Raytheon Reports Solid First Quarter 2016 Results

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Raytheon Company announced net sales for the first quarter 2016 of $5.8 billion, up 9 percent compared to $5.3 billion in the first quarter 2015.

First quarter 2016 EPS from continuing operations was $1.43 compared to $1.78 in the first quarter 2015. First quarter 2016 EPS from continuing operations included, as expected, an $0.08 unfavorable impact associated with acquisition accounting adjustments related to Forcepoint, partially offset by a tax benefit of $0.05 from adopting the new accounting standard for stock compensation, which was not in the Company's prior financial outlook. First quarter 2016 EPS from continuing operations included a favorable FAS/CAS Adjustment of $0.23 compared to a favorable FAS/CAS Adjustment of $0.10 in the first quarter 2015. In addition, first quarter 2015 EPS from continuing operations included a $0.42 favorable impact for the eBorders settlement with the U.K. Home Office.

"Raytheon had a good start to 2016 with bookings, sales, EPS and cash flow ahead of our expectations in the quarter," said Thomas A. Kennedy, Raytheon Chairman and CEO. "Demand from our global customers continues to be strong, with particular strength in bookings from domestic as well as the Middle East and North Africa region."

Operating cash flow from continuing operations for the first quarter 2016 was $325 million compared to $55 million for the first quarter 2015. The increase in operating cash flow from continuing operations in the first quarter 2016 was primarily due to the timing of collections and tax payments.

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 reported, effective January 1, 2016, the Company reclassified, for all business segments, acquisition accounting adjustments such that they are no longer reported within the business segments and are instead reported in separate deferred revenue adjustment and amortization of acquired intangibles line items. In addition, as previously reported, effective January 1, 2016, the Company reorganized the IDS and IIS business segments. The business results that follow reflect the above changes.

Integrated Defense Systems (IDS) had first quarter 2016 net sales of $1,337 million, up 2 percent compared to $1,307 million in the first quarter 2015. The increase in net sales for the quarter was primarily driven by higher sales on certain international Patriot programs.

IDS recorded $147 million of operating income in the first quarter 2016 compared to $183 million in the first quarter 2015. The change in operating income for the quarter was primarily driven by a $36 million unfavorable program adjustment. This program is included in one of the Company's joint ventures. As such, approximately 50 percent of the unfavorable impact is reversed on the Company's income statement on the net loss attributable to noncontrolling interest line. The adjustment is related to costs to replace or repair defective shelters built by one of our subcontractors on an international command and control program in the first quarter 2016.  The company is pursuing recovery of these costs.

During the quarter, IDS booked $191 million to provide Patriot engineering services support for U.S. and international customers and $84 million to provide advanced Patriot air and missile defense capability for the U.S. Army. IDS also booked $198 million on a classified program.

Intelligence, Information and Services (IIS) had first quarter 2016 net sales of $1,493 million, up 2 percent compared to $1,461 million in the first quarter 2015. The increase in net sales for the quarter was primarily driven by higher sales on cybersecurity and special missions programs.

IIS recorded $100 million of operating income in the first quarter 2016 compared to $295 million in the first quarter 2015. First quarter 2015 operating income included the favorable $181 million impact of the eBorders settlement.

During the quarter, IIS booked $301 million for a U.S. Air Force program. IIS also booked $555 million on a number of classified contracts.

Space and Airborne Systems (SAS) had first quarter 2016 net sales of $1,450 million, up 7 percent compared to $1,358 million in the first quarter 2015. The increase in net sales for the quarter was primarily driven by higher sales on classified programs, including an international program.

SAS recorded $173 million of operating income in the first quarter 2016 compared to $182 million in the first quarter 2015. The change in operating income for the quarter was primarily due to a change in program mix.

During the quarter, SAS booked over $650 million on an international classified contract and $553 million on the Joint Polar Satellite System (JPSS) program for NASA. SAS also booked $470 million on a number of domestic classified contracts.

Shortly after the quarter close, SAS received a $1.0 billion award on the Next Generation Jammer (NGJ) program for the U.S. Navy.

Forcepoint had first quarter 2016 net sales of $136 million compared to $24 million in the first quarter 2015. Forcepoint recorded $14 million of operating income in the first quarter 2016. The increase in net sales and operating income for the quarter was primarily due to the acquisitions of Websense in May 2015 and Stonesoft in January 2016.

About Raytheon

Raytheon Company, with 2015 sales of $23 billion and 61,000 employees, is a technology and innovation leader specializing in defense, civil government and cybersecurity solutions. With a history of innovation spanning 94 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.