Harris Corp. [HRS] on Tuesday posted higher first quarter net income on margin improvement, cost savings and pension income, despite a slight drop in sales.
Harris also said it has agreed to sell its CapRock Communications business to Australia-based SpeedCast International Limited for $425 million in cash as part of its portfolio reshaping plans. Harris said proceeds from the deal, which is expected to close in the first quarter of 2017, will be used to pay down debt and return cash to shareholders through stock repurchases.
CapRock provides managed satellite, terrestrial and wireless communications solutions for cruise ship and energy markets worldwide.
William Brown, chairman, president and CEO of Harris, said the company will continue to review portfolio shaping opportunities to assess which businesses are a strategic fit. Harris plans to focus its investments where its technology is a differentiator in the marketplace, Brown said on the earnings call.
Net income increased 8 percent to $160 million, $1.27 earnings per share (EPS), from $148 million ($1.18 EPS) a year ago. Excluding acquisition-related charges, earnings in the quarter were $175 million ($1.39 EPS), topping consensus per share estimates by a nickel.
Sales decreased 3 percent to just under $1.8 billion from just over $1.8 billion a year ago, with organic revenue down 2 percent.
Orders in the quarter were strong at nearly $2.1 billion for a book-to-bill ratio approaching 1.2 times sales. The backlog in Harris’ legacy tactical business stood at $467 million at the end of the quarter, down from $569 million a year ago.
At the operating level sales were down due to declines in international SINCGARS military radios, the public safety radio business, wireless products and CapRock’s energy business, which more than offset increases in an international battle management system for a customer in the Middle East, electronic warfare solutions, intelligence community business, and an instrument on a NASA satellite system.
Operating income was down at the Communications Systems segment on lower sales and mix that favored lower margin systems, while income was up at the Space and Intelligence Systems, Electronic Systems, and Critical Networks segments on strong program performance and pension income.
Harris maintained its financial guidance for FY ’17 with net income expected to be between $5.53 and $5.73 EPS and sales between $7.1 billion and $7.3 billion. Free cash flow is projected to be around $800 million.