Raytheon Reports Strong First Quarter 2018 Results
Raytheon Reports Strong First Quarter 2018 Results
- Net sales of $6.3 billion, up 4.5 percent
- EPS from continuing operations of $2.20, up 27.2 percent
- Operating cash flow from continuing operations of $283 million
- Increased annual dividend by 8.8 percent, as previously announced
- Increased full-year 2018 guidance for sales and EPS
WALTHAM, Mass., April 26, 2018 /PRNewswire/ -- Raytheon Company (NYSE: RTN) today announced net sales for the first quarter 2018 of $6.3 billion, up 4.5 percent compared to $6.0 billion in the first quarter 2017. First quarter 2018 EPS from continuing operations was $2.20 compared to $1.73 in the first quarter 2017. The increase in the first quarter 2018 EPS from continuing operations was primarily driven by operational improvements and lower taxes.
"We delivered strong operating performance in the first quarter with our sales, earnings per share and cash flow all ahead of our expectations," said Thomas A. Kennedy, Raytheon Chairman and CEO. "We continue to position the company for the future by executing our strategy and investing in advanced capabilities that align with our global customers' evolving requirements."
Operating cash flow from continuing operations for the first quarter 2018 was $283 million compared to an outflow of $41 million for the first quarter 2017. The increase in operating cash flow from continuing operations in the first quarter 2018 was primarily due to favorable collections and lower net cash taxes.
In the first quarter 2018, the company repurchased 1.9 million shares of common stock for $400 million. In addition, as previously announced, Raytheon's Board of Directors voted to increase the annual dividend rate by 8.8 percent, from $3.19 to $3.47 per share, the fourteenth consecutive annual dividend increase.
The company had bookings of $6.3 billion in the first quarter 2018, compared with $5.7 billion in the first quarter 2017.
Summary Financial Results
-------------------------
1st Quarter %
($ in millions, except per share data) 2018 2017 Change
---- ------
Bookings $6,311 $5,688 11.0%
Net Sales $6,267 $6,000 4.5%
Income from Continuing Operations attributable to
Raytheon Company $634 $503 26.0%
EPS from Continuing Operations $2.20 $1.73 27.2%
Operating Cash Flow from Continuing Operations $283 $(41)
Workdays in Fiscal Reporting Calendar 64 64
Backlog at the end of the first quarter 2018 was $38.1 billion, an increase of approximately $2.1 billion or 5.8 percent compared to the end of the first quarter 2017.
Backlog
-------
Period Ending
($ in millions) Q1 2018 Q1 2017 2017
------- ------- ----
Backlog $38,139 $36,054 $38,210
Outlook
The company has updated its financial outlook for 2018. Charts containing additional information on the company's 2018 outlook are available on the company's website.
2018 Financial Outlook
----------------------
Current Prior (1/25/18)
------- ---------------
Net Sales ($B) 26.5 - 27.0* 26.4 - 26.9
Deferred Revenue Adjustment ($M)(1) (10) (10)
Amortization of Acquired Intangibles ($M)(1) (118) (118)
FAS/CAS Operating Adjustment ($M)(2) 1,416 1,416
Retirement Benefits Non-service Expense, non-operating ($M)(2) (958) (958)
Interest Expense, net ($M) (180) - (185) (180) - (185)
Diluted Shares (M) 287 - 289 287 - 289
Effective Tax Rate ~18.0%* ~19.0%
EPS from Continuing Operations $9.70 - $9.90* $9.55 - $9.75
Operating Cash Flow from Continuing Operations ($B) 3.6 - 4.0 3.6 - 4.0
*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.
2 As previously reported, in the first quarter 2018, the company adopted the new retirement benefit standard, Accounting Standards Update 2017-07. As a result, all components of FAS pension and
postretirement benefit expense, other than service costs, were reclassified from operating income to non-operating income, with no impact to net income. The outlook above reflects this change.
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
--------------------------
1st Quarter
($ in millions) 2018 2017 % Change
---- --------
Net Sales $1,489 $1,398 7%
Operating Income $273 $212 29%
Operating Margin 18.3% 15.2%
Integrated Defense Systems (IDS) had first quarter 2018 net sales of $1,489 million, up 7 percent compared to $1,398 million in the first quarter 2017. The increase in net sales for the quarter was primarily driven by higher net sales from an international Patriot(®) program awarded in the first quarter 2018.
