Raytheon Beats Q4 Earnings & Revenue Estimates

Raytheon Company (RTN - Analyst Report) reported fourth-quarter 2014 earnings from continuing operations of $1.86 per share, beating the Zacks Consensus Estimate of $1.78 by 4.5%.

The reported number increased 27.4% from $1.46 per share in the year-ago quarter, mainly due to higher revenue generation. The world’s largest missile maker, Raytheon, experienced healthy demand for its products, particularly from foreign customers.

2014 earnings came in at $6.97 per share, beating the Street consensus estimate of $6.90 by 7 cents and increasing 16.9% over the prior year.

Operational Performance

The company’s revenues at $6,143 million registered a 4.7% increase year over year. The reported number came in above the Zacks Consensus Estimate of $6,060 million by 1.4%.

2014 revenues decreased 3.7% year over year to $22.8 billion but surpassed the Zacks Consensus Estimate of $22.7 billion.

New bookings in the fourth quarter were $7,109 million compared with $7,517 million in the year-ago period, reflecting a 5.4% decline. Book-to-bill was 1.16x in the quarter. Total backlog at the end of 2014 was $33.57 billion (down 0.3% year over year) while funded backlog was $23.09 billion (up 0.3%).

Total operating expenses were $5,274 million, up 2.2% year over year. Operating income of $869 million increased almost 23% year over year from $709 million.

Quarterly Segment Performance

Integrated Defense Systems (IDS): Segment revenues increased 4% year over year to $1,627 million due to higher sales from international Patriot programs. Segment operating income surged 24% year over year to $299 million.

Intelligence, Information and Services (IIS): Segment revenues were up 5% year over year to $1,538 million due to higher volume on classified programs. Operating income in the reported quarter also jumped 8% to $131 million.

Missile Systems (MS): Segment revenues increased 5% year over year to $1,719 million. Higher sales from the Advanced Medium-Range Air-to-Air Missile (AMRAAM) and Evolved Sea Sparrow Missile (ESSM) programs led to the increase. Operating income also increased 5% year over year to $212 million on higher volumes.

Space and Airborne Systems (SAS): Revenues in the quarter grew 3% year over year to $1,660 million. This was due to higher sales volume on an electronic warfare systems program. Operating income, however, declined 14% year over year to $217 million due to lower volumes.

Financial Update

Raytheon ended 2014 with cash and cash equivalents of $3,222 million, down from $3,296 million as of Dec 31, 2013. Long-term debt was $5,330 million, up from an outstanding debt of $4,734 million as of Dec 31, 2013.

Raytheon’s capital expenditure of $153 million in the reported quarter rose from $115 million a year ago. It was $326 million in 2014 compared with $280 million in 2013.

In 2014, Raytheon repurchased 7.7 million shares of common stock for $750 million.

Guidance

For 2015, Raytheon expects adjusted earnings in the range of $5.49−$5.64 per share.

Raytheon projects 2015 revenues between $22.3 billion and $22.8 billion.

It expects 2015 operating cash flow from continuing operations in the range of $2.3 billion to $2.6 billion.

At the Peers

The Pentagon’s prime contractor, Lockheed Martin Corp. (LMT - Analyst Report), posted fourth-quarter 2014 adjusted quarterly earnings of $3.01 per share, comfortably surpassing the Zacks Consensus Estimate of $2.81 by 7.1%. Earnings in the reported quarter also rose 26.5% from $2.38 per share in the year-ago quarter, led by strong operational performance and higher fighter jet demand.

General Dynamics Corporation (GD - Analyst Report) announced fourth-quarter 2014 earnings from continuing operations of $2.19 per share on a diluted basis, comfortably surpassing the Zacks Consensus Estimate of $2.10 by 4.3%. Earnings also increased 24.4% from the prior-year figure of $1.76, backed by improved operating margins.

L-3 Communications Holdings Inc. (LLL - Analyst Report) posted fourth quarter adjusted earnings of $2.27 per share, beating the Zacks Consensus Estimate of $2.19 per share by 3.7%.

Zacks Rank

Raytheon holds a Zacks Rank #3 (Hold).