Raytheon Technologies [RTX] on Tuesday reported an increase in net income in the first quarter due to lower tax expenses and losses from discontinued operations versus a year ago and the company raised the low end of its guidance range for sales and earnings as signs of a recovery in commercial aerospace emerge.
The company adding $500 million to its share repurchase plan to $2 billion this year due stronger than expected earnings and cash flow in the quarter, Greg Hayes, CEO of Raytheon Technologies, said on a call with analysts. The company also upped its target of expected cost savings synergies by $300 million to $1.3 billion resulting from the acquisition of the former Raytheon Co. by United Technologies Corp. to create Raytheon Technologies, he said.
Net income in the quarter was $753 million, 50 cents earnings per share (EPS), versus an $83 million (10 cents EPS) loss a year ago, which included a $521 million (61 cents EPS) loss from discontinued operations. Excluding various charges in the first quarter, adjusted earnings were 90 cents EPS, eight cents above consensus estimates.
Sales in the quarter were $15.3 billion versus $11.4 billion a year ago. The top and bottom-line numbers exclude results from the company’s two legacy Raytheon Co. segments, Missiles and Defense (RMD) and Intelligence and Space (RIS) because the acquisition of Raytheon by UTC didn’t close until the start of the second quarter in 2020.
During the earnings call, Neil Mitchill, Raytheon Technologies chief financial officer, provided pro forma results for the legacy Raytheon defense businesses, which both posted higher sales but lower operating profits.
RIS reported $3.8 billion in sales, up 2 percent from a year ago, mainly due to work on airborne intelligence, surveillance and reconnaissance programs, and $388 million in operating profit, down $11 million. Operating margin was 10.3 percent.
RMD also posted $3.8 billion in sales, up 3 percent from a year ago on higher volume across the portfolio, while operating profit fell $43 million to $496 million as earnings a year ago benefited from a favorable contract settlement. Operating margin was a robust 13.1 percent.
Mitchill said that the Department of Justice is investigating four contracts awarded to Raytheon’s legacy Integrated Defense Systems segment, which is now part of RMD. Three of the contracts were awarded between 2011 and 2013 and the investigation is related to “defective pricing,” he said. The company took a reserve for its potential civil liabilities related to the investigation.
The Justice Department has also subpoenaed the company related to another contract awarded to IDS in 2017, Mitchill said, adding the company doesn’t expect the investigation to have a material financial impact.
Raytheon Technologies increased the low end of its guidance for adjusted earnings and sales for 2021 to account for the emerging recovery in the commercial aerospace market. Adjusted earning are forecast to be between $3.50 and $3.70 EPS, a 10-cent increase on the low end. The increase factors in higher-than-expected share repurchases.
Sales are projected to be between $63.9 billion and $65.4 billion, up $500 million on the low end. The forecast for organic growth this year is now 1 to 3 percent versus the prior outlook of flat to negative 3 percent.
Free cash flow in the quarte was $336 million and is still expected to be $4.5 billion for the year. Backlog at the end of the quarter stood at $147.4 billion, down 2 percent from $150.1 billion at the end of 2020. Commercial business accounted for $82.2 billion of the backlog and defense $65.2 billion.