Raytheon Reports Strong First Quarter 2019 Results
25 April 2019
WALTHAM, Mass., April 25, 2019 /PRNewswire/ -- Raytheon Company (NYSE: RTN) today announced net sales for the first quarter 2019 of $6.7 billion, up 7.4 percent compared to $6.3 billion in the first quarter 2018. First quarter 2019 EPS from continuing operations was $2.77 compared to $2.20 in the first quarter 2018. The increase in the first quarter 2019 EPS from continuing operations was primarily driven by operational improvements and pension-related items.
"We delivered strong operating performance in the first quarter with our company bookings, sales, earnings per share and cash flow all ahead of our expectations," said Thomas A. Kennedy, Raytheon Chairman and CEO. "The Raytheon team remains focused on driving strong execution and future growth by developing and delivering innovative solutions that address our customers' most complex challenges."
Operating cash flow from continuing operations for the first quarter 2019 was an outflow of $411 million compared to an inflow of $283 million for the first quarter 2018. The decrease in operating cash flow from continuing operations in the first quarter 2019 was primarily due to higher net cash taxes and the timing of payments. Operating cash flow from continuing operations for the first quarter 2019 was better than the company's prior guidance.
In the first quarter 2019, the company repurchased 2.8 million shares of common stock for $500 million. In addition, as previously announced, Raytheon's Board of Directors voted to increase the annual dividend rate by 8.6 percent, from $3.47 to $3.77 per share, the fifteenth consecutive annual dividend increase.
The company had bookings of $5.4 billion in the first quarter 2019, compared with $6.3 billion in the first quarter 2018.
Summary Financial Results | ||||||||
1st Quarter | % | |||||||
($ in millions, except per share data) | 2019 | 2018 | Change | |||||
Bookings | $ | 5,368 | $ | 6,311 | (14.9)% | |||
Net Sales | $ | 6,729 | $ | 6,267 | 7.4% | |||
Income from Continuing Operations attributable to Raytheon Company | $ | 781 | $ | 634 | 23.2% | |||
EPS from Continuing Operations | $ | 2.77 | $ | 2.20 | 25.9% | |||
Operating Cash Flow from Continuing Operations | $ | (411) | $ | 283 | ||||
Workdays in Fiscal Reporting Calendar | 63 | 64 | ||||||
Backlog at the end of the first quarter 2019 was $41.1 billion, an increase of $2.9 billion or 8 percent compared to the end of the first quarter 2018.
Backlog | ||||||||||||||||||||||||||||
Period Ending | ||||||||||||||||||||||||||||
($ in millions) | Q1 2019 | Q1 2018 | 2018 | |||||||||||||||||||||||||
Backlog | $ | 41,073 | $ | 38,139 | $ | 42,420 | ||||||||||||||||||||||
Outlook
The company has updated its financial outlook for 2019. Charts containing additional information on the company's 2019 outlook are available on the company's website.
2019 Financial Outlook | ||||||||||
Current | Prior (1/31/19) | |||||||||
Net Sales ($B) | 28.6 - 29.1 | 28.6 - 29.1 | ||||||||
Deferred Revenue Adjustment ($M) | (2) | (2) | ||||||||
Amortization of Acquired Intangibles ($M) | (110)* | (114) | ||||||||
FAS/CAS Operating Adjustment ($M) | 1,463 | 1,463 | ||||||||
Retirement Benefits Non-service Expense, non-operating ($M) | (726) | (726) | ||||||||
Interest Expense, net ($M) | (153) - (158) | (153) - (158) | ||||||||
Diluted Shares (M) | 279 - 281 | 279 - 281 | ||||||||
Effective Tax Rate | 17.0% - 17.5% | 17.0% - 17.5% | ||||||||
EPS from Continuing Operations | $11.40 - $11.60 | $11.40 - $11.60 | ||||||||
Operating Cash Flow from Continuing Operations ($B) | 3.9 - 4.1 | 3.9 - 4.1 | ||||||||
*Denotes change from prior guidance |
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™.
