Raytheon Reports Strong Second Quarter 2017 Results
WALTHAM, Mass., July 27, 2017 /PRNewswire/ -- Raytheon Company (NYSE: RTN) today announced net sales for the second quarter 2017 of $6.3 billion, up 4.2 percent compared to $6.0 billion in the second quarter 2016. Second quarter 2017 EPS from continuing operations was $1.89 compared to $2.41 in the second quarter 2016. Second quarter 2017 EPS from continuing operations included a $0.09 charge associated with the early retirement of debt. Second quarter 2016 EPS from continuing operations included a tax-free gain of $0.53 related to the previously disclosed ThalesRaytheonSystems (TRS) transaction.
"Global customer demand for our advanced capabilities continues to drive growth, resulting in stronger than expected bookings, sales, EPS and operating cash flow for the quarter and supporting increased guidance for the year," said Thomas A. Kennedy, Raytheon Chairman and CEO. "I am very proud of the Raytheon team and our continued strong operating performance as we serve the needs of our global customers and shareholders."
Operating cash flow from continuing operations for the second quarter 2017 was $782 million compared to $746 million for the second quarter 2016.
Summary Financial Results
-------------------------
2nd Quarter % Six Months %
($ in millions, except per share data) 2017 2016 Change 2017 2016 Change
---- ------ ---- ---- ------
Bookings $6,532 $7,103 -8.0% $12,220 $13,304 -8.1%
Net Sales $6,281 $6,029 4.2% $12,281 $11,831 3.8%
Income from Continuing Operations
attributable to Raytheon Company $553(1) $718(2) -23.0% $1,056(1) $1,145(2) -7.8%
EPS from Continuing Operations $1.89(1) $2.41(2) -21.6% $3.62(1) $3.83(2) -5.5%
Operating Cash Flow from
Continuing Operations $782 $746 $741 $1,071
Workdays in Fiscal Reporting Calendar 64 64 128 129
1 Second quarter and six months 2017 Income from Continuing Operations attributable to Raytheon Company and EPS from Continuing Operations included the $25 million after-tax ($39 million pretax) and $0.09 unfavorable impact, respectively, related to the early retirement of debt in the second quarter 2017.
2 Second quarter and six months 2016 Income from Continuing Operations attributable to Raytheon Company and EPS from Continuing Operations included the tax-free gain of $158 million and $0.53 impact, respectively, for the second quarter 2016 TRS transaction.
Bookings in the second quarter 2017 were $6.5 billion compared to $7.1 billion in the second quarter 2016.
Backlog
-------
Period Ending
($ in millions) Q2 2017 Q2 2016 2016
------- ------- ----
Backlog $36,168 $35,038 $36,709
Backlog at the end of the second quarter 2017 was $36.2 billion, an increase of approximately $1.1 billion compared to the second quarter 2016.
In the second quarter 2017, the company repurchased 0.6 million shares of common stock for $100 million. Year-to-date 2017, the company repurchased 3.3 million shares of common stock for $500 million.
As previously announced, the company repurchased $591 million of debt that was due in March and December of 2018. As a result, in the second quarter of 2017, the company recorded a non-operating charge of $25 million after-tax ($39 million pretax) or $0.09 per share associated with the early retirement of this debt.
Outlook
The company has updated its financial outlook for 2017 and increased guidance for sales and EPS. Charts containing additional information on the company's 2017 outlook are available at www.raytheon.com/ir.
2017 Financial Outlook
----------------------
Current Prior (4/27/17)
------- ---------------
Net Sales ($B) 25.1 - 25.6* 24.9 - 25.4
Deferred Revenue Adjustment
($M)(1) (33) (33)
Amortization of Acquired
Intangibles ($M)(1) (127) (127)
FAS/CAS Adjustment ($M) 428 428
Interest Expense, net ($M) (196) - (201) (196) - (201)
Diluted Shares (M) ~292* 291 - 293
Effective Tax Rate ~30.5%* ~31.0%
EPS from Continuing Operations $7.35 - $7.50* $7.25 - $7.40
Operating Cash Flow from
Continuing Operations ($B) 2.8 - 3.1 2.8 - 3.1
*Denotes change from prior guidance
(1) Deferred Revenue Adjustment
and Amortization of Acquired
Intangibles represent the
unfavorable impact of the
acquisition accounting
adjustments to record acquired
deferred revenue at fair value
and the amortization of acquired
intangible assets for all
business segments.
