Exelis [XLS] on Friday posted lower earnings and sales in the second quarter driven by reduced activity supporting the United States Government in Afghanistan.
The company also lowered its sales and earnings guidance for the year to account for reduced work related to Afghanistan and restructuring expenses and separation expenses related to the pending spin-off of its Mission Systems business.
Net income fell 22 percent to $61 million, 32 cents earnings per share (EPS), from $78 million (41 cents EPS). Excluding $5 million in costs associated with the pending spin-off the Mission Systems business, per share earnings were 34 cents, a penny below consensus estimates, and off 17 percent from a year ago.
Exelis said the spin-off of Mission Systems, which will be called Vectrus, is on schedule for later this summer or early fall.
Sales in the quarter fell 11 percent to just over $1.1 billion from just under $1.3 billion a year ago.
At the segment level, the decline in earnings and sales was driven by Information and Technology Services, which posted a 46 drop in operating income and 19 percent reduction in sales. Exelis said the reduced activity related to Afghanistan accounted for the sales decline while earnings were mostly impacted by favorable contract modifications a year ago that supported stronger income then.
The C4ISR segment managed slight increases in operating profit and sales on higher volumes of airborne electronic warfare equipment and counter-improvised explosive device jammer products, combined with an improved mix in favor of higher margin products and lower restructuring and pension expenses.
Sales for the year are now expected to be about $4.5 billion, down $150 million from prior guidance while adjusted earnings are pegged to be between $1.44 to $1.50 EPS versus the previous outlook $1.52 to $1.59 EPS. The margin outlook was reduced by 50 basis points to about 10.5 percent and free cash flow is expected to be around $200 million, down $50 million from earlier projections.
Orders in the quarter were $1.2 billion and funded backlog stood at $3.4 billion, up 17 percent from a year ago. Total backlog stood at $9 billion. Free cash flow was $174 million.