As previously announced, Wesley D. Kremer was appointed President of MS, succeeding Dr. Taylor W. Lawrence, who informed the company of his intention to retire. Additionally, Ralph H. Acaba was appointed President of IDS, succeeding Kremer. The new appointments were effective March 30, 2019.
Integrated Defense Systems | ||||||||||
1st Quarter | ||||||||||
($ in millions) | 2019 | 2018 | % Change | |||||||
Net Sales | $ | 1,550 | $ | 1,489 | 4% | |||||
Operating Income | $ | 258 | $ | 273 | (5)% | |||||
Operating Margin | 16.6% | 18.3% | ||||||||
Integrated Defense Systems (IDS) had first quarter 2019 net sales of $1,550 million, up 4 percent compared to $1,489 million in the first quarter 2018. The increase in net sales for the quarter was primarily driven by higher net sales on various Patriot® programs and a naval radar program.
IDS recorded $258 million of operating income in the first quarter 2019 compared to $273 million in the first quarter 2018. The decrease in operating income for the quarter was primarily driven by a change in mix and other performance.
During the quarter, IDS booked $418 million on the Air and Missile Defense Radar (AMDR) program for the U.S. Navy. IDS also booked $310 million to provide Patriot engineering services support and $103 million to provide advanced Patriot air and missile defense capability, both for the U.S. Army and international customers.
Intelligence, Information and Services | ||||||||||
1st Quarter | ||||||||||
($ in millions) | 2019 | 2018 | % Change | |||||||
Net Sales | $ | 1,777 | $ | 1,582 | 12% | |||||
Operating Income | $ | 187 | $ | 117 | 60% | |||||
Operating Margin | 10.5% | 7.4% | ||||||||
Intelligence, Information and Services (IIS) had first quarter 2019 net sales of $1,777 million, up 12 percent compared to $1,582 million in the first quarter 2018. The increase in net sales for the quarter was primarily driven by higher net sales on classified programs in both cyber and space.
IIS recorded $187 million of operating income in the first quarter 2019 compared to $117 million in the first quarter 2018. The increase in operating income for the quarter was primarily driven by a change in mix and other performance, which included $21 million of gains related to the consolidation, as planned, of an entity that was previously an equity investment, and $13 million of gains from asset sales.
During the quarter, IIS booked $744 million on a number of classified programs. IIS also booked $148 million on domestic and foreign training programs in support of Warfighter FOCUS activities, and $82 million to provide support for the North Warning System for the Canadian government.
Missile Systems | ||||||||||
1st Quarter | ||||||||||
($ in millions) | 2019 | 2018 | % Change | |||||||
Net Sales | $ | 2,006 | $ | 1,848 | 9% | |||||
Operating Income | $ | 190 | $ | 212 | (10)% | |||||
Operating Margin | 9.5% | 11.5% | ||||||||
Missile Systems (MS) had first quarter 2019 net sales of $2,006 million, up 9 percent compared to $1,848 million in the first quarter 2018. The increase in net sales for the quarter was spread across numerous programs.
MS recorded $190 million of operating income in the first quarter 2019 compared to $212 million in the first quarter 2018. The decrease in operating income for the quarter was primarily due to lower net program efficiencies and a change in program mix, partially offset by higher volume.
During the quarter, MS booked $102 million for Evolved Seasparrow Missiles (ESSM®) and $93 million for Rolling Airframe Missiles (RAMTM), both for the U.S. Navy and international customers. MS also booked $154 million on a number of classified contracts.
Space and Airborne Systems | ||||||||||
1st Quarter | ||||||||||
($ in millions) | 2019 | 2018 | % Change | |||||||
Net Sales | $ | 1,653 | $ | 1,568 | 5% | |||||
Operating Income | $ | 212 | $ | 193 | 10% | |||||
Operating Margin | 12.8% | 12.3% | ||||||||
Space and Airborne Systems (SAS) had first quarter 2019 net sales of $1,653 million, up 5 percent compared to $1,568 million in the first quarter 2018. The increase in net sales for the quarter was primarily driven by higher net sales on classified programs.