Segment Results
The company's reportable segments are: Integrated Defense Systems (IDS); Intelligence, Information and Services (IIS); Missile Systems (MS); Space and Airborne Systems (SAS); and Forcepoint(TM).
Integrated Defense Systems
2nd Quarter Six Months
($ in
millions) 2017 2016 % Change 2017 2016 % Change
---- -------- ---- --------
Net Sales $1,462 $1,399 5% $2,860 $2,735 5%
Operating
Income(1) $245 $376 NM $457 $522 NM
Operating
Margin(1) 16.8% 26.9% 16.0% 19.1%
(1) Second quarter 2016 and six months 2016 operating income and operating margin include the $158
million tax-free gain from the second quarter TRS transaction.
NM = Not
Meaningful
Integrated Defense Systems (IDS) had second quarter 2017 net sales of $1,462 million, up 5 percent compared to $1,399 million in the second quarter 2016. The increase in net sales for the quarter was primarily driven by higher net sales on an international early warning radar program awarded in the first quarter 2017.
IDS recorded $245 million of operating income in the second quarter 2017 compared to $376 million in the second quarter 2016. The second quarter 2016 included the tax-free gain of $158 million from the TRS transaction as previously disclosed, which had an approximate 1,130 basis points (11.3 percent) impact to IDS operating margin.
During the quarter, IDS booked $364 million on the Air and Missile Defense Radar (AMDR) program for the U.S. Navy and $146 million on the Multi-Function RF System (MFRFS) program for the U.S. Army. IDS also booked $178 million on two international Patriot contracts.
Intelligence, Information and Services
2nd Quarter Six Months
($ in
millions) 2017 2016 % Change 2017 2016 % Change
---- -------- ---- --------
Net Sales $1,555 $1,587 -2% $3,062 $3,119 -2%
Operating
Income $115 $120 -4% $226 $224 1%
Operating
Margin 7.4% 7.6% 7.4% 7.2%
Intelligence, Information and Services (IIS) had second quarter 2017 net sales of $1,555 million compared to $1,587 million in the second quarter 2016.
IIS recorded $115 million of operating income in the second quarter 2017 compared to $120 million in the second quarter 2016.
During the quarter, IIS booked $374 million on domestic and foreign training programs in support of Warfighter FOCUS activities. IIS also booked $555 million on a number of classified contracts.
Missile Systems
2nd Quarter Six Months
($ in
millions) 2017 2016 % Change 2017 2016 % Change
---- -------- ---- --------
Net Sales $1,901 $1,706 11% $3,657 $3,429 7%
Operating
Income $236 $233 1% $452 $425 6%
Operating
Margin 12.4% 13.7% 12.4% 12.4%
Missile Systems (MS) had second quarter 2017 net sales of $1,901 million, up 11 percent compared to $1,706 million in the second quarter 2016. The increase in net sales for the quarter was primarily driven by higher net sales on the Standard Missile-2 (SM-2), Standard Missile-3 (SM-3(®)), and Paveway(TM) programs.
MS recorded $236 million of operating income in the second quarter 2017 compared to $233 million in the second quarter 2016. The change in operating margin was primarily due to a change in program mix.
During the quarter, MS booked $690 million for Paveway, $619 million for SM-2, $436 million for SM-3, $116 million for the Long Range Precision Fires (LRPF) Missile system, $113 million for AIM-9X Sidewinder(TM) short-range air-to-air missiles, and $90 million for Advanced Medium-Range Air-to-Air Missiles (AMRAAM(®)). MS also booked $214 million on a number of classified contracts.
