales. Favorable items may include the positive resolution of contractual matters, cost recoveries on severance and restructuring charges, insurance recoveries and gains on sales of assets. Unfavorable items may include the adverse resolution of contractual matters; restructuring charges, except for significant severance actions which are excluded from segment operating results; reserves for disputes; certain asset impairments; and losses on sales of certain assets.
The company’s consolidated net adjustments not related to volume, including net profit booking rate adjustments, represented approximately 31% of total segment operating profit in the third quarter of 2021, compared to 24% in the third quarter of 2020.
Aeronautics
Aeronautics’ net sales during the third quarter of 2021 decreased $112m, or 2%, compared to the same period in 2020. The decrease was primarily attributable to lower net sales of approximately $220m for the F-35 program due to lower volume on development contracts and lower volume and risk retirements on production contracts. This decrease was partially offset by an increase in sales of about $35m for the F-16 program due to higher production volume that was partially offset by lower sustainment volume; and approximately $30m for classified development contracts due to higher risk retirements.
Aeronautics’ operating profit during the third quarter of 2021 increased $9m, or 1%, compared to the same period in 2020. The increase was primarily attributable to higher operating profit of approximately $45m for classified development contracts due to higher risk retirements; about $25m for the C-130 program primarily due to higher risk retirements on sustainment activities; and about $15m for the F-16 program due to higher risk retirements on sustainment contracts and higher production volume. These increases were partially offset by lower operating profit of approximately $75m for the F-35 program due to lower risk retirements and volume on production and development contracts that were partially offset by higher risk retirements on sustainment contracts. Adjustments not related to volume, including net profit booking rate adjustments, were $15m higher in the third quarter of 2021 compared to the same period in 2020.
Missiles and Fire Control
MFC’s net sales during the third quarter of 2021 decreased $190m, or 6%, compared to the same period in 2020. The decrease was primarily attributable to lower net sales of approximately $130m for tactical and strike missile programs due to lower volume (Guided Multiple Launch Rocket Systems (GMLRS) and Hellfire); and a net decrease of about $50m for sensors and global sustainment programs due to lower volume (primarily Sniper Advanced Targeting Pod (SNIPER®) and Infrared Search and Track (IRST)) that was partially offset by higher risk retirements due to close out activities related to the Warrior Capability Sustainment Program (Warrior) that was terminated by the customer in March 2021.
MFC’s operating profit during the third quarter of 2021 increased $8m, or 2%, compared to the same period in 2020. Operating profit increased approximately $20m on integrated air and missile defense programs due to higher risk retirements (primarily PAC-3), and about $15m for sensors and global sustainment programs primarily due to the reversal of a portion of previously recorded losses on the Warrior program in the third quarter of 2021 that are no longer expected to be incurred as a result of the program being terminated that was partially offset by lower volume (primarily IRST and SNIPER). These increases were offset by charges of approximately $25m for performance issues on an energy program. Operating profit for tactical and strike missile programs was comparable as lower volume (primarily GMLRS and Hellfire) was offset by higher risk retirements (primarily Hellfire). Adjustments not related to volume, including net profit booking rate adjustments, were approximately $70m higher in the third quarter of 2021 compared to the same period in 2020.
Rotary and Mission Systems
RMS’ net sales during the third quarter of 2021 were comparable with the same period in 2020. Net sales decreased by approximately $50m for integrated warfare systems and sensors (IWSS) programs due to lower volume on radar surveillance systems (primarily TPQ-53) and the Littoral Combat Ship (LCS) program; about $45m for various C6ISR (command, control, communications, computers, cyber, combat systems, intelligence, surveillance, and reconnaissance) programs due to lower volume; and about $30m for various training and logistics solutions programs primarily due to lower risk retirements and volume. These decreases were offset by higher net sales of approximately $120m for Sikorsky helicopter programs due to higher risk retirements (Black Hawk, Seahawk and CH-53-K) and higher production volume (Combat Rescue Helicopter (CRH) and Seahawk).