SAS recorded $212 million of operating income in the first quarter 2019 compared to $193 million in the first quarter 2018. The increase in operating income for the quarter was primarily due to higher volume and a favorable change in program mix and other performance.
During the quarter, SAS booked $288 million on the Advanced Synthetic Aperture Radar System (ASARS) program and $90 million for the Next Generation Overhead Persistent Infrared (Next Gen OPIR) program, both for the U.S. Air Force. SAS also booked $451 million on a number of classified contracts.
Forcepoint | |||||||||
1st Quarter | |||||||||
($ in millions) | 2019 | 2018 | % Change | ||||||
Net Sales | $ | 158 | $ | 141 | 12% | ||||
Operating Income (Loss) | $ | (9) | $ | (7) | NM | ||||
Operating Margin | (5.7)% | (5.0)% | |||||||
NM = Not Meaningful | |||||||||
Forcepoint had first quarter 2019 net sales of $158 million, up 12 percent compared to $141 million in the first quarter 2018.
Forcepoint recorded a loss of $9 million in the first quarter 2019 compared to a loss of $7 million in the first quarter 2018.
About Raytheon
Raytheon Company, with 2018 sales of $27 billion and 67,000 employees, is a technology and innovation leader specializing in defense, civil government and cybersecurity solutions. With a history of innovation spanning 97 years, Raytheon provides state-of-the-art electronics, mission systems integration, C5I® 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 2019 Financial Results
Raytheon's financial results conference call will be held on Thursday, April 25, 2019 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) 588-8312 in the U.S. or (409) 220-9941 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; dependence on 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 material and 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; changes in tax laws and regulations, or their interpretation; 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 2019 (In millions, except per share amounts) | |||||||||
Three Months Ended | |||||||||
31-Mar-19 | 1-Apr-18 | ||||||||
Net sales | $ | 6,729 | $ | 6,267 | |||||
Operating expenses | |||||||||
Cost of sales | 4,877 | 4,532 | |||||||
General and administrative expenses | 739 | 694 | |||||||
Total operating expenses | 5,616 | 5,226 | |||||||
Operating income | 1,113 | 1,041 | |||||||
Non-operating (income) expense, net | |||||||||
Retirement benefits non-service expense | 181 | 239 | |||||||
Interest expense | 44 | 47 | |||||||
Interest income | (13) | (7) | |||||||
Other (income) expense, net | (20) | 5 | |||||||
Total non-operating (income) expense, net | 192 | 284 | |||||||
Income from continuing operations before taxes | 921 | 757 | |||||||
Federal and foreign income taxes | 146 | 133 | |||||||
Income from continuing operations | 775 | 624 | |||||||
Income (loss) from discontinued operations, net of tax | — | (1) | |||||||
Net income | 775 | 623 | |||||||
Less: Net income (loss) attributable to noncontrolling interests in subsidiaries | (6) | (10) | |||||||
Net income attributable to Raytheon Company | $ | 781 | $ | 633 | |||||
Basic earnings per share attributable to Raytheon Company common stockholders: | |||||||||
Income from continuing operations | $ | 2.77 | $ | 2.20 | |||||
Income (loss) from discontinued operations, net of tax | — | — | |||||||
Net income | 2.77 | 2.20 | |||||||
Diluted earnings per share attributable to Raytheon Company common stockholders: | |||||||||
Income from continuing operations | $ | 2.77 | $ | 2.20 | |||||
Income (loss) from discontinued operations, net of tax | — | — | |||||||
Net income | 2.77 | 2.19 | |||||||