Space and Airborne Systems
2nd Quarter Six Months
($ in
millions) 2017 2016 % Change 2017 2016 % Change
---- -------- ---- --------
Net Sales $1,608 $1,547 4% $3,163 $2,992 6%
Operating
Income $218 $205 6% $408 $372 10%
Operating
Margin 13.6% 13.3% 12.9% 12.4%
Space and Airborne Systems (SAS) had second quarter 2017 net sales of $1,608 million, up 4 percent compared to $1,547 million in the second quarter 2016. The increase in net sales for the quarter was primarily driven by higher net sales on a domestic classified program.
SAS recorded $218 million of operating income in the second quarter 2017 compared to $205 million in the second quarter 2016. The increase in operating income for the quarter was primarily driven by higher volume and a favorable change in mix and other performance.
During the quarter, SAS booked $91 million for radar components for the U.S. Navy. SAS also booked $137 million on a number of classified contracts.
Forcepoint
2nd Quarter Six Months
($ in
millions) 2017 2016 % Change 2017 2016 % Change
---- -------- ---- --------
Net Sales $138 $137 1% $282 $276 2%
Operating
Income $2 $10 -80% $18 $28 -36%
Operating
Margin 1.4% 7.3% 6.4% 10.1%
Forcepoint had second quarter 2017 net sales of $138 million compared to $137 million in the second quarter 2016.
Forcepoint recorded $2 million of operating income in the second quarter 2017 compared to $10 million in the second quarter 2016. The decrease in operating income for the quarter was primarily driven by planned investments in sales and marketing.
About Raytheon
Raytheon Company, with 2016 sales of $24 billion and 63,000 employees, is a technology and innovation leader specializing in defense, civil government and cybersecurity solutions. With a history of innovation spanning 95 years, Raytheon provides state-of-the-art electronics, mission systems integration, C5I(TM) products and services, sensing, effects, and mission support for customers in more than 80 countries. Raytheon is headquartered in Waltham, Massachusetts. Follow us on Twitter.
Conference Call on the Second Quarter 2017 Financial Results
Raytheon's financial results conference call will be held on Thursday, July 27, 2017 at 9 a.m. ET. Participants will include Thomas A. Kennedy, Chairman and CEO; Anthony F. O'Brien, vice president and CFO; and other company executives.
The dial-in number for the conference call will be (866) 202-3048 in the U.S. or (617) 213-8843 outside of the U.S. The conference call will also be audiocast on the Internet at www.raytheon.com/ir. Individuals may listen to the call and download charts that will be used during the call. These charts will be available for printing prior to the call.
Interested parties are encouraged to check the website ahead of time to ensure their computers are configured for the audio stream. Instructions for obtaining the free required downloadable software are posted on the site.
Disclosure Regarding Forward-looking Statements
This release and the attachments contain forward-looking statements, including information regarding the company's financial outlook, future plans, objectives, business prospects and anticipated financial performance. These forward-looking statements are not statements of historical facts and represent only the company's current expectations regarding such matters. These statements inherently involve a wide range of known and unknown risks and uncertainties. The company's actual actions and results could differ materially from what is expressed or implied by these statements. Specific factors that could cause such a difference include, but are not limited to: the company's dependence on the U.S. government for a significant portion of its business and the risks associated with U.S. government sales, including changes or shifts in defense spending due to budgetary constraints, spending cuts resulting from sequestration, a government shutdown, or otherwise, uncertain funding of programs and potential termination of contracts; difficulties in contract performance; the resolution of program terminations; the ability to procure new contracts; the risks of conducting business in foreign countries; the unpredictability of timing of international bookings; the ability to comply with extensive governmental regulation and obtain approvals, including export and import requirements such as the International Traffic in Arms Regulations and the Export Administration Regulations, anti-bribery and anti-corruption requirements including the Foreign Corrupt Practices Act, industrial cooperation agreement obligations, and procurement and other regulations; changes in government procurement practices; the impact of competition; the ability to develop products and technologies, and the impact of associated investments and costs; the ability to recruit and retain qualified personnel; the impact of potential security and cyber threats, and other disruptions; the risk that actual pension returns, discount rates or other actuarial assumptions, including the long-term return on asset assumption, are significantly different than the company's current assumptions; the risk of cost overruns, particularly for the company's fixed-price contracts; dependence on component availability, subcontractor and partner performance and key suppliers; risks of a negative government audit; risks associated with acquisitions, investments, dispositions, joint ventures and other business arrangements; the ability to grow in the government and commercial cybersecurity markets; risks of an impairment of goodwill or other intangible assets; the impact of financial markets and global economic conditions; the use of accounting estimates in the company's financial statements; the outcome of contingencies and litigation matters, including government investigations; the risk of environmental liabilities; and other factors as may be detailed from time to time in the company's public announcements and Securities and Exchange Commission filings. The company undertakes no obligation to make any revisions to the forward-looking statements contained in this release and the attachments or to update them to reflect events or circumstances occurring after the date of this release, including any acquisitions, dispositions or other business arrangements that may be announced or closed after such date.
