Raytheon earnings beat Street, raises 2012 forecast

WASHINGTON Thu Oct 25, 2012 12:03pm EDT

WASHINGTON (Reuters) - Raytheon Co (RTN.N), maker of Patriot missiles, radar and other military equipment, reported higher-than-expected quarterly earnings on Thursday despite a 1 percent drop in revenues, and it raised its forecast for 2012 earnings.

Raytheon did not provide a detailed outlook for 2013, but said its high proportion of international sales and presence in priority military areas should help mitigate any impact if Congress fails to avert $500 billion in additional defense budget cuts due to start taking effect in January.

"We believe and are confident that we have the appropriate plans in place to continue to drive the business forward under any conditions and in any environment," Chief Financial Officer David Wajsgras told Reuters, citing Raytheon's broad portfolio and strong presence overseas.

Analysts welcomed what they called a solid earnings report. Raytheon shares were trading 0.25 percent higher at $55.27 around midday on the New York Stock Exchange.

Chief Executive William Swanson emphasized Raytheon's strong backlog in a call with analysts and said he expected $6 billion to $7 billion in further orders in coming months.

"Our bookings in the quarter were strong, and we have significant opportunities in both domestic and international markets," Swanson said.

He said Raytheon's strategy of expanding its international business was paying off, although the timing of foreign orders was contingent on congressional approval, a process that sometimes took longer than he liked.

Raytheon's third-quarter results were largely in line with those of other weapons makers like Lockheed Martin Corp (LMT.N) and Boeing Co (BA.N), which also beat expectations and boosted earnings per share on the strength of margins.

Raytheon's operating margin for the third quarter expanded to 13 percent from 11.8 percent a year earlier, and the company raised its operating margin forecast for the full year to between 11.8 percent to 12 percent, from an earlier range of 11.3 percent to 11.5 percent.

It also raised its forecast for 2012 earnings per share to a range of $5.36 to $5.46, from a previous $5.15 to $5.30.

Wajsgras said in the call with analysts that profit margins would remain in the same general range in coming years.

Raytheon said earnings from continuing operations rose 6.3 percent to $1.51 per share, driven largely by operational improvements and the repurchase of 2.2 million shares.

Revenue dropped nearly 1.2 percent to $6.045 billion, but bookings totaled $7.29 billion, up nearly 6 percent.

Raytheon scaled back its forecast for full year revenues to a range of $24.3 billion to $24.7 billion, from an earlier forecast of $24.5 billion to $25 billion, mainly due to the timing of expected awards for its network systems business.

Analysts polled by Thomson Reuters I/B/E/S expected, on average, $1.27 per share on revenue of $6.16 billion.

Bookings for the first nine months total led $18.61 billion, 4 percent below the year-earlier level, but Wajsgras said the company still expects to meet its target of $25 billion in bookings for the full year, plus or minus $500 million.

He said the company expects to add several more large international orders in the fourth quarter, including a command, control and communications contract, several missile deals, and a follow-on order for Patriot missiles from Kuwait.

Classified bookings rose 50 percent this year to date to around $1 billion, driven largely by orders for the company's space and airborne systems and intelligence and information systems divisions, Wajsgras said.

Raytheon increased its forecast for the full year for cash flow from continuing operations, and now expects $1.8 billion to $2 billion, up from the earlier range of $1.7 billion to $1.9 billion. Wajsgras told analysts he was comfortable with suggesting the higher end of the cash flow range for 2012 and said cash flow would be generally in the same range in 2013.

He said the company still has authorization for just under $1.5 billion in share repurchases. Raytheon has repurchased 14.1 million shares for $725 million this year to date.

Joe Nadol, analyst with JPMorgan, said the company's third-quarter performance was solid, with operating margins exceeding his estimates in every segment except network centric systems.

Wajsgras said the company might take a $30 million charge against earnings by the network centric systems business in the fourth quarter due to the possible termination of a supplier agreement, but declined to give more details.

He told analysts the charge was a "worst-case scenario" and the company was in negotiations to avoid that outcome.

(Reporting by Andrea Shalal-Esa; Editing by Jeffrey Benkoe, John Wallace and Leslie Adler)

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