RMS’ operating profit during the third quarter of 2021 increased $55m, or 14%, compared to the same period in 2020. The increase was primarily attributable to higher operating profit of approximately $75 mn for Sikorsky helicopter programs due to higher risk retirements (Black Hawk, Seahawk and CH-53K) and higher production volume (CRH). This increase was partially offset by a decrease of approximately $20m for training and logistics solutions programs primarily due to lower risk retirements and volume; and about $15m for IWSS programs due to charges that were $30m higher on a ground-based radar program partially offset by higher risk retirements on Vertical Launching System (VLS) programs. Operating profit for C6ISR programs was comparable as lower volume was offset by lower charges on certain programs (primarily undersea combat systems programs). Adjustments not related to volume, including net profit booking rate adjustments, were $50m higher in the third quarter of 2021 compared to the same period in 2020.
Space
Space’s net sales during the third quarter of 2021 decreased $147m, or 5%, compared to the same period in 2020. The decrease was primarily attributable to lower net sales of approximately $340m due to the renationalization of the Atomic Weapons Establishment (AWE) program, which is no longer included in the company’s financial results beginning in the third quarter of 2021. This decrease was partially offset by higher sales of about $140m for strategic and missile defense programs due to higher volume (hypersonic development, Fleet Ballistic Missile (FBM) and Next Generation Interceptor (NGI) programs); and about $70m for national security space programs due to higher risk retirements and volume (primarily Next Generation Overhead Persistent Infrared (Next Gen OPIR)).
Space’s operating profit during the third quarter of 2021 increased $16m, or 6%, compared to the same period in 2020. The increase was primarily attributable to higher operating profit of approximately $30m for strategic and missile defense programs due to higher risk retirements (primarily FBM programs) and higher volume (primarily hypersonic development). This increase was partially offset by a decrease of approximately $10m due to the renationalization of the AWE program. Operating profit for national security space programs was comparable as higher volume and risk retirements (primarily Next Gen OPIR) were offset by a charge of $45m on a commercial ground solutions program. Adjustments not related to volume, including net profit booking rate adjustments, were $30 mn higher in the third quarter of 2021 compared to the same period in 2020.
Total equity earnings (primarily United Launch Alliance (ULA)) recognized in Space’s operating profit were not significant during the third quarters of 2021 and 2020.
Northrop Grumman
Northrop Grumman Reports Third Quarter 2021 Financial Results
- Sales of $8.7bn; Organic Sales Increase 3 percent
- Operating Margin Rate of 12.0 Percent, Segment Operating Margin Rate1 of 11.9 Percent
- EPS Increase 13 Percent to $6.63; Year to Date EPS Increase 56 Percent to $26.55 and Transaction-Adjusted EPS1 Increase 15 Percent to $19.62
- 2021 Transaction-adjusted EPS1 Guidance Increased by $0.80 to a Range of $25.20 to $25.60 Based on Continued Strong Performance
28 Oct 21. Northrop Grumman Corporation (NYSE: NOC) reported third quarter 2021 sales decreased 4 percent to $8.7bn from $9.1bn in the third quarter of 2020 and third quarter 2021 organic sales1 increased 3 percent to $8.7bn from $8.5bn in the third quarter of 2020. Third quarter 2021 net earnings increased 8 percent to $1.1bn, or $6.63 per diluted share from $1.0bn, or $5.89 per diluted share, in the third quarter of 2020.
“Our third quarter results reflect strong program performance and the continued focus on operational excellence by the Northrop Grumman team,” said Kathy Warden, chairman, chief executive officer and president. “While we did see some labor related and supply chain challenges stemming from the COVID-19 pandemic on our operations, we delivered solid organic growth, outstanding segment operating margins and strong transaction-adjusted free cash flow in the quarter. We are raising our full year earnings guidance and continue to expect strong organic sales growth.”
