RPT-UPDATE 2-Raytheon sees lower 2013 earnings after Q4 fall

Thu Jan 24, 2013 10:34am EST

* CFO sees strong earnings, cash flow over next three years

* Adjusted EPS of $1.47 beat analyst view of $1.31

* International sales approach 40 pct of backlog

By Andrea Shalal-Esa

WASHINGTON, Jan 24 (Reuters) - U.S. arms maker Raytheon Co on Thursday forecast a drop of up to 9 percent in adjusted earnings per share this year as it reported fourth-quarter earnings per share fell 7 percent on nearly unchanged sales.

Additional U.S. budget cuts could have a big impact on the U.S. military and the defense industry next year, but Raytheon said its international sales and focus on high-priority areas should help mitigate the effect.

Raytheon, which makes Patriot missiles and an array of other defense equipment, said adjusted earnings per share were $1.60 in the fourth quarter, down from $1.72 in the same quarter a year ago, but above the company's guidance in October.

It said operational improvements in 2011 were more heavily weighted toward the fourth quarter, making it difficult to compare the 2012 quarter.

Excluding one-time items such as early debt retirement and accounting adjustments, the company earned $1.47 per share, beating analysts, who had forecast EPS of $1.31, according to Thomson Reuters I/B/E/S.

Raytheon forecast adjusted EPS for this year of $5.65 to $5.80, which would be a decline of 6.6 percent to 9 percent from 2012, when EPS was raised by buybacks of 15.9 million shares for $825 million.

Raytheon Chief Financial Officer David Wajsgras told Reuters the company is "very confident" about its ability to generate strong earnings and cash flow over the next three years, despite its forecast for lower earnings in 2013.

He cited the company's recorded funded backlog at the end of 2012 and said international orders were approaching 40 percent of the overall total backlog, which was helping offset somewhat softer demand from the U.S. government.

An additional big order from Kuwait, which had been expected at the end of 2012, is now likely to be signed in the first quarter, he said.

Wajsgras said the company was forecasting lower earnings for 2013 because some new developmental programs in the classified arena were just kicking in, generating lower margins initially. At the same time, some higher-margin business, including a large international missile contract, will be ramping down this year.

"If you stand back and look at the three-year outlook, we are very confident in our ability to post very strong earnings and cash flow over that time point," he told Reuters.

Raytheon's revenue was nearly unchanged at $6.4 billion in the fourth quarter, but fell 1.5 percent to $24.4 billion in the full year. Sales were expected to range from $23.6 billion to $24.1 billion this year, Raytheon said.

Chief Executive William Swanson said the company's continued focus on productivity and program execution helped it achieve what he described as a solid operating performance in 2012.

The company's overall profit margin, adjusted to exclude pensions, dropped to 12.8 percent in the fourth quarter from 14.5 percent in the year-earlier period, but it edged slightly higher to 13.3 percent in the full year.

Raytheon forecast an adjusted operating margin of 12.3 percent to 12.5 percent in 2013, down somewhat from 13.3 percent in 2012 but still among the highest margins in the industry, Wajsgras said.

The company had new bookings of $7.9 billion in the fourth quarter and ended 2012 with a backlog of $36.1 billion, an increase of 2.5 percent, or $869 million, from the previous year.

The funded backlog hit a record $24.1 billion, up from $22.46 billion at the end of 2011, Raytheon said.

Raytheon said all its business units reported higher sales and operating income for the full year, except the network centric systems business and technical services, where sales and earnings were down.