Raytheon Reports Strong Q2 2016 Results

Estimated reading time: 5 minutes

Raytheon Company has announced net sales for the second quarter 2016 of $6.0 billion, up 3 percent compared to $5.8 billionin the second quarter 2015.

Second quarter 2016 EPS from continuing operations was $2.38 compared to $1.65 in the second quarter 2015.  Second quarter 2016 EPS from continuing operations included a tax-free gain of $0.53 related to the ThalesRaytheonSystems (TRS) transaction, discussed further below, which had been previously forecast in the third quarter of 2016. In addition, as expected, second quarter 2016 included a tax benefit of $0.10 from the new accounting standard for stock compensation, previously adopted in the first quarter of 2016. Second quarter 2015 EPS from continuing operations included a $0.29 favorable impact from a tax settlement. Second quarter 2016 EPS from continuing operations included a favorable FAS/CAS Adjustment of $0.24 compared to a favorable FAS/CAS Adjustment of $0.10 in the second quarter 2015.

"The Company had strong second quarter operating results, with bookings, sales, operating margin, earnings per share, and cash flow all ahead of our expectations," said Thomas A. Kennedy, Raytheon Chairman and CEO. "We begin the second half of 2016 with continued confidence in our growth outlook, and we have increased our guidance for earnings and cash flow as a result of our strong year-to-date performance."

Operating cash flow from continuing operations for the second quarter 2016 was $746 million compared to $376 million for the second quarter 2015. The increase in operating cash flow from continuing operations in the second quarter 2016 was primarily due to the timing of payments and cash taxes, as well as lower required pension contributions. The second quarter 2015 included the collection of $226 million from the eBorders settlement.

The Company had bookings of $7.1 billion in the second quarter 2016, resulting in a book-to-bill ratio of 1.18 in the quarter. Second quarter 2015 bookings were $7.6 billion. Year-to-date 2016 bookings were $13.3 billion, resulting in a book-to-bill ratio of 1.13. Year-to-date 2015 bookings were $12.1 billion.

In the second quarter 2016, the Company repurchased 1.6 million shares of common stock for $202 million. Year-to-date 2016, the Company repurchased 4.8 million shares of common stock for $602 million.

As previously announced, on June 29, 2016 the Company and Thales concluded the transaction to transition the stakeholder positions each company held in the TRS joint venture structure – with Raytheon acquiring 100 percent of the TRS U.S. operations and Thales acquiring 100 percent of the French operations. As a result of the transaction, Raytheon made a net cash payment to Thales in the amount of $90 million and recorded a tax-free gain of $158 million or $0.53 per diluted share in its second quarter financial results.

Backlog and funded backlog at the end of the second quarter 2016 was $35.3 billion and $26.1 billion, respectively, an increase for each of approximately $0.8 billion compared to the end of the second quarter 2015.

Outlook

The Company has updated its financial outlook for 2016 and increased guidance for EPS and operating cash flow from continuing operations. Charts containing additional information on the Company's 2016 outlook are available on the Company's website at www.raytheon.com/ir.

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.

Integrated Defense Systems (IDS) had second quarter 2016 net sales of $1,399 million compared to $1,565 million in the second quarter 2015.  The change in net sales for the quarter was primarily driven by the recognition of previously deferred precontract costs on an international Patriot program in the second quarter 2015. 

IDS recorded $375 million of operating income in the second quarter 2016 compared to $202 million in the second quarter 2015. The increase in operating income for the quarter was primarily driven by the TRS transaction discussed earlier, which resulted in a $158 million tax-free gain in the second quarter 2016. In addition, second quarter 2015 included a $33 million unfavorable impact related to the Air Warfare Destroyer (AWD) program.  

During the quarter, IDS booked $487 million to provide advanced Patriot air and missile defense capabilities for  Kuwait. IDS also booked $354 million on the Aegis weapon system for the U.S. Navy and international customers and $117 million for in-service support for the Collins class submarine for the Royal Australian Navy.

Intelligence, Information and Services (IIS) had second quarter 2016 net sales of $1,642 million, up 3 percent compared to $1,594 million in the second quarter 2015. The increase in net sales for the quarter was primarily driven by higher sales on cybersecurity and special missions programs.

IIS recorded $124 million of operating income in the second quarter 2016 compared to $122 million in the second quarter 2015.

During the quarter, IIS booked $574 million on domestic and foreign training programs in support of Warfighter FOCUS activities. IIS also booked $453 million on a number of classified contracts.

Missile Systems (MS) had second quarter 2016 net sales of $1,656 million, up 6 percent compared to $1,559 million in the second quarter 2015. The increase in net sales for the quarter was primarily driven by higher sales on the Paveway™ program.

MS recorded $223 million of operating income in the second quarter 2016 compared to $184 million in the second quarter 2015. The increase in operating income for the quarter was primarily driven by higher net program efficiencies and a favorable change in program mix in the second quarter 2016.

During the quarter, MS booked $298 million for AIM-9X^® Sidewinder short-range air-to-air missiles, $292 million for Paveway, $230 million for Standard Missile-3 (SM-3^®), $118 million for Evolved SeaSparrow Missiles (ESSM), and $109 million for Advanced Medium-Range Air-to-Air Missiles (AMRAAM^®), all for U.S. and international customers. MS also booked $186 million for the Woomera Mobile Range Upgrade program for the Royal Australian Air Force and $122 million for the Miniature Air Launched Decoy (MALD^®) for the U.S. Air Force.

Space and Airborne Systems (SAS) had second quarter 2016 net sales of $1,547 million, up 9 percent compared to $1,416 million in the second quarter 2015. The increase in net sales for the quarter was primarily driven by higher sales on classified programs.

SAS recorded $203 million of operating income in the second quarter 2016 compared to $195 million in the second quarter 2015. The increase in operating income for the quarter was primarily due to improved program performance and higher volume, partially offset by a change in program mix.

During the quarter, SAS booked $992 million on the Next Generation Jammer (NGJ) program for the U.S. Navy and $90 million on the next-generation Multi-Spectral Targeting System (MTS) for the U.S. Air Force. SAS also booked $424 million on a number of classified contracts.

Forcepoint had second quarter 2016 net sales of $138 million compared to $57 million in the second quarter 2015. Forcepoint recorded $7 million of operating income in the second quarter 2016 compared to a loss of $1 million in the second quarter 2015. The increase in net sales and operating income for the quarter was primarily due to the acquisition of Websense in May 2015.

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^TM products and services, sensing, effects, and mission support for customers in more than 80 countries.