Transaction-adjusted Net Earnings and Transaction-adjusted EPS Year to date 2021 net earnings benefited from a gain on the sale of the company’s IT services business. Excluding the gain on sale of the business, associated federal and state income tax expenses, transaction costs, as well as the make-whole premium for early debt redemption, year to date transaction-adjusted net earnings1 increased 11 percent and transaction-adjusted EPS1 increased 15 percent. Third quarter 2021 net earnings do not include any transaction-related adjustments. Transaction-adjusted net earnings1 and transaction adjusted EPS1 are measures the company uses to compare performance to prior periods and for EPS guidance.
Sales
Third quarter 2021 sales decreased $363m, or 4 percent, due to lower sales at Defense Systems and Missions Systems, principally due to the impact of the IT services divestiture, and lower sales at Aeronautics Systems, partially offset by 22 percent sales growth at Space Systems. Third quarter 2021 sales were affected by the impact of COVID-19 on the broader economic environment, including a tight labor market, elevated levels of employee leave, and supply chain challenges. Third quarter 2021 organic sales increased $239m, or 3 percent.
Operating Income and Margin Rate
Third quarter 2021 operating income increased $58m, or 6 percent, primarily due to lower unallocated corporate expense, including a $60m benefit related to insurance settlements, partially offset by a lower FAS/CAS operating adjustment. Third quarter 2021 operating margin rate increased to 12.0 percent reflecting a higher segment operating margin rate in addition to the items above.
Segment Operating Income and Margin Rate
Third quarter 2021 segment operating income decreased $14m, or 1 percent, due to lower sales, partially offset by a higher segment operating margin rate. Third quarter 2020 segment operating income from the IT services business was $69m. Lower operating income at Defense Systems, principally due to the impact of the IT services divestiture, and Aeronautics Systems was partially offset by higher operating income at Space Systems. Segment operating margin rate increased to 11.9 percent from 11.5 percent due to higher operating margin rates at Mission Systems, Defense Systems and Space Systems, partially offset by a lower operating margin rate at Aeronautics Systems. Federal and Foreign Income Taxes The third quarter 2021 effective tax rate increased to 16.6 percent from 15.5 percent in the prior year period primarily due to lower benefits from foreign-derived intangible income. Cash Flows Third quarter cash provided by operating activities decreased $196m from the prior year period due to $198m of federal and state taxes paid related to the IT services divestiture. Year to date 2021 cash provided by operating activities decreased $578m principally due to $588m of federal and state taxes paid related to the IT services divestiture.
Third quarter and year to date 2021 transaction-adjusted free cash flow increased $70m and $279m, respectively, due to improved trade working capital.
Awards and Backlog
Third quarter and year to date 2021 net awards totaled $6.9bn and $22.3bn, respectively, and backlog totaled $74.8bn. Significant third quarter new awards include $1.8bn for restricted programs, principally at Space and Mission Systems, $0.9bn for NASA’s Habitation and Logistics Outpost (HALO) module and $0.5bn for F-35.
Segment Operating Results
AERONAUTICS SYSTEMS
Sales
Third quarter 2021 sales decreased $189m, or 6 percent due to lower volume in both Manned Aircraft and Autonomous Systems, including restricted programs, F-35, the B-2 Defensive Management Systems Modernization program and certain Global Hawk programs. Operating Income Third quarter 2021 operating income decreased $29 m, or 10 percent, due to lower sales and a lower operating margin rate. Operating margin rate decreased to 9.7 percent from 10.1 percent principally due to a $42m unfavorable EAC adjustment on F-35 due to labor-related production inefficiencies largely driven by COVID-19-related impacts on the labor market and employee leave. This was partially offset by higher net favorable EAC adjustments at Autonomous Systems.
