Exelis [XLS] on Friday posted fourth quarter financial results that saw lower income and sales as a number of charges took a bite out of earnings.
Net income dipped 8 percent to $79 million, 41 cents earnings per share (EPS), from $86 million (45 cents EPS), as significantly higher restructuring charges combined with costs related to the planned spin-off this summer of the Mission Systems group, and a tax-related related to Exelis’ spin-off from ITT Corp. [ITT] in 2011 weighed on the results.
Excluding the tax item and the costs for the pending Mission Systems separation, adjusted operating earnings the quarter were $150 million (44 cents EPS) versus $142 million (47 cents EPS) a year ago. Adjusted operating margins were 12.1 percent, up 170 basis points from a year ago.
Sales decreased 9 percent to $1.2 billion from $1.4 billion a year ago. Lower revenue at the Information and Technical Services segment was the culprit in the quarterly sales decline due to a slowing of programs in the Middle East and Afghanistan stemming from the drawdown of United States military forces in those areas. Exelis’ C4ISR Electronics and Systems segment had a modest uptick in sales.
Orders in the quarter were $921 million, with international awards accounting for 20 percent, and free cash flow was $173 million.
Operating income, excluding the tax item and costs related to the Mission Systems spin-off, was up at both I&TS, and the C4ISR segments.
Overall in 2013, net income tumbled 15 percent to $281 million ($1.46 EPS) from $330 million ($1.75 EPS), as the bottom line was dinged by the restructuring, spin-off and tax costs. Adjusted net income for the year was $288 million ($1.50 EPS).
Sales fell 13 percent to $4.8 billion from $5.5 billion. Orders were a robust $5.3 billion in 2013 and free cash flow was $234 million. Total backlog stood at $9.4 billion at the end of 2013 versus $9.5 billion a year ago.
Exelis expects sales to continue down in 2014, with the company offering guidance of about $4.6 billion as lower domestic defense sales will be partially offset with higher international and commercial volume. Adjusted earnings are forecast to be up at between $1.52 and $1.59 EPS. Operating margins are pegged to be around 11 percent this year and free cash flow around $250 million.
David Melcher, president and CEO of Exelis, said the company is in good shape with cash and has the flexibility to continue to repurchase stock, pay a dividend, pursue acquisitions and pay down its unfunded pension liability. That liability now stands at $1.2 billion versus $2 billion a year ago.