Attachment A
Raytheon Company
Preliminary Statement of Operations Information
Second Quarter 2017
(In millions, except per share amounts)
Three Months Ended Six Months Ended
2-Jul-17 3-Jul-16 2-Jul-17 3-Jul-16
-------- -------- -------- --------
Net sales $6,281 $6,029 $12,281 $11,831
------ ------ ------- -------
Operating expenses
Cost of sales 4,685 4,362 9,215 8,803
General and administrative
expenses 747 695 1,476 1,443
Total operating expenses 5,432 5,057 10,691 10,246
----- ----- ------ ------
Operating income 849 972 1,590 1,585
--- --- ----- -----
Non-operating (income) expense, net
Interest expense 51 58 109 116
Interest income (5) (4) (10) (8)
Other (income) expense,
net 35 (1) 28 (3)
--- --- --- ---
Total non-operating
(income) expense, net 81 53 127 105
--- --- --- ---
Income from continuing
operations before taxes 768 919 1,463 1,480
Federal and foreign income
taxes 221 205 419 362
--- --- --- ---
Income from continuing
operations 547 714 1,044 1,118
Income (loss) from
discontinued operations,
net of tax - (1) 3 -
--- --- --- ---
Net income 547 713 1,047 1,118
Less: Net income (loss)
attributable to
noncontrolling interests
in subsidiaries (6) (4) (12) (27)
--- --- --- ---
Net income attributable to
Raytheon Company $553 $717 $1,059 $1,145
==== ==== ====== ======
Basic earnings per share attributable to
Raytheon Company common stockholders:
Income from continuing
operations $1.90 $2.41 $3.62 $3.84
Income (loss) from
discontinued operations,
net of tax - - 0.01 -
Net income 1.90 2.41 3.63 3.84
Diluted earnings per share attributable to
Raytheon Company common stockholders:
Income from continuing
operations $1.89 $2.41 $3.62 $3.83
Income (loss) from
discontinued operations,
net of tax - - 0.01 -
Net income 1.89 2.41 3.63 3.84
Amounts attributable to Raytheon Company
common stockholders:
Income from continuing
operations $553 $718 $1,056 $1,145
Income (loss) from
discontinued operations,
net of tax - (1) 3 -
Net income $553 $717 $1,059 $1,145
==== ==== ====== ======
Average shares outstanding
Basic 291.7 297.3 292.1 298.2
Diluted 292.0 297.6 292.4 298.6
Attachment B
Raytheon Company
Preliminary Segment Information
Second Quarter 2017
(In millions, except percentages)
Operating Income
Net Sales Operating Income As a Percent of Net Sales
--------- ---------------- -------------------------
Three Months Ended Three Months Ended Three Months Ended
2-Jul-17 3-Jul-16 2-Jul-17 3-Jul-16 2-Jul-17 3-Jul-16
-------- -------- -------- -------- -------- --------
Integrated Defense Systems $1,462 $1,399 $245 $376 16.8% 26.9%
Intelligence, Information and Services 1,555 1,587 115 120 7.4% 7.6%
Missile Systems 1,901 1,706 236 233 12.4% 13.7%
Space and Airborne Systems 1,608 1,547 218 205 13.6% 13.3%
Forcepoint 138 137 2 10 1.4% 7.3%
Eliminations (372) (326) (37) (34)
---- ---- --- ---
Total business segment 6,292 6,050 779 910 12.4% 15.0%
Acquisition Accounting Adjustments (11) (21) (42) (51)
FAS/CAS Adjustment - - 109 109
Corporate - - 3 4
--- --- --- ---
Total $6,281 $6,029 $849 $972 13.5% 16.1%
====== ====== ==== ====
Operating Income
Net Sales Operating Income As a Percent of Net Sales
--------- ---------------- -------------------------
Six Months Ended Six Months Ended Six Months Ended
2-Jul-17 3-Jul-16 2-Jul-17 3-Jul-16 2-Jul-17 3-Jul-16