DEFENSE SYSTEMS
Sales
Third quarter 2021 sales decreased $450m, or 24 percent, primarily due to a $425m reduction in sales related to the IT services divestiture. Third quarter 2021 organic sales1 decreased $25m, or 2 percent, principally due to the close-out of the contract at the Army’s Lake City ammunition plant, partially offset by higher volume on several Mission Readiness programs, including the U.S. Customs and Border Protection P-3 program. Operating Income Third quarter 2021 operating income decreased $42m, or 19 percent, primarily due to the impact of the IT services divestiture. Operating margin rate increased to 12.4 percent from 11.7 percent and reflects improved performance at Battle Management and Missile Systems due to changes in mix as a result of recent contract completions, partially offset by lower net favorable EAC adjustments.
MISSION SYSTEMS
Sales Third quarter 2021 sales decreased $115m, or 5 percent, due to a $133m reduction in sales related to the IT services divestiture. Third quarter 2021 organic sales increased $18m, or 1 percent. Navigation, Targeting and Survivability sales increased primarily due to higher intercompany volume on the ramp up of the Ground Based Strategic Deterrent (GBSD) program. Maritime/Land Systems and Sensors sales increased principally due to higher volume on land systems, including the Ground/Air Task-Oriented Radar program. Networked Information Solutions sales decreased primarily due to lower volume on F-35 and restricted programs, partially offset by higher volume on the Joint Counter Radio-Controlled Improvised Explosive Device Electronic Warfare program. Operating Income Third quarter 2021 operating income was consistent with the prior year period and reflects a higher operating margin rate and lower sales. Operating margin rate increased to 15.3 percent from 14.5 percent principally due to improved performance and changes in contract mix toward more fixed-price content, largely as a result of the IT services divestiture, partially offset by lower net favorable EAC adjustments.
SPACE SYSTEMS
Sales
Third quarter 2021 sales increased $483m, or 22 percent, due to higher sales in both the Launch & Strategic Missiles and Space business areas, partially offset by a $48m reduction in sales related to the IT services divestiture. Third quarter 2021 organic sales1 increased $531m, or 25 percent. Launch & Strategic Missiles sales increased primarily due to ramp-up on development programs, such as GBSD and the Next Generation Interceptor program. Space sales were driven by higher volume on restricted programs. Operating Income Third quarter 2021 operating income increased $64m, or 29 percent, due to higher sales volume and a higher operating margin rate. Operating margin rate increased to 10.7 percent from 10.2 percent principally due to higher net favorable EAC adjustments, which were largely driven by improved performance on restricted programs.
Guidance
Financial guidance, as well as outlook, trends, expectations and other forward looking statements provided by the company for 2021 and beyond, reflect the company’s judgment based on the information available to the company at the time of this release. The company’s 2021 financial guidance and outlook beyond 2021 reflect what the company currently anticipates will be the impacts on the company from the global COVID-19 pandemic (including related effects on the broader economic environment), based on what the company understands today and what the company has experienced to date. However, the company cannot predict how the pandemic will evolve or what impact it will continue to have, and there can be no assurance that the company’s underlying assumptions are correct. As discussed more fully in the company’s Form 10-K and in the recent Form 10-Q, and among other factors, disruptions to the company’s operations or those of its customers, supply chain challenges, effects on the labor market and our workforce, vaccine mandates and other evolving government requirements, additional liabilities, disruptions in the financial markets and inflation, and impacts on programs or payments relating to the global COVID-19 pandemic, today and as it may evolve, can be expected to affect the company’s ability to achieve guidance or meet expectations. In addition, the government budget, appropriations and procurement priorities and processes can impact our customers, programs and financial results. These priorities and processes, including the timing of appropriations and the occurrence of an extended continuing resolution and/or prolonged government shutdown, as well as a breach of the debt ceiling, extraordinary measures taken in connection with a breach, changes in support for our programs, or changes in federal corporate tax laws and regulations, can impact the company’s ability to achieve guidance or meet expectations. Effective Jan. 30, 2021, Northrop Grumman completed the divestiture of its IT services business for approximately $3.4bn in cash.
