Harris Corp. [HRS] on Tuesday posted strong second quarter results, continuing momentum from the first quarter, leading the company to increase its top and bottom line guidance for fiscal year 2019.
Net income soared 72 percent to $225 million, $1.88 earnings per share (EPS), from $131 million ($1.08 EPS) a year ago. Total operating margin was 13.5 percent versus 8.5 percent a year ago.
Excluding charges from a year a due to deferred tax assets and an adjustment for deferred compensation, and a charge in the current quarter related to the pending acquisition of L3 Technologies [LLL] and integration costs, adjusted earnings rose 19 percent to a record $1.96 EPS, beating consensus estimates by six cents a share. Adjusted operating margin grew 1.5 percent to 19.6 percent.
The deal for L3 remains on track to close in mid-2019 even though the partial government shutdown that just ended delayed work by regulators, William Brown, chairman, president and CEO of Harris, said on the company’s earnings call. The companies are cooperating with the Justice Department’s ongoing review of the proposed merger and Harris is exploring the sales of its night vision systems business to help get the acquisition approved, he said.
Night vision systems are one of the few areas where Harris and L3 have competing products in the market place.
“As part of the regulatory process we’re moving proactively to explore the possible sale of our night vision business,” Brown said. Later in the call, he said the business is expected to range between $150 million to $160 million in sales this fiscal year with operating margin in the mid-teens.
International approvals processes in Europe are tracking as well, he said.
Sales in the quarter increased 9 percent to $1.7 billion from $1.5 billion a year ago and orders in the quarter were a robust $1.8 billion. Brown said funded backlog was up 20 percent from a year ago, although the company didn’t provide overall backlog figures.
Harris enjoyed strong performance across its business segments, driven by work for the Defense Department, international and classified programs, and public safety systems. Among the sales drivers was work on the F-35, F/A-18 and F-16 fighter aircraft, rotary wing systems, night vision equipment, small and large satellites, and tactical communications.
Operating income rose on the higher sales, particularly in tactical communications systems, avionics and classified space, as well as operating efficiencies.
With strong results so far in the first half of the company’s fiscal year, Harris raised its sales and earnings. Sales are expected to be around $6.7 billion, up between 8 and 8.5 percent over fiscal year 2018 versus the prior outlook of 6 to 8 percent higher, with the Communication Systems, and Space and Intelligence Systems driving the increase. Adjusted earnings are forecast to be a dime higher than the prior outlook and fall between $7.90 and $8 EPS.
Free cash flow in the quarter was $316 million.