By Calvin Biesecker
Raytheon [RTN] yesterday said its fourth quarter sales edged up slightly but that pension expense, a charge related to early debt retirement and a loss from discontinued operations, lowered net income.
Net income fell 9 percent to $459 million, $1.25 earnings per share (EPS), from $504 million ($1.30 EPS). Excluding the discontinued operations, earnings declined a percent to $499 million (1.37 EPS) from $504 million ($1.30 EPS). Per share earnings actually increased due to a lower share count due to the company’s stock repurchase program, handily topping consensus estimates by 22 cents EPS.
Sales in the quarter were up 3 percent to $6.9 billion from $6.7 billion, driven by growth in all of the company’s operating segments except Integrated Defense Systems (IDS).
Sales came in slightly below Raytheon’s forecast due to the ongoing Continuing Resolution that is funding the federal government at FY ’10 levels, delays in the timing of awards domestically and internationally, and to a lesser extent changes in accounting methods that impact how the company records sales, Raytheon executives said on yesterday’s earnings call.
Raytheon’s Missile Systems and Technical Services segments drove the sales gain due to higher sales on several missile programs and growth in domestic and foreign training programs in support of the U.S. Army as well as programs with the Transportation Security Administration. A number of other programs in other segments, including classified and international business, also helped boost sales.
International sales grew between 11 and 12 percent in the quarter and accounted for 23 percent of Raytheon’s $25.2 billion in sales for the year. William Swanson, Raytheon’s chairman and CEO, sees international sales growing at least in the high single digits in 2011, putting the company on track to achieve its 25 percent goal for international business. International business hasn’t peaked, he said.
Swanson also said that the company’s capabilities in cyber security are paying off with double-digit growth in sales and bookings. He said cyber programs are proceeding with “pace and cadence” and that the Defense Department has the military services and agencies “lined up” for their cyber efforts.
He expects growth in cyber to continue.
At the segment level, operating earnings climbed at Intelligence and Information Systems, Missile Systems, Network Centric Systems and Technical Services due to improved program performance, higher sales, and operational Improvements. Operating earnings fell at IDS and the Space and Airborne Systems (SAS) segments on lower sales at IDS and a change in contract mix at SAS.
Overall, in 2010, net income declined 5 percent to $1.8 billion ($4.88 EPS) from $1.9 billion ($4.89 EPS) in 2009. Sales increased a percent to $25.2 billion from $24.9 billion. Bookings and backlog were down year over year, in part due to delays in domestic and international programs as well as to the conversion of some work into indefinite delivery, indefinite quantity contracts that don’t appear on the backlog.
In 2011, Raytheon is forecasting increases in both earnings from continuing operations and sales. Per share earnings from continuing operations are expected to be between $4.83 and $4.98 versus $4.79 in 2010. Sales are expected to range between $25.5 billion and $26.3 billion, with between 23 and 25 percent coming from international customers. The company is forecasting higher pension and interest expenses and a lower share count this year.
The sales profile in 2011 is expected to be backend loaded as the impacts from the Continuing Resolution and domestic and international program delays will ease later in the year, Raytheon officials said.
Swanson said that Raytheon still has room to improve its operating margins, particularly through supply chain efficiencies as well as continued lean initiatives.