-------- -------- -------- -------- -------- --------
Integrated Defense Systems $2,860 $2,735 $457 $522 16.0% 19.1%
Intelligence, Information and Services 3,062 3,119 226 224 7.4% 7.2%
Missile Systems 3,657 3,429 452 425 12.4% 12.4%
Space and Airborne Systems 3,163 2,992 408 372 12.9% 12.4%
Forcepoint 282 276 18 28 6.4% 10.1%
Eliminations (722) (673) (74) (67)
---- ---- --- ---
Total business segment 12,302 11,878 1,487 1,504 12.1% 12.7%
Acquisition Accounting Adjustments (21) (47) (84) (109)
FAS/CAS Adjustment - - 217 214
Corporate - - (30) (24)
--- --- --- ---
Total $12,281 $11,831 $1,590 $1,585 12.9% 13.4%
======= ======= ====== ======
Attachment C
Raytheon Company
Other Preliminary Information
Second Quarter 2017
(In millions)
Backlog 2-Jul-17 31-Dec-16
-------- ---------
Integrated Defense Systems $10,055 $10,159
Intelligence, Information and
Services 5,908 5,662
Missile Systems 11,382 11,568
Space and Airborne Systems 8,398 8,834
Forcepoint 425 486
--- ---
Total backlog $36,168 $36,709
======= =======
Three Months Ended Six Months Ended
Bookings 2-Jul-17 3-Jul-16 2-Jul-17 3-Jul-16
-------- -------- -------- --------
Total bookings $6,532 $7,103 $12,220 $13,304
====== ====== ======= =======
Three Months Ended Six Months Ended
General and Administrative
Expenses 2-Jul-17 3-Jul-16 2-Jul-17 3-Jul-16
-------- -------- -------- --------
Administrative and selling
expenses $547 $514 $1,105 $1,063
Research and development expenses 200 181 371 380
Total general and administrative
expenses $747 $695 $1,476 $1,443
==== ==== ====== ======
Cash, Cash Equivalents and
Restricted Cash 2-Jul-17 31-Dec-16
-------- ---------
Cash and cash equivalents $2,167 $3,303
Restricted cash 8 -
Total cash, cash equivalents and restricted cash shown in Attachment E $2,175 $3,303
====== ======
Attachment D
Raytheon Company
Preliminary Balance
Sheet Information
Second Quarter 2017
(In millions)
2-Jul-17 31-Dec-16
-------- ---------
Assets
Current assets
Cash and cash
equivalents $2,167 $3,303
Short-term investments 410 100
Receivables, net 1,560 1,163
Contract assets 5,728 5,041
Inventories 581 608
Prepaid expenses and
other current assets 491 670
--- ---
Total current assets 10,937 10,885
Property, plant and
equipment, net 2,172 2,166
Goodwill 14,827 14,788
Other assets, net 2,293 2,399
Total assets $30,229 $30,238
======= =======
Liabilities, Redeemable
Noncontrolling
Interest and Equity
Current liabilities
Commercial paper $300 $ -
Contract liabilities 2,704 2,646
Accounts payable 1,278 1,520
Accrued employee
compensation 1,179 1,234
Other current
liabilities 1,126 1,139
----- -----
Total current
liabilities 6,587 6,539
Accrued retiree
benefits and other
long-term liabilities 7,731 7,758
Long-term debt 4,747 5,335
Redeemable
noncontrolling
interest 349 449
Equity
Raytheon Company
stockholders' equity
Common stock 3 3
Additional paid-in
capital - -
Accumulated other
comprehensive loss (6,994) (7,411)
Retained earnings 17,806 17,565
------ ------
Total Raytheon Company
stockholders' equity 10,815 10,157
Noncontrolling
interests in
subsidiaries - -
--- ---
Total equity 10,815 10,157
------ ------
Total liabilities,
redeemable
noncontrolling
interest and equity $30,229 $30,238
======= =======
Attachment E
Raytheon Company
Preliminary Cash Flow Information
