(Reuters) - Defense contractor Raytheon Co (RTN.N) beat analysts’ estimates for third-quarter profit on Thursday and raised its full-year forecast, helped by sales of Patriot missile defense systems and cybersecurity services.
Raytheon and other U.S. weapons makers are expected to gain from higher defense spending under U.S. President Donald Trump’s administration and stronger global demand for fighter jets and missiles.
Chief Financial Officer Toby O’Brien told Reuters in an interview on Thursday that 2019 sales are expected to grow by 6 percent to 8 percent. Wall Street analysts are expecting 6 percent, according to Refinitiv data.
Still, shares fell modestly in morning trading after the company said 2019 profit margins would be similar to 2018.
During the third quarter, O’Brien told Reuters the company had a negative 0.8 percent tax rate because of one-time research and development credits and planned pension fund contributions.
He said the tax rate for the year would be about 10.5 percent, with next year’s tax rate in the range of 17 percent to 19 percent.
During an earnings conference call with analysts, O’Brien said Raytheon could look at “options” for its commercial cybersecurity unit, Forcepoint. The unit has struggled to be profitable.
“All options are out there that we will consider at the right time,” O’Brien told Wall Street analysts.
In August, Jefferies analyst Sheila Kahyaoglu wrote that a potential spinoff of the Forcepoint unit could be valued at $3.6 billion.
Sales at Raytheon’s missile systems unit, its biggest by revenue, rose 7 percent to $2.08 billion in the third quarter.
However, operating margin for the unit — which makes weapons including medium-range air-to-air missiles, Paveway laser-guided bombs and SM-3 anti-ballistic missiles — fell by 2.1 percentage points to 12.3 percent.
Sales at the company’s intelligence, information and services business, its second biggest, rose 13 percent to $1.74 billion, boosted by higher revenue from various programs, including DOMino, which provides cybersecurity support to the U.S Department of Homeland Security.
Operating margin for the unit increased by 1.3 percentage point to 8.6 percent.
O’Brien told analysts Saudi Arabia accounted for 5 percent of revenue so far this year. Next year, Saudi business was expected to remain similar, including the expected award for TPY-2 radars for the new Saudi THAAD missile defense system.
The Trump administration and the U.S. defense industry are working to save deals in the much-touted $110 billion arms package for Saudi Arabia as concerns rise about the role of the kingdom’s leadership in the death of a prominent critic.
The Waltham, Massachusetts-based company now expects 2018 earnings from continuing operations of $10.01 to $10.11 per share, up from its previous forecast of $9.77 to $9.97.
Raytheon also forecast annual sales between $27 billion and $27.3 billion, higher than its prior expectation of $26.7 billion to $27.2 billion.
Income from continuing operations attributable to the company rose 12.4 percent to $644 million, or $2.25 per share, in the third quarter, beating Refinitiv estimates of $1.98.
Overall sales rose 8.3 percent to $6.81 billion, topping estimates for $6.70 billion.
Raytheon’s order backlog increased by 13 percent in the quarter to $41.6 billion.
Reporting by Mike Stone in Washington and Ankit Ajmera in Bengaluru; Editing by Bill Rigby and Bernadette Baum