L-3 Communications [LLL] on Wednesday reported a hefty net loss in the fourth quarter due to an impairment charge related to the fair value of a business unit combined with a decline in operating income and a loss at its government services business that is being divested.

The company’s net income swung to a loss of $166 million, $2.11 earnings per share (EPS), from $263 million ($2.36 EPS) in profit a year ago, with the pre-tax charge at Logistics Solution gouging the company for $349 million ($2.93 EPS).

L-3 Chairman and CEO Michael Strianese. Photo: L-3
L-3 Chairman and CEO Michael Strianese said that the company is beginning to see benefits from is portfolio reshaping toward businesses that support organic growth and produce higher margins. Photo: L-3

Excluding the goodwill impairment charge at Logistics Solutions and some additional smaller charges, and results from the government services business being sold to CACI International [CACI], adjusted earnings from continuing operations at the company were $172 million ($2.16 EPS), in line with analysts’ estimates.

Sales in the quarter fell 3 percent to $2.9 billion from $3 billion a year ago with the decline driven by lower revenue in the Electronic Systems and Aerospace Systems segment. Orders totaled $2.6 billion.

Operating income at the Electronic and Aerospace Systems segments was also down with Communications Systems, the lone segment to post an increase in sales and profit.

Excluding businesses being divested, organic revenue climbed a percent despite sales to international and commercial customers being down 19 percent.

Overall in 2015 L-3’s dropped 5 percent to $10.5 billion and the company swung to net loss of $240 million ($2.93 EPS). Adjusted exclude discontinued operations and the various charges, earnings for the year were $566 million ($6.91 EPS).

L-3’s quarter and full-year earnings benefited from a lower share count, the result of share repurchases, and the reinstatement of the federal research and development tax credit.

L-3 left its sales guidance intact for 2016 at between $10 billion and $10.2 billion and raised its earnings forecast by 50 cents to between $7.40 and $7.60 EPS on expectations of a lower tax rate and higher segment operating margin based a pension benefit instead of expense.

Funded backlog at the end of 2015 stood at $8.4 billion, down 13 percent from $9.7 billion a year ago due to the divestiture last year of a marine systems business and an order tally below sales. Orders in 2015 were $9.9 billion. Free cash flow for the quarter was $406 million and for the year $829 million.