Raytheon Technologies
26 Oct 21. Raytheon raises profit forecast on commercial aero demand.
Raytheon Technologies Corp (RTX.N) raised its forecast for full-year adjusted profit on Tuesday, as rising commercial air travel boosted demand for the aerospace and defense firm’s engines, spare parts and aftermarket services.
But in an interview with CNBC Raytheon’s Chief Executive Greg Hayes warned the U.S. aerospace and defense firm will lose “several thousand” employees after they refused COVID-19 vaccinations. Separately, Hayes, in a post-earnings conference call with analysts, said he expects U.S. President Joe Biden’s vaccine mandate to cause “some disruption” in the supply chain.
Shares fell about 1.5% in early trading.
Recovering demand for air travel with the holiday season on the horizon has helped drive demand for Raytheon’s aircraft cabin interiors and engines as the U.S. government’s decision to open its borders to vaccinated individuals from abroad points to a recovery of the wide-body aerojet aftermarket, Raytheon Chief Financial Officer Neil Mitchill told Reuters in an interview.
While the company faces supply chain challenges among its 13,000 suppliers, Mitchill said “it comes down to some very acute issues” with labor shortages having some impact.
“We’re seeing some shortfalls in electronic components, connectors, things like that. We’re not as exposed like the auto industry is to the chips,” Mitchill said.
The pandemic has crippled many companies’ ability to send and receive the parts and supplies they need to produce a wide range of products, creating shortages, reducing inventories and hammering profits.
Raytheon, whose Pratt and Whitney unit supplies aircraft engines to companies like Boeing Co (BA.N)and Airbus SE (AIR.PA), said it expects 2021 adjusted profit per share to be between $4.10 to $4.20, up from its prior forecast of $3.85 to $4.00 per share.
Hayes told Wall Street analysts that while he welcomed the commercial market rebound, he was “skeptical” that the production rate of Boeing 737s would reach 50 per month, or that Airbus A320s would reach 75 per month. Adding that Raytheon’s “5-year plans do not anticipate getting to that kind of rate by 2024 or 2025.”
The maker of Tomahawk missiles reported that net income rose to $1.39bn, or 93 cents per share, in the third quarter ended Sept. 30 from $264m, or 17 cents per share, a year earlier.
Raytheon’s quarterly revenue rose 9.9% to $16.21bn. (Source: Reuters)
26 Oct 21. Raytheon Technologies Reports Third Quarter 2021 Results; Raises 2021 Adjusted EPS Outlook.
Third quarter 2021
- Sales of $16.2bn
- GAAP EPS from continuing operations of $0.93, which included $0.33 of acquisition accounting adjustments and net significant and/or non-recurring charges
- Adjusted EPS of $1.26
- Operating cash flow from continuing operations of $1.9bn; Free cash flow of $1.5bn
- Company backlog of $156.1bn; including defense backlog of $65.0 bn
- Achieved approximately $165m of incremental RTX gross cost synergies
- Repurchased $1.0 bn of RTX shares
“Our performance this quarter clearly demonstrates our ability to capitalize on the increased demand across our commercial aerospace and defense businesses, and our intense focus on cost reduction and operational execution,” said Raytheon Technologies Chairman and Chief Executive Officer Greg Hayes.
“During the quarter, we announced strategic acquisitions that advance our technology focus areas and made significant progress on several key programs, as evidenced by the successful completion of the first flight test of a scramjet-powered Hypersonic Air-breathing Weapon Concept (HAWC) for DARPA and the U.S. Air Force. Our strong performance this year along with the positive trends in our end markets gives us the confidence to again raise our 2021 adjusted EPS outlook.”