IDS recorded $273 million of operating income in the first quarter 2018 compared to $212 million in the first quarter 2017. The increase in operating income for the quarter was primarily driven by a favorable change in program mix and higher net program efficiencies.
During the quarter, IDS booked over $2.0 billion to provide advanced Patriot air and missile defense capabilities for the U.S. and multiple international customers, including a previously announced direct commercial contract for approximately $1.6 billion to a member of the 15-nation Patriot partnership.
Intelligence, Information and Services
--------------------------------------
1st Quarter
($ in millions) 2018 2017 % Change
---- --------
Net Sales $1,582 $1,507 5%
Operating Income $117 $111 5%
Operating Margin 7.4% 7.4%
Intelligence, Information and Services (IIS) had first quarter 2018 net sales of $1,582 million, up 5 percent compared to $1,507 million in the first quarter 2017. The increase in net sales for the quarter was primarily driven by higher net sales on classified and training programs.
IIS recorded $117 million of operating income in the first quarter 2018 compared to $111 million in the first quarter 2017.
During the quarter, IIS booked $80 million on domestic and foreign training programs in support of Warfighter FOCUS activities. IIS also booked $514 million on a number of classified contracts.
Missile Systems
---------------
1st Quarter
($ in millions) 2018 2017 % Change
---- --------
Net Sales $1,848 $1,756 5%
Operating Income $212 $216 (2)%
Operating Margin 11.5% 12.3%
Missile Systems (MS) had first quarter 2018 net sales of $1,848 million, up 5 percent compared to $1,756 million in the first quarter 2017. The increase in net sales for the quarter was primarily driven by higher net sales on classified programs.
MS recorded $212 million of operating income in the first quarter 2018 compared to $216 million in the first quarter 2017. As expected, the decrease in operating margin for the quarter was primarily due to a change in program mix.
During the quarter, MS booked $552 million for Advanced Medium-Range Air-to-Air Missiles (AMRAAM(®)) for the U.S. Air Force, U.S. Navy, and international customers; $186 million for Small Diameter Bomb II (SDB II(TM)) for the U.S. Air Force; and $114 million for Commander's Independent Thermal Viewers (CITV) for the U.S. Army and an international customer. MS also booked $130 million on a number of classified contracts.
Space and Airborne Systems
--------------------------
1st Quarter
($ in millions) 2018 2017 % Change
---- --------
Net Sales $1,568 $1,555 1%
Operating Income $193 $190 2%
Operating Margin 12.3% 12.2%
Space and Airborne Systems (SAS) had first quarter 2018 net sales of $1,568 million, up 1 percent compared to $1,555 million in the first quarter 2017.
SAS recorded $193 million of operating income in the first quarter 2018 compared to $190 million in the first quarter 2017.
During the quarter, SAS booked $87 million on the next-generation Multi-Spectral Targeting System (MTS) for the U.S. Air Force and $85 million for radar components for the U.S. Navy. SAS also booked $356 million on a number of classified contracts.
Forcepoint
----------
1st Quarter
($ in millions) 2018 2017 % Change
---- --------
Net Sales $141 $144 (2)%
Operating Income (Loss) $(7) $16 NM
Operating Margin (5.0)% 11.1%
NM = Not Meaningful
Forcepoint had first quarter 2018 net sales of $141 million compared to $144 million in the first quarter 2017.
Forcepoint recorded a loss of $7 million in the first quarter 2018 compared to operating income of $16 million in the first quarter 2017. As expected, the decrease in operating income for the quarter was primarily driven by higher operating costs.
