Basically in line with its peers, Raytheon [RTN] yesterday posted higher first quarter earnings amid flat sales, as an extension of the federal research and development tax credit combined with a lower share count and improved operating margins raised the bottom line.
Net income increased 9 percent to $488 million, $1.49 earnings per share (EPS), versus $448 million ($1.32 EPS), topping consensus estimates of $1.28 EPS. The retroactive extension of the tax credit to all of 2012 through the end of 2013 accounted for a significant part of the earnings gain followed by stock repurchases that lowered the share count and a 10 basis point improvement in operating margins to 12 percent.
The company is maintaining a focus on cutting costs and improving efficiencies, Raytheon officials said on yesterday’s analyst call. In the past few years strategic sourcing across the company’s supply chain has saved hundreds of millions of dollars and in the past two years more than $500 million in indirect costs have been eliminated, Dave Wajsgras, Raytheon’s chief financial officer said.
Additionally, the company has reduced its facility square footage by 1.5 million square feet between 2009 and 2012 and plans to eliminate another 5 to 10 percent of floor space in the next three to five years, Wajsgras said. The company also recently consolidated its shared services functions and earlier this month reorganized into four segments from six, all part of a comprehensive effort to drive efficiencies and improve productivity going forward, he said.
Sales in the quarter edged down nearly a percent to just under $5.9 billion from just over $5.9 billion a year ago as declines at the Network Centric Systems, Intelligence and Information Systems, Technical Services, and Space and Airborne Systems segments more than offset increases at Integrated Defense Systems and Missile Systems.
International business, which made up 26 percent of sales in the quarter, was up 2 percent while domestic business was down 2 percent, Dave Wajsgras said. The company’s portfolio of global opportunities remains robust, William Swanson, Raytheon’s chairman and CEO, also said on the call.
The solid first quarter results combined with expectations for the rest of the year regarding sequestration, led Raytheon to adjust its 2013 guidance, with sales now projected to be between $23.2 billion and $23.7 billion, down $400 million from prior guidance. On the other hand, earnings from continuing operations are now projected to be a dime higher at between $5.26 and $5.41 EPS.
Bookings in the quarter were light, with just $3.6 billion in orders recorded, well below a one-to-one ration versus sales but in line with the company’s internal projections. Wajsgras said the company is forecasting a steeper bookings ramp as the year goes on with orders expected to about equal sales for 2013. He added that international bookings would be closer to 1.1 times overall sales for the year.
Backlog at the end of the quarter stood at $33.5 billion, down from $34.3 billion a year ago.
Swanson touched on Defense Secretary Chuck Hagel’s ongoing strategy review and said the department is working to be leaner, smaller, more flexible and agile and adaptable. He said with a new focus on the Asia-Pacific Region the United States will be making sure that North Korea and other countries don’t threaten our allies there. He also said there will be a focus on naval forces and a repositioning of personnel to new areas.
Swanson said that Special Operations Forces will “get more attention” because they respond “quicker” as will cyber security, in particular around the network, cyber weapons and infrastructure.