Raytheon Technologies reported third quarter sales of $16.2bn. GAAP EPS from continuing operations was $0.93 and included $0.33 of acquisition accounting adjustments and net significant and/or non-recurring charges. This included $0.30 of acquisition accounting adjustments primarily related to intangible amortization, $0.02 related to debt extinguishment and $0.01 of restructuring. Adjusted EPS was $1.26. GAAP and adjusted EPS also included $0.16 of tax benefit from actions taken to optimize the company’s legal entity and operating structure in the quarter.
The company recorded net income from continuing operations in the third quarter of $1.4bn, which included $496m of acquisition accounting adjustments and net significant and/or nonrecurring charges. Adjusted net income was $1.9bn. Operating cash flow from continuing operations in the third quarter was $1.9bn. Capital expenditures were $433m, resulting in free cash flow of $1.5bn.
Backlog and Bookings
Backlog at the end of the third quarter was $156.1bn, of which $91.1bn was from commercial aerospace and $65.0bn was from defense.
Notable defense bookings during the quarter included:
- $962m of classified bookings at Raytheon Intelligence & Space (RIS)
- $570m for Advanced Medium-Range Air-to-Air Missile (AMRAAM) for the U.S. Air Force, Navy and international customers at Raytheon Missiles & Defense (RMD)
- $543m for two F-135 sustainment contracts at Pratt & Whitney
- $432m to provide Guidance Enhanced Missiles (GEM-T) for an international customer at RMD
- $358m for Evolved Sea Sparrow Missile (ESSM) for the U.S. Navy and international customers at RMD
- $291m for Stinger missiles for international customers at RMD
- $212m for F100 engines for an international customer at Pratt & Whitney
Segment ResultsThe company’s reportable segments are Collins Aerospace, Pratt & Whitney, Raytheon Intelligence & Space (RIS) and Raytheon Missiles & Defense (RMD).
Collins Aerospace recorded adjusted operating profit of $480 m in the quarter, up 558 percent versus the prior year. The increase in adjusted operating profit was primarily driven by drop through on higher commercial aftermarket sales volume and favorable mix. This was partially offset by the impact of the Military GPS and Space ISR divestitures.Collins Aerospace had third quarter 2021 adjusted sales of $4,592m, up 7 percent versus the prior year. The increase in sales was driven by a 38 percent increase in commercial aftermarket which more than offset a 3 percent decline in commercial OE and a 5 percent decline in military. Excluding the impact of the prior year Military GPS and Space ISR divestitures, military was down 1 percent in the quarter. The increase in commercial sales was driven primarily by the recovery of commercial air traffic which has resulted in higher flight hours, aircraft fleet utilization and narrowbody OE volume, which was partially offset by lower 787 OE volume.
| Pratt & Whitney |
Pratt & Whitney had third quarter 2021 adjusted sales of $4,725m, up 25 percent versus the prior year. The increase in sales was driven by a 56 percent increase in commercial aftermarket, a 22 percent increase in commercial OE and a 2 percent increase in military. The increase in commercial sales was primarily due to higher shop visits and related spare part sales and commercial engine deliveries principally driven by the recovery in commercial air traffic. The increase in military sales was primarily driven by growth in F-135 sustainment.
Pratt & Whitney recorded adjusted operating profit of $189m in the quarter. The increase in adjusted operating profit was primarily driven by drop through on higher commercial aftermarket sales volume, that was partially offset by higher commercial OE volume and higher SG&A and E&D expense.
| Raytheon Intelligence & Space | |||||
RIS had third quarter 2021 adjusted sales of $3,740m, in-line versus the prior year.
RIS recorded adjusted operating profit of $391m, up 12 percent versus the prior year. The increase in adjusted operating profit was primarily driven by productivity across various programs.
RMD had third quarter 2021 adjusted sales of $3,902m, up 7 percent versus prior year. The increase in sales was primarily driven by growth on an international National Advanced Surface to Air Missile System (NASAMS) program and on the Advanced Medium-Range Air-to-Air Missile (AMRAAM) program.
