Raytheon [RTN] on Thursday posted lower net income in its second quarter despite a solid increase in sales largely because last year’s results included a one-time gain from a change in an international joint venture.

Net income tumbled 23 percent to $547 million, $1.89 earnings per share (EPS), from $713 million ($2.41 EPS), still topping consensus estimates by 13 cents per share. Earnings in the second quarter of 2016 benefited by $158 million (53 cents EPS) tax free gain stemming from a modification to a joint venture with France’s Thales. Raytheon’s income in the second quarter was also hit by 9 cents EPS related to the early retirement of debt.

Raytheon Chairman and CEO Tom Kennedy. Photo: Raytheon
Raytheon Chairman and CEO Tom Kennedy. Photo: Raytheon

At the operating level, Raytheon said improved performance and higher volume partially offset the declines related to the joint venture and debt retirement. Excluding the impact of the Thales joint venture, total operating margin remained level at 13.5 percent.

The company’s Forcepoint commercial cyber security segment, its smallest, posted an 80 percent drop in operating income to $2 million, driven by investments in sales and marketing. Thomas Kennedy, Raytheon’s chairman and CEO, said on the earnings call that the business remains a long-term play for the company said there are no near-term plans to divest it.

Raytheon continues to expect that Forcepoint will deliver double-digit sales and operating income growth, with prospects brightening beginning in 2018.

Sales in the quarter grew 4 percent to $6.3 billion from $6 billion a year ago, driven higher sales of Standard Missile 2 and 3 systems, Paveway laser guided bombs, an early warning radar contract with Qatar announced in February, and a domestic classified program in the Space and Airborne Systems segment. International business represented about 32 percent of sales.

Bookings in the quarter were solid at $6.5 billion, with international business accounting for 35 percent of the orders. Backlog at the end of the quarter stood at $36.2 billion, $1.2 billion higher than a year ago, with 42 percent coming from international customers.

International demand for the company’s products remains strong, Kennedy said. He highlighted a number of international opportunities, including Patriot air and missile defense systems for Poland and Romania, worth up to $5 billion and around $2 billion respectively.

A letter of agreement with Poland is expected to be signed later this year for phase one of the Patriot deal, worth over $1 billion, and the order to be received in 2018. The initial agreement with Romania is also expected later this year and be worth several hundred million dollars initially, Kennedy said. There are also additional opportunities for Patriot sales in Europe, he said.

Kennedy also praised the Trump administration for its support of industry and pursuing international sales, saying it “changes the game.” The administration’s support for American companies overseas “opens several doors for us,” adding that while the company is already successful in generating international business, it is “accelerating our ability to grow internationally.”

When Raytheon competes oversea, it’s not against other companies, Kennedy said, it’s against “other countries,” which is why the administration’s support is important.

Based on year-to-date results and a lower than expected tax rate for the year, Raytheon increased its outlook for sales, earnings and orders. Sales are projected to be between $25.1 billion and $25.6 billion, up $200 million from the prior outlook, per share earnings are pegged to be in the $7.35 to $7.45 range, a dime higher than the earlier forecast.

Bookings are now expected to be between $26 billion to $27 billion, $500 million higher than prior guidance, with about one-third to be international.