Amounts attributable to Raytheon Company common stockholders: | |||||||||
Income from continuing operations | $ | 781 | $ | 634 | |||||
Income (loss) from discontinued operations, net of tax | — | (1) | |||||||
Net income | $ | 781 | $ | 633 | |||||
Average shares outstanding | |||||||||
Basic | 281.9 | 288.5 | |||||||
Diluted | 282.2 | 288.8 | |||||||
Attachment B Raytheon Company Preliminary Segment Information First Quarter 2019 (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 | |||||||||||||||||||||
31-Mar-19 | 1-Apr-18 | 31-Mar-19 | 1-Apr-18 | 31-Mar-19 | 1-Apr-18 | ||||||||||||||||||
Integrated Defense Systems | $ | 1,550 | $ | 1,489 | $ | 258 | $ | 273 | 16.6% | 18.3% | |||||||||||||
Intelligence, Information and Services | 1,777 | 1,582 | 187 | 117 | 10.5% | 7.4% | |||||||||||||||||
Missile Systems | 2,006 | 1,848 | 190 | 212 | 9.5% | 11.5% | |||||||||||||||||
Space and Airborne Systems | 1,653 | 1,568 | 212 | 193 | 12.8% | 12.3% | |||||||||||||||||
Forcepoint | 158 | 141 | (9) | (7) | (5.7)% | (5.0)% | |||||||||||||||||
Eliminations | (414) | (357) | (47) | (40) | |||||||||||||||||||
Total business segment | 6,730 | 6,271 | 791 | 748 | 11.8% | 11.9% | |||||||||||||||||
Acquisition Accounting Adjustments | (1) | (4) | (28) | (33) | |||||||||||||||||||
FAS/CAS Operating Adjustment | — | — | 366 | 354 | |||||||||||||||||||
Corporate | — | — | (16) | (28) | |||||||||||||||||||
Total | $ | 6,729 | $ | 6,267 | $ | 1,113 | $ | 1,041 | 16.5% | 16.6% | |||||||||||||
Attachment C Raytheon Company Other Preliminary Information First Quarter 2019 (In millions) | ||||||||||
Backlog | 31-Mar-19 | 31-Dec-18 | ||||||||
Integrated Defense Systems | $ | 11,380 | $ | 11,557 | ||||||
Intelligence, Information and Services | 6,377 | 6,233 | ||||||||
Missile Systems | 12,664 | 13,976 | ||||||||
Space and Airborne Systems | 10,157 | 10,126 | ||||||||
Forcepoint | 495 | 528 | ||||||||
Total backlog | $ | 41,073 | $ | 42,420 | ||||||
Three Months Ended | ||||||||||
Bookings | 31-Mar-19 | 1-Apr-18 | ||||||||
Total bookings | $ | 5,368 | $ | 6,311 | ||||||
Three Months Ended | ||||||||||
General and Administrative Expenses | 31-Mar-19 | 1-Apr-18 | ||||||||
Administrative and selling expenses | $ | 544 | $ | 528 | ||||||
Research and development expenses | 195 | 166 | ||||||||
Total general and administrative expenses | $ | 739 | $ | 694 | ||||||
Cash, Cash Equivalents and Restricted Cash | 31-Mar-19 | 31-Dec-18 | ||||||||
Cash and cash equivalents | $ | 2,093 | $ | 3,608 | ||||||
Restricted cash | 12 | 16 | ||||||||
Cash, cash equivalents and restricted cash shown in Attachment E | $ | 2,105 | $ | 3,624 | ||||||
Attachment D Raytheon Company Preliminary Balance Sheet Information First Quarter 2019 (In millions) | ||||||||
31-Mar-19 | 31-Dec-18 | |||||||
Assets | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 2,093 | $ | 3,608 | ||||
Receivables, net | 1,424 | 1,648 | ||||||
Contract assets | 5,971 | 5,594 | ||||||
Inventories | 882 | 758 | ||||||
Prepaid expenses and other current assets(1) | 586 | 529 | ||||||
Total current assets | 10,956 | 12,137 | ||||||
Property, plant and equipment, net | 2,899 | 2,840 | ||||||
Operating lease right-of-use assets(1) | 816 | 805 | ||||||
Goodwill | 14,882 | 14,864 | ||||||
Other assets, net | 2,023 | 2,024 | ||||||
Total assets | $ | 31,576 | $ | 32,670 | ||||
Liabilities, Redeemable Noncontrolling Interests and Equity | ||||||||
Current liabilities | ||||||||
Commercial paper and current portion of long-term debt | $ | 800 | $ | 300 | ||||
Contract liabilities | 2,930 | 3,309 | ||||||
Accounts payable | 1,361 | 1,964 | ||||||