RMD recorded adjusted operating profit of $490m, up 14 percent versus the prior year. The increase in adjusted operating profit was driven by higher sales volume.
Raytheon Technologies updates its 2021 outlook and now anticipates the following:
Outlook for full year 2021
- Sales of ~$64.5bn, from $64.4 – $65.4bn
- Adjusted EPS of $4.10 – $4.20, from $3.85 – $4.00
- Free cash flow of ~$5.0 bn, from $4.5 – $5.0bn
28 Oct 21. Textron Inc. (NYSE: TXT) today reported third quarter 2021 income from continuing operations of $0.82 per share. Adjusted income from continuing operations, a non-GAAP measure that is defined and reconciled to GAAP in an attachment to this release, was $0.85 per share for the third quarter of 2021, compared to $0.53 per share in the third quarter of 2020.
“In the quarter, we saw solid execution, higher manufacturing margin and continued strong cash generation,” said Textron Chairman and CEO Scott C. Donnelly. “At Textron Aviation, we continued to see signs of a strong recovery in the general aviation market with a 49% increase in revenues over last year’s third quarter and a $721m increase in backlog.”
Cash Flow
Net cash provided by operating activities of continuing operations of the manufacturing group for the third quarter was $333m, compared to $368m last year. Manufacturing cash flow before pension contributions, a non-GAAP measure that is defined and reconciled to GAAP in an attachment to this release, totaled $271m for the third quarter, compared to $344m last year. Year to date, manufacturing cash flow before pension contributions totaled $851m.
In the quarter, Textron returned $299m to shareholders through share repurchases. Year to date, share repurchases totaled $586m.
Outlook
Textron now expects 2021 earnings per share from continuing operations to be in a range of $3.17 to $3.29, or $3.20 to $3.30 on an adjusted basis. Textron also expects cash flow from continuing operations of the manufacturing group before pension contributions to be in a range of $1bn to $1.1bn with planned pension contributions of about $50m.
Third Quarter Segment Results
Textron Aviation
Revenues at Textron Aviation of $1.2bn were up $386m from the third quarter of 2020, largely due to higher Citation jet volume of $290m, aftermarket volume of $62m and commercial turboprop volume of $48m.
Textron Aviation delivered 49 jets, up from 25 last year, and 35 commercial turboprops, up from 21 last year.
Segment profit was $98m in the third quarter, up $127m from a year ago, largely due to the higher volume and mix of $96m and favorable pricing, net of inflation of $22m.
Textron Aviation backlog at the end of the third quarter was $3.5bn.
Bell
Bell revenues were $769m, down $24m from last year, largely reflecting lower military revenues.
Bell delivered 33 commercial helicopters in the quarter, down from 41 last year.
Segment profit of $105m was down $14m, primarily due to lower military revenues.
Bell backlog at the end of the third quarter was $4.1bn.
Textron Systems
Revenues at Textron Systems were $299m, down $3m from last year’s third quarter due to lower volume of $39m in the Air Systems product line which primarily reflected the impact from the U.S. Army’s withdrawal from Afghanistan on the product line’s fee-for-service contracts, partially offset by higher volume in the Other product line.
Segment profit of $45m was up $5m from a year ago, largely due to a favorable impact from performance and other.
Textron Systems’ backlog at the end of the third quarter was $2.2bn.
Industrial
Industrial revenues were $730m, down $102m from last year, reflecting lower volume and mix of $156m, largely in the Fuel Systems and Functional Components product line reflecting order disruptions related to the global auto OEM supply chain shortages, partially offset by a favorable impact of $44m from pricing, largely in the Specialized Vehicles product line.
Segment profit of $23m was down $35m from the third quarter of 2020, primarily due to the lower volume and mix described above partially offset by higher pricing, net of inflation in the Specialized Vehicles product line.
Finance
Finance segment revenues were $11m, and profit was $8m.