L3 Reports 4% Net Sales Growth in Q4 2016

Estimated reading time: 5 minutes

L3 Technologies, Inc. today reported diluted EPS from continuing operations of $2.38 for the quarter ended December 31, 2016 (2016 fourth quarter) compared to diluted loss per share from continuing operations for the quarter ended December 31, 2015 (2015 fourth quarter) of $0.76 and adjusted diluted EPS from continuing operations for the 2015 fourth quarter of $2.16. Net sales of $2,989 million for the 2016 fourth quarter increased by 4% compared to the 2015 fourth quarter. 

“We are very pleased with our strong fourth quarter results.” said Michael T. Strianese, L3’s Chairman and Chief Executive Officer. "Our solid program execution contributed to increases in orders, sales, operating income and diluted EPS, and a book-to-bill ratio of 1.20x. Throughout the quarter, we won key contracts, and increased organic growth and margins across our businesses. We have positive momentum moving into 2017, as we remain focused on disciplined growth, contract performance and operational efficiencies to deliver value for our customers and our shareholders.” 

Fourth Quarter Results of Operations: For the 2016 fourth quarter, consolidated net sales of $2,989 million increased $118 million, or 4%, compared to the 2015 fourth quarter. Organic sales increased by 3%, or $91 million, for the 2016 fourth quarter. Organic sales exclude $30 million of sales increases related to business acquisitions and $3 million of sales declines related to business divestitures. For the 2016 fourth quarter, organic sales to the U.S. Government increased $98 million, or 5%, to $2,126 million and organic sales to international and commercial customers decreased $7 million, or 0.8%, to $833 million. 

Segment operating income for the 2016 fourth quarter increased by $39 million, or 15%, compared to the 2015 fourth quarter. Segment operating income as a percentage of sales (segment operating margin) increased by 90 basis points to 9.8% for the 2016 fourth quarter compared to 8.9% for the 2015 fourth quarter. The increase in segment operating margin was driven primarily by a lower EoTech return allowance recorded in the 2016 fourth quarter compared to the 2015 fourth quarter of $18 million and 30 basis points due to lower pension expense of $9 million. See the reportable segment results below for additional discussion of sales and operating margin trends. 

Interest expense and other for the 2016 fourth quarter includes a $2 million debt retirement charge related to the redemption on December 30, 2016 of $350 million aggregate principal amount of 1.50% Senior Notes due May 28, 2017. 

The effective tax rate for the 2016 fourth quarter was 23.5%. The effective income tax rate for the 2015 fourth quarter was not meaningful due to the goodwill impairment charges. Excluding the 2015 fourth quarter goodwill impairment charges and related income tax benefits, the effective income tax rate would have been 18.3%. The increase in the effective income tax rate during the 2016 fourth quarter was primarily driven by lower Federal Research and Experimentation (R&E) tax credits as compared to the 2015 fourth quarter. 

Diluted EPS from continuing operations increased 10% to $2.38 compared to adjusted diluted EPS of $2.16 for the 2015 fourth quarter. The 2015 fourth quarter adjusted diluted EPS from continuing operations excludes after-tax losses of: (1) $230 million, or $2.93 per share, related to goodwill impairment charges and (2) $2 million, or $0.02 per share, related to business divestitures. Diluted weighted average common shares outstanding for the 2016 fourth quarter increased by 1% compared to the 2015 fourth quarter. 

Full Year Results of Operations: For the year ended December 31, 2016, consolidated net sales of $10,511 million increased $45 million, or 0.4%, compared to the year ended December 31, 2015. Organic sales increased by $161 million, or 2%, for the year ended December 31, 2016. Organic sales exclude $209 million of sales declines related to business divestitures and $93 million of sales increases related to business acquisitions. For the year ended December 31, 2016, organic sales to the U.S. Government increased $348 million, or 5%, to $7,631 million and organic sales to international and commercial customers decreased $187 million, or 6%, to $2,787 million. 

Segment operating income for the year ended December 31, 2016 increased by $118 million, or 13%, compared to the year ended December 31, 2015. Segment operating margin increased by 110 basis points to 9.6% for the year ended December 31, 2016, compared to 8.5% for the year ended December 31, 2015. Segment operating margin increased by: (1) 100 basis points due to losses in 2015 at Aerospace Systems on international head-of-state aircraft modification contracts which did not recur and (2) 40 basis points due to lower pension expense of $45 million. These increases were partially offset by sales mix changes. See the reportable segment results below for additional discussion of sales and operating margin trends. 

Interest expense and other for the year ended December 31, 2016 includes $7 million of debt retirement charges related to the redemption of: (1)$300 million aggregate principal amount of 3.95% Senior Notes due November 15, 2016 in the second quarter of 2016 and (2) $350 millionaggregate principal amount of 1.50% Senior Notes due May 28, 2017 in the fourth quarter of 2016.

The effective tax rate for the year ended December 31, 2016 was 22.2%. The effective income tax rate for the year ended December 31, 2015was not meaningful due to the goodwill impairment charges. Excluding the goodwill impairment charges and related income tax benefits, the effective income tax rate for 2015 would have been 20.5%. The increase in the effective income tax rate was driven by lower foreign tax benefits and lower Federal R&E tax credits in 2016 compared to 2015, partially offset by a benefit of $17 million due to the early adoption of a new accounting standard related to income tax benefits from employee stock-based compensation awards. 

Diluted EPS from continuing operations increased 19% to $8.21 compared to adjusted diluted EPS of $6.91 for the year ended December 31, 2015. Adjusted diluted EPS from continuing operations for the year ended December 31, 2015 excludes after tax losses of: (1) $264 million, or$3.22 per share, related to goodwill impairment charges and (2) $20 million, or $0.25 per share, related to business divestitures. Diluted weighted average common shares outstanding for the year ended December 31, 2016 declined by 4% compared to the year ended December 31, 2015primarily due to repurchases of L3 common stock.

Orders: Funded orders for the 2016 fourth quarter increased 40% to $3,577 million compared to $2,561 million for the 2015 fourth quarter. Funded orders for the year ended December 31, 2016 increased 11% to $10,992 million compared to $9,862 million for the year ended December 31, 2015. The book-to-bill ratio was 1.20x for the 2016 fourth quarter and 1.05x for the year ended December 31, 2016. The increase in funded orders was driven primarily by new business contract awards at Electronic Systems and earlier than expected funding on existing contracts with the U.S. Department of Defense (DoD) at Aerospace Systems. Funded backlog increased 6% to $8,896 million at December 31, 2016, compared to $8,423 million at December 31, 2015. 

About L3 

Headquartered in New York City, L3 Technologies employs approximately 38,000 people worldwide and is a leading provider of a broad range of communication and electronic systems and products used on military, homeland security and commercial platforms. L3 is also a prime contractor in aerospace systems, security and detection systems and pilot training.