Second Quarter 2017
(In millions)
Six Months Ended
2-Jul-17 3-Jul-16
-------- --------
Cash flows from operating activities
Net income $1,047 $1,118
(Income) loss from discontinued operations, net of tax (3) -
--- ---
Income from continuing operations 1,044 1,118
Adjustments to reconcile to net cash provided by (used in)
operating activities from
continuing operations, net of the effect of acquisitions and
divestitures
Depreciation and amortization 263 247
Stock-based compensation 92 89
Gain on sale of equity method investment - (158)
Loss on repayment of long-term debt 39 -
Deferred income taxes (105) (53)
Changes in assets and liabilities
Receivables, net (393) (250)
Contract assets and contract liabilities (622) (492)
Inventories 27 (14)
Prepaid expenses and other current assets 112 130
Income taxes receivable/payable 99 64
Accounts payable (238) 49
Accrued employee compensation (54) (43)
Other current liabilities (25) (76)
Accrued retiree benefits 564 445
Other, net (62) 15
--- ---
Net cash provided by (used in) operating activities 741 1,071
--- -----
Cash flows from investing activities
Additions to property, plant and equipment (181) (237)
Proceeds from sales of property, plant and equipment 31 1
Additions to capitalized internal use software (33) (26)
Purchases of short-term investments (399) (472)
Maturities of short-term investments 100 599
Payments for purchases of acquired companies, net of cash
received (39) (57)
Other (1) 6
--- ---
Net cash provided by (used in) investing activities (522) (186)
---- ----
Cash flows from financing activities
Dividends paid (447) (419)
Net borrowings (payments) on commercial paper 300 -
Repayments of long-term debt (591) -
Loss on repayment of long-term debt (38) -
Repurchases of common stock under share repurchase programs (500) (602)
Repurchases of common stock to satisfy tax withholding
obligations (79) (92)
Acquisition of noncontrolling interest in RCCS LLC - (90)
Contribution from noncontrolling interests in Forcepoint 8 11
Other - (5)
---
Net cash provided by (used in) financing activities (1,347) (1,197)
------ ------
Net increase (decrease) in cash, cash equivalents and
restricted cash (1,128) (312)
Cash, cash equivalents and restricted cash at beginning of
the year 3,303 2,328
Cash, cash equivalents and restricted cash at end of period $2,175 $2,016
====== ======
Attachment F
Raytheon Company
Supplemental EPS Information
Second Quarter 2017
(In millions, except per share amounts)
Three Months Ended Six Months Ended
2-Jul-17 3-Jul-16 2-Jul-17 3-Jul-16
-------- -------- -------- --------
Per share impact of early debt
retirement (A) $0.09 $ - $0.09 $ -
Per share impact of TRS transaction
(B) - 0.53 - 0.53
--- ---- --- ----
(A) Early debt
retirement $39 $ - $39 $ -
Tax effect
(at 35%
statutory
rate) (14) - (14) -
--- --- --- ---
After-tax
impact 25 - 25 -
Diluted shares 292.0 - 292.4 -
-----
Per share
impact $0.09 $ - $0.09 $ -
=== === ===
(B) TRS
transaction $ - $158 $ - $158
Diluted
shares - 297.6 - 298.6
Per share
impact $ - $0.53 $ - $0.53
=== ===
Raytheon Company
Global Headquarters
Waltham, Mass.
Investor Relations Contact
Todd Ernst
781.522.5141
Media Contact
Corinne Kovalsky
781.522.5899
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SOURCE Raytheon Company
