July 26, 2012 / 5:04 PM / in 5 years

Raytheon second-quarter profit beats view, raises forecast

WASHINGTON (Reuters) - Weapons maker Raytheon Co (RTN.N) reported higher-than-expected quarterly earnings on Thursday and raised its forecast for full-year profit despite a drop in revenue, saying it is well-positioned to weather tough U.S. budget pressures.

Raytheon, maker of Patriot missiles, radar and other military equipment, is one of the largest U.S. defense contractors, which are girding for the first downturn in defense spending in more than a decade.

Raytheon was the last of the big U.S. arms makers to report earnings this week. Most beat expectations and boosted earnings per share due to share repurchases. But sales and net earnings were weaker nearly across the board amid mounting U.S. budget pressures.

Raytheon, which just won a $925 million deal for a U.S.-Japanese missile program on Wednesday, said profit from continuing operations rose 10 percent to $472 million in the second quarter. Earnings per share from continuing operations rose to $1.41 from $1.20 a year ago. Analysts polled by Thomson Reuters I/B/E/S had estimated $1.22.

“Raytheon generated a clean 22-cent operational beat, but we believe that the market will yawn given the lack of credit it has been giving to other companies generating margin-driven beats in recent quarters,” said JP Morgan analyst Joe Nadol.

Raytheon shares traded slightly lower on Thursday afternoon, while other defense stocks edged slightly higher.

Chief Financial Officer Dave Wajsgras said the company had booked nearly $1 billion in new classified U.S. government orders in the first half of the year and expected “significant” international bookings later this year.

He said Raytheon remained concerned about $500 billion in further U.S. defense spending cuts due to take effect in January under a process known as “sequestration” -- on top of $487 billion in cuts already slated for the next decade.

But he said the company was well-prepared to weather the budget crisis, given strong and growing international demand, and its strong position in missile defense, cybersecurity and intelligence, surveillance and reconnaissance (ISR) systems.

“The strength of our overall portfolio suggests that we are well aligned with the priorities of the (Department of Defense), the classified community, and international customers,” he said. “We believe that positions us well for the future, irrespective of how things play out from a sequestration standpoint.”

On Thursday, L-3 Communications Holdings Inc (LLL.N) posted a lower quarterly profit and revenue, mainly due to the U.S. drawdown in Iraq and Afghanistan.

Raytheon Chief Executive William Swanson said his company’s results were driven by strong execution on programs and operational improvements, as well as share buybacks, and he was pressing for further improvements.

Operating margin rose to 12.4 percent in the second quarter, up from 10.8 percent a year earlier, and the company repurchased 4 million shares at a cost of $200 million, bringing total buybacks for the year to $600 million.

“Whether sequestration happens or not, it is ingrained here in our culture and you can see that reflected in our performance,” Swanson told analysts.

He said he was encouraged by strong international demand, noting that Raytheon executives hosted 30 foreign delegations and held more than 600 meetings at the Farnborough International Airshow earlier this month.

He said he expected a big order from Kuwait in August, followed by large orders from Oman and Turkey in the fourth quarter, or possibly early next year. He said many countries in the Middle East were re-examining their options given U.S. plans to pull out of Iraq and Afghanistan. Raytheon also saw promising opportunities in the Pacific region, he said.

    Raytheon, which celebrates its 90th anniversary this month, raised its forecast for earnings per share by 15 cents to $5.15-$5.30 from an earlier forecast of $5.00-$5.15.

    Sales dipped 3 percent to $5.99 billion in the second quarter, just missing analysts’ forecasts of $6.02 billion. Raytheon maintained its forecast that full-year sales would remain flat around $24.5 billion to $25 billion.

    Second-quarter sales rose at the company’s space and airborne systems division and were mostly flat elsewhere, except network centric systems (NCS) where revenue fell 15 percent and operating income dropped 28 percent. Wasjgras said the division’s performance should improve in the second half.

    Bookings fell 17 percent to $6.16 billion in the second quarter from $7.42 billion in the same quarter of 2011. Year to date, bookings totaled $11.32 billion, nearly 10 percent down from the same point last year.

    The company’s total backlog was also down, falling to $33.92 billion at the end of the second quarter, down from $34.48 billion at the same point in 2011.

    Wajsgras said bookings for the full 2012 year would likely exceed the company’s sales, with international orders accounting for 28 to 30 percent of that total.

    International orders are approaching about 40 percent of the company’s total backlog, Wajsgras told Reuters in a telephone interview after the company’s earnings release.

    In the longer term, he said strong bookings suggested the company would also continue to expand its top line.

    Raytheon shares were down 0.4 percent at $54.85 on Thursday afternoon on the New York Stock Exchange.

    Reporting By Andrea Shalal-Esa; editing by Jeffrey Benkoe, Sofina Mirza-Reid and Matthew Lewis

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