By Andrea Shalal-Esa
WASHINGTON Jan 30 U.S. arms maker Raytheon Co
reported higher-than-expected earnings in the fourth
quarter on Thursday, although revenues fell short of estimates
with U.S. military spending in decline.
The company expected sales to drop further in 2014, but it
said operating margins, international sales and profits would
remain strong, buoyed partly by a sharp rise in pension income.
Raytheon Chief Financial Officer Dave Wajsgras said the low
point or "bottom" of U.S. military spending was likely from
mid-2013 to mid-2014, echoing similar projections from top
executives at Lockheed Martin Corp and General Dynamics
Corp, which reported earnings last week.
He said a two-year budget agreement reached by Congress last
year would help the U.S. government and arms makers plan better
for the coming year.
Raytheon said revenues were expected to drop to $22.5
billion to $23 billion in 2014 after falling 2.9 percent to
$23.7 billion in 2013.
Earnings from continuing operations were expected to rise to
$6.74 to $6.89 per share, from $5.96 in 2013, boosted by a sharp
rise in income from pension investments. Excluding pensions,
earnings per share were likely to drop to $5.76 to $5.91 per
share from $6.38 in 2013, the company said.
Wajsgras told Reuters the company's bookings exceeded sales
by 28 percent in the fourth quarter, and that trend was likely
to continue in the first half of 2014, with sales likely to show
stronger growth in the second half.
Raytheon now expects to finalize a large order from Kuwait
for a Patriot missile defense system in February, a deal valued
at $500 million to $600 million that had been expected in the
fourth quarter, Wajsgras said.
In early trading on the New York Stock Exchange, Raytheon
shares were 25 cents higher, at $88.88.
STRONG BALANCE SHEET
Chief Executive William Swanson, who will hand over the
reins to Chief Operating Officer Tom Kennedy at the end of
March, said Raytheon also expected to finalize a Patriot order
valued at over $2 billion with Qatar in the first half of 2014.
He told analysts international bookings would account for 35
percent to 40 percent of total orders in 2014, down from 43
percent in 2013, while foreign sales would account for about 30
percent of total sales, up slightly from 29 percent in 2013.
Swanson said sales were expected to remain strong in the
Middle East and Asia, but there could also be new orders from
Europe and Australia in two or three years.
Wajsgras said the company's adjusted operating margin in
2013 was 13.4 pct, the highest level seen since 2000, which
reflected efforts to cut costs by consolidating facilities and
other measures. He said margins would likely ease to 12.6-12.8
percent in 2014 as the company began work on several new
programs, which typically carry lower margins to start.
Wajsgras said strong 2013 margins were a highlight of the
year. "That bodes well for our customers because it reflects our
ability to continue to take costs out," he said.
Swanson said Raytheon's strong balance sheet put it in a
good position for possible acquisitions of low- and mid-tier
companies that are being squeezed by cuts in military spending.
But he said the company was not looking to simply buy revenue.
"Just to buy something for revenue sake, that never works,"
Swanson said. "But where it fits in, especially where we see
future growth, then that would be the case."
Raytheon reported nearly flat net profit from continuing
operations of $467 million, while earnings per share from
continuing operations rose to $1.46 from $1.41 a year earlier.
Sales fell 8.8 percent to $5.87 billion from $6.44 billion.
Analysts had expected earnings per share from continuing
operations of $1.35 on $5.95 billion in revenues, according to a
poll by Thomson Reuters I/B/E/S.
Rob Stallard, analyst with RBC Capital Markets, said the
company's guidance for 2014 was notably higher due to projected
pension income. "This should more than offset any worries about
reduced bookings, as the timing of awards is notoriously lumpy
and difficult to predict," he said.
Wajsgras said the company was investing heavily in research
and development, noting that past investments had helped the
company win big U.S. Navy contracts -- for a next-generation
electronic jammer and a next-generation radar -- in 2013.