About Raytheon
Raytheon Company, with 2017 sales of $25 billion and 64,000 employees, is a technology and innovation leader specializing in defense, civil government and cybersecurity solutions. With a history of innovation spanning 96 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 First Quarter 2018 Financial Results
Raytheon's financial results conference call will be held on Thursday, April 26, 2018 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) 270-6057 in the U.S. or (617) 213-8891 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, potential termination of contracts and performance under undefinitized contract awards; 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, 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; the ability to obtain timely U.S. government approvals for international contracts; 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, including with respect to the provisional impact of the Tax Cuts and Jobs Act of 2017; 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
First Quarter 2018
(In millions, except per share amounts)
Three Months Ended
------------------
1-Apr-18 2-Apr-17
-------- --------
Net sales $6,267 $6,000
------ ------
Operating expenses
Cost of sales 4,532 4,366
General and administrative expenses 694 686
--- ---
Total operating expenses 5,226 5,052
----- -----
Operating income 1,041 948
----- ---
Non-operating (income) expense, net
Retirement benefits non-service expense 239 207
Interest expense 47 58
Interest income (7) (5)
Other (income) expense, net 5 (7)
--- ---
Total non-operating (income) expense, net 284 253
--- ---
Income from continuing operations before taxes 757 695
Federal and foreign income taxes 133 198
--- ---
Income from continuing operations 624 497
Income (loss) from discontinued operations, net of tax (1) 3
--- ---
Net income 623 500
Less: Net income (loss) attributable to noncontrolling interests in subsidiaries (10) (6)
--- ---
Net income attributable to Raytheon Company $633 $506
==== ====
Basic earnings per share attributable to Raytheon Company common stockholders:
Income from continuing operations $2.20 $1.73
Income (loss) from discontinued operations, net of tax - 0.01
Net income 2.20 1.74
Diluted earnings per share attributable to Raytheon Company common stockholders:
Income from continuing operations $2.20 $1.73
Income (loss) from discontinued operations, net of tax - 0.01
Net income 2.19 1.74
Amounts attributable to Raytheon Company common stockholders:
Income from continuing operations $634 $503
Income (loss) from discontinued operations, net of tax (1) 3
--- ---
Net income $633 $506
==== ====
Average shares outstanding
Basic 288.5 292.5
Diluted 288.8 292.8
Attachment B
Raytheon Company
Preliminary Segment Information
First Quarter 2018
(In millions, except percentages)
Operating Income
As a Percent of Net
Sales
Net Sales Operating Income
--------- ----------------
Three Months Ended Three Months Ended Three Months Ended
1-Apr-18 2-Apr-17 1-Apr-18 2-Apr-17 1-Apr-18 2-Apr-17
-------- -------- -------- -------- -------- --------
Integrated Defense Systems $1,489 $1,398 $273 $212 18.3% 15.2%
Intelligence, Information and Services 1,582 1,507 117 111 7.4% 7.4%
Missile Systems 1,848 1,756 212 216 11.5% 12.3%
Space and Airborne Systems 1,568 1,555 193 190 12.3% 12.2%
Forcepoint 141 144 (7) 16 (5.0)% 11.1%
Eliminations (357) (350) (40) (37)
---- ---- --- ---
Total business segment 6,271 6,010 748 708 11.9% 11.8%
Acquisition Accounting Adjustments (4) (10) (33) (42)
FAS/CAS Operating Adjustment - - 354 315
Corporate - - (28) (33)
--- --- --- ---
Total $6,267 $6,000 $1,041 $948 16.6% 15.8%
====== ====== ====== ====
Attachment C
Raytheon Company
Other Preliminary Information
First Quarter 2018
(In millions)
Backlog 1-Apr-18 31-Dec-17
-------- ---------
Integrated Defense Systems $10,160 $9,186
Intelligence, Information and Services 6,079 6,503
Missile Systems 13,037 13,426
Space and Airborne Systems 8,414 8,611
Forcepoint 449 484
--- ---
Total backlog $38,139 $38,210
======= =======
Three Months Ended
Bookings 1-Apr-18 2-Apr-17
-------- --------
Total bookings $6,311 $5,688
====== ======
Three Months Ended
General and Administrative Expenses 1-Apr-18 2-Apr-17
-------- --------
Administrative and selling expenses $528 $523
Research and development expenses 166 163
Total general and administrative expenses $694 $686
==== ====
Cash, Cash Equivalents and Restricted Cash 1-Apr-18 31-Dec-17
