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Raytheon posts higher-than-expected profit, boosts forecast

One of Raytheon's Integrated Defense buildings is seen in San Diego, California January 20, 2011. REUTERS/Mike Blake
One of Raytheon's Integrated Defense buildings is seen in San Diego, California January 20, 2011. REUTERS/Mike Blake

By Andrea Shalal-Esa

WASHINGTON (Reuters) - Raytheon Co on Thursday joined other U.S. arms makers in reporting higher-than-expected quarterly earnings and raising full-year forecasts, saying it expected to maintain strong margins and cash flow in 2014 despite an expected drop in sales.

Raytheon, maker of Patriot missile systems and a wide range of other military equipment, said it saw "tremendous opportunities" for landing several big orders later this year.

Chief Financial Officer Dave Wajsgras told Reuters he was fairly confident about Raytheon's overall business outlook and that mandatory U.S. military budget cuts required by sequestration were not hitting the defense industry as quickly as had been expected initially.

He said Raytheon's large international business, which accounts for nearly 40 percent of the company's backlog, was helping to offset the effects of the U.S. budget cuts, and he remained hopeful that U.S. lawmakers would resolve the ongoing fiscal crisis in coming months.

"We exceeded our guidance on sales, earnings and cash flow, and we've taken the year up accordingly with respect to our overall financial guidance," Wajsgras said in a telephone interview. "On a year-to-date basis, we're seeing a lot of strength versus last year."

Chief Executive Officer William Swanson told analysts on a conference call that Raytheon was planning a continuation of mandatory, across-the-board budget cuts required under sequestration next year, but added the company still expected to generate strong profits and cash flow.

"I would tell you that '14 feels a lot like '13," Swanson said. "Revenue should be down just slightly, driven by domestic. I think the margins should continue to be strong, and the company is expected to have strong cash generation."

Wajsgras said Raytheon hoped to land orders to sell a Patriot missile defense system to Kuwait and a ground-based air defense system for Oman as well as a possible Patriot sale to Qatar and some additional U.S. orders.

JPMorgan analyst Joe Nadol said quarterly results were good, but the company would have to generate a lot of business in the fourth quarter to achieve its full-year bookings forecast of $23.5 billion, plus or minus $500 million.

Raytheon shares closed 42 cents or 0.50 percent lower at $78.08 on Thursday after rising over 3 percent on Wednesday.

EARNINGS BEAT

Analysts welcomed Raytheon's results, which were largely in line with those of other big weapons makers, including Lockheed Martin Corp and Northrop Grumman Corp .

Rob Stallard of RBC Capital Markets said he was heartened by the better-than-expected performance of Raytheon's Intelligence, Information and Services (IIS) business, whose operating margin was essentially steady at 13.7 percent.

"This was a strong quarter for Raytheon operationally, especially IIS," he wrote in a note to clients.

Loren Thompson, a Virginia-based defense consultant, said Raytheon still had an edge over other contractors due to its extensive foreign market exposure, which was helping keep its profits strong even as revenues edged lower.

"Raytheon outperforms other U.S. contractors in its foreign market exposure. However, other countries are beginning to behave more aggressively in selling their weapons, and that could put pressure on margins and even market share," he said.

Wajsgras said Raytheon was confident that it would prevail in two separate protest actions filed against recent large contract awards it won from the U.S. Navy, given what he described as the company's superior technical solutions.

Swanson said Raytheon was also still ready to sell its Patriot missile defense system to Turkey if that country changed its mind about buying a rival system offered by a Chinese company that is under U.S. sanctions.

Raytheon said third-quarter income from continuing operations fell 2.8 percent to $487 million from $501 million a year earlier. Earnings per share were flat at $1.51, while analysts polled by Thomson Reuters I/B/E/S had forecast $1.33.

Sales dropped 3.4 percent to $5.8 billion.

Raytheon said it expected full-year earnings per share of $5.67 to $5.77 from continuing operations, 16 cents more than its previous forecast and up from $5.65 in 2012.

The company increased its 2013 sales forecast by $100 million to a range of $23.6 billion to $23.8 billion. That would amount to a drop of 2.5 percent to just over 3 percent from sales of $24.4 billion in 2012.

(Reporting by Andrea Shalal-Esa; Editing by Gerald E. McCormick, Lisa Von Ahn and Ken Wills)

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