Buoyed by a lower tax rate and strong bottom line operating results in three of its segments, Raytheon [RTN] on Thursday reported a hefty increase in earnings in the fourth quarter along with higher sales.

The company also posted higher earnings and sales for all of 2018 and expects more of the same in 2019, driven by record orders and backlog.

Net income in the quarter was up 117 percent to $832 million, $2.93 earnings per share (EPS), from $393 million ($1.35 EPS) a year ago, four pennies above consensus estimates. The huge increase in income was mostly due to lower taxes related to tax reform legislation that went into effect at the start of 2018 with operations accounting for the next sizeable chunk of improvement followed by a pension tailwind and lower share count.

Raytheon Chairman and CEO Tom Kennedy. Photo: Raytheon

Sales in the quarter increased 9 percent to $7.4 billion from $6.8 billion a year ago as all five of the company’s segments improved their top lines.

At the operating level, income gains were mainly driven by a double digit increase at the Intelligence, Information and Services segment due to improved efficiencies and sales, followed by improvement at Space and Airborne Systems (SAS) due to sales and a swing to profit at the Forcepoint commercial cyber security segment.

Raytheon’s top line benefited from two international Patriot air and missile defense programs awarded in 2018, classified cyber and space programs, a cyber security program for the Department of Homeland Security called DOMino, classified programs in the Missile Systems and SAS segments, and higher sales at Forcepoint.

International demand for air and missile defense systems remains strong and the U.S. Missile Defense Review released in January portends further demand for existing missile defense capabilities and new capabilities, Thomas Kennedy, Raytheon’s chairman and CEO, said on the company’s earnings call.

“So we’re very optimistic, especially in the areas of integrated air and missile defense,” he said.

Kennedy also touted the company’s classified work, which is increasing in response to advanced threats. Classified bookings in 2018 increased more than 45 percent versus 2016, reaching nearly $7 billion, while classified sales were up 19 percent and made up 19 percent of sales, achieving a record, he said.

For 2018, overall sales were a record $27.1 billion, up 7 percent from $25.3 billion in 2017, with international business accounting for 30 percent of the total. Net income for the year was $2.9 billion ($10.15 EPS), 45 percent higher than the $2 billion ($6.95 EPS) earned in 2017. Operating cash flow was a record $3.4 billion for the year.

Total operating margin for 2018 was up 10 basis points to 16.8 percent primarily due to favorable pension adjustments while segment operating margin declined 40 basis points to 12 percent on a shift to less profitable work.

Raytheon booked $32.2 billion in orders in 2018, with 31 percent of the orders from international customers. Backlog at the end of December stood at $42.4 billion, up from $38.2 billion a year ago, with about 40 percent representing international business.

With strong orders and backlog in hand, Raytheon said sales and earnings will be higher in 2019, with the top line expected to range between $28.6 billion and $29.1 billion driven by growth across its segments. Per share earnings are expected to be between $11.40 and $11.60 despite a higher tax rate.

Orders are forecast to be between $29.5 billion and $30.5 billion. Operating cash flow is expected to be between $3.9 billion and $4.1 billion.