Accrued employee compensation | 995 | 1,509 | ||||||
Other current liabilities(1) | 1,594 | 1,381 | ||||||
Total current liabilities | 7,680 | 8,463 | ||||||
Accrued retiree benefits and other long-term liabilities(1) | 6,848 | 6,922 | ||||||
Long-term debt | 4,256 | 4,755 | ||||||
Operating lease liabilities(1) | 652 | 647 | ||||||
Redeemable noncontrolling interests | 432 | 411 | ||||||
Equity | ||||||||
Raytheon Company stockholders' equity | ||||||||
Common stock | 3 | 3 | ||||||
Additional paid-in capital | — | — | ||||||
Accumulated other comprehensive loss | (8,399) | (8,618) | ||||||
Retained earnings | 20,104 | 20,087 | ||||||
Total Raytheon Company stockholders' equity | 11,708 | 11,472 | ||||||
Noncontrolling interests in subsidiaries | — | — | ||||||
Total equity | 11,708 | 11,472 | ||||||
Total liabilities, redeemable noncontrolling interests and equity | $ | 31,576 | $ | 32,670 | ||||
(1) | In the first quarter 2019 we adopted Accounting Standards Update (ASU) 2016-02, Leases (Topic 842). As a result we recast certain amounts |
Attachment E Raytheon Company Preliminary Cash Flow Information First Quarter 2019 (In millions) | ||||||||
Three Months Ended | ||||||||
31-Mar-19 | 1-Apr-18 | |||||||
Cash flows from operating activities | ||||||||
Net income | $ | 775 | $ | 623 | ||||
(Income) loss from discontinued operations, net of tax | — | 1 | ||||||
Income from continuing operations | 775 | 624 | ||||||
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 | 140 | 135 | ||||||
Stock-based compensation | 59 | 63 | ||||||
Deferred income taxes | (44) | (77) | ||||||
Changes in assets and liabilities | ||||||||
Receivables, net | 236 | (314) | ||||||
Contract assets and contract liabilities | (731) | (174) | ||||||
Inventories | (124) | (46) | ||||||
Prepaid expenses and other current assets | (59) | 138 | ||||||
Income taxes receivable/payable | 181 | 290 | ||||||
Accounts payable | (484) | (167) | ||||||
Accrued employee compensation | (523) | (420) | ||||||
Other current liabilities | 3 | (60) | ||||||
Accrued retiree benefits | 219 | 306 | ||||||
Other, net | (59) | (15) | ||||||
Net cash provided by (used in) operating activities from continuing operations | (411) | 283 | ||||||
Net cash provided by (used in) operating activities from discontinued operations | — | 1 | ||||||
Net cash provided by (used in) operating activities | (411) | 284 | ||||||
Cash flows from investing activities | ||||||||
Additions to property, plant and equipment | (274) | (219) | ||||||
Additions to capitalized internal use software | (10) | (12) | ||||||
Maturities of short-term investments | — | 309 | ||||||
Payments for purchases of acquired companies, net of cash received | (8) | — | ||||||
Other | — | (1) | ||||||
Net cash provided by (used in) investing activities | (292) | 77 | ||||||
Cash flows from financing activities | ||||||||
Dividends paid | (245) | (230) | ||||||
Net borrowings (payments) on commercial paper | — | — | ||||||
Repurchases of common stock under share repurchase programs | (500) | (400) | ||||||
Repurchases of common stock to satisfy tax withholding obligations | (66) | (72) | ||||||
Other | (5) | (5) | ||||||
Net cash provided by (used in) financing activities | (816) | (707) | ||||||
Net increase (decrease) in cash, cash equivalents and restricted cash | (1,519) | (346) | ||||||
Cash, cash equivalents and restricted cash at beginning of the year | 3,624 | 3,115 | ||||||
Cash, cash equivalents and restricted cash at end of period | $ | 2,105 | $ | 2,769 | ||||
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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