-------- ---------
Cash and cash equivalents $2,748 $3,103
Restricted cash 21 12
Total cash, cash equivalents and restricted cash shown in Attachment E $2,769 $3,115
====== ======
Attachment D
Raytheon Company
Preliminary Balance Sheet Information
First Quarter 2018
(In millions)
1-Apr-18 31-Dec-17
-------- ---------
Assets
Current assets
Cash and cash equivalents $2,748 $3,103
Short-term investments - 297
Receivables, net 1,639 1,324
Contract assets 5,444 5,247
Inventories 640 594
Prepaid expenses and other current assets 489 761
--- ---
Total current assets 10,960 11,326
Property, plant and equipment, net 2,478 2,439
Goodwill 14,871 14,871
Other assets, net 2,188 2,224
Total assets $30,497 $30,860
======= =======
Liabilities, Redeemable Noncontrolling Interest and Equity
Current liabilities
Commercial paper $300 $300
Contract liabilities 2,949 2,927
Accounts payable 1,255 1,519
Accrued employee compensation 921 1,342
Other current liabilities 1,354 1,260
----- -----
Total current liabilities 6,779 7,348
Accrued retiree benefits and other long-term liabilities 8,238 8,287
Long-term debt 4,751 4,750
Redeemable noncontrolling interest 492 512
Equity
Raytheon Company stockholders' equity
Common stock 3 3
Additional paid-in capital - -
Accumulated other comprehensive loss(1) (9,095) (7,935)
Retained earnings(1) 19,329 17,895
------ ------
Total Raytheon Company stockholders' equity 10,237 9,963
Noncontrolling interests in subsidiaries - -
--- ---
Total equity 10,237 9,963
------ -----
Total liabilities, redeemable noncontrolling interest and equity $30,497 $30,860
======= =======
(1) In the first quarter 2018 we adopted ASU
2018-02, Income Statement -Reporting
Comprehensive Income (Topic 220):
Reclassification of Certain Tax Effects
from Accumulated Other Comprehensive
Income. As a result, we reclassified
$1,451 million from accumulated other
comprehensive loss to retained earnings
related to the reclassification of
stranded income tax effects of the Tax
Cuts and Jobs Act of 2017.
Attachment E
Raytheon Company
Preliminary Cash Flow Information
First Quarter 2018
(In millions)
Three Months Ended
------------------
1-Apr-18 2-Apr-17
-------- --------
Cash flows from operating activities
Net income $623 $500
(Income) loss from discontinued operations, net of tax 1 (3)
--- ---
Income from continuing operations 624 497
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 135 130
Stock-based compensation 63 57
Deferred income taxes (77) (54)
Changes in assets and liabilities
Receivables, net (314) (155)
Contract assets and contract liabilities (174) (554)
Inventories (46) 9
Prepaid expenses and other current assets 138 125
Income taxes receivable/payable 290 244
Accounts payable (167) (219)
Accrued employee compensation (420) (361)
Other current liabilities (60) (1)
Accrued retiree benefits 306 283
Other, net (15) (42)
--- ---
Net cash provided by (used in) operating activities from continuing operations 283 (41)
Net cash provided by (used in) operating activities from discontinued operations 1 -
Net cash provided by (used in) operating activities 284 (41)
--- ---
Cash flows from investing activities
Additions to property, plant and equipment (219) (86)
Proceeds from sales of property, plant and equipment - 11
Additions to capitalized internal use software (12) (16)
Purchases of short-term investments - (399)
Maturities of short-term investments 309 100
Payments for purchases of acquired companies, net of cash received - (39)
Other (1) (1)
--- ---
Net cash provided by (used in) investing activities 77 (430)
--- ----
Cash flows from financing activities
Dividends paid (230) (215)
Net borrowings (payments) on commercial paper - -
Repurchases of common stock under share repurchase programs (400) (400)
Repurchases of common stock to satisfy tax withholding obligations (72) (38)
Contribution from noncontrolling interests in Forcepoint - 8
Other (5) -
---
Net cash provided by (used in) financing activities (707) (645)
---- ----
Net increase (decrease) in cash, cash equivalents and restricted cash (346) (1,116)
Cash, cash equivalents and restricted cash at beginning of the year 3,115 3,303
Cash, cash equivalents and restricted cash at end of period $2,769 $2,187
====== ======
Raytheon Company
Global Headquarters
Waltham, Mass.
Investor Relations Contact
Kelsey DeBriyn
781.522.5141
Media Contact
Corinne Kovalsky
781.522.5899
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