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Raytheon Company (RTN - Analyst Report) reported second quarter 2013 adjusted earnings of $1.64 per share, beating the Zacks Consensus Estimate of $1.30 by 26.1%. Earnings were also higher than the year-ago figure of $1.57 per share.  
The upside was driven by strong program execution and the ability of the company to match the security needs of its customers through premium quality products.

Operational Performance

Reported quarter revenue was $6.1 billion, up 2% year over year. The top-line surpassed the Zacks Consensus Estimate of $5.8 billion by 5.3%.

New bookings in the second quarter were $5.3 billion and the total backlog at the end of the reported period was $32.4 billion, down 4.4% year over year.

Research and development expenses were down 9.3% year over year to $176 million. Total operating expenses were $5.34 billion, up 1.7% year over year. Operating income during the quarter was $766 million, up 3.2% year over year.

Segment Performance

As announced earlier, Raytheon has started to report in four reporting segments in contrast to the six in the first quarter of 2013.

Integrated Defense Systems (IDS): Segment revenue increased 9% year over year to $1.72 billion driven by higher sales on various international air and missile defense programs.

The international programs boosted the operating income of this segment, which increased 21% year over year to $326 million.

Intelligence, Information and Services (IIS): Segment revenue was down 2% year over year to $1.57 billion.  Operating income in the reported quarter was down 5% to $131 million.

Missile Systems (MS): Segment revenue increased 7% year over year to $1.69 billion. The improvement in net sales was due to higher sales on Standard Missile-3 (SM-3) and an international Paveway program. Operating income improved nearly 2% year over year to $213 million.

Space and Airborne Systems (SAS): Revenue in the quarter declined 5% year over year to $1.62 billion. The decline in revenue was due to lower sales volume in the classified programs. Operating income also dropped 12% year over year to $216 million due to change in contract mix and lower volumes.

Financial Update

Raytheon ended the reported period with cash and cash equivalents of $2.46 billion versus $3.2 billion as of Dec 31, 2012. Long-term debt was $4.7 billion, unchanged from the debt level as of Dec. 31, 2012.

Raytheon made capital expenditure of $56 million in the reported quarter, down $11 million from the year-ago quarter. The company utilized $14 million in the reported quarter to make acquisitions.

In the second quarter Raytheon repurchased 3.4 million shares of common stock for $225 million as per its share repurchase program. Year to date, Raytheon repurchased 7.6 million shares of common stock at an average price of $59.2 per share.

Guidance

Raytheon increased the low end of its 2013 sales guidance to the range of $23.5 billion to $23.7 billion versus its prior expectation of $23.2 billion to $23.7 billion. The company raised its adjusted earnings per share guidance to a range of $6.00 to $6.10 from $5.75 to $5.90 earlier.

The company reiterated its operating cash flow from continuing operations forecast in the range of $2.1 billion to $2.3 billion for full-year 2013.

Other Company Release

Northrop Grumman Corp. (NOC - Analyst Report) reported earnings of $1.97 per share in the second quarter 2013, surpassing the Zacks Consensus Estimate of $1.70 by 15.9%.

Lockheed Martin Corporation (LMT - Analyst Report) announced second-quarter 2013 operating earnings of $2.64 per share, comfortably surpassing the Zacks Consensus Estimate of $2.21 by 19.5%.

The Boeing Company (BA - Analyst Report) reported second quarter 2013 earnings of $1.67, up 5.7% from the Zacks Consensus Estimate of $1.58 per share.

Our View

Raytheon continues to surpass earnings expectations, thanks to its consistent research and development efforts. State-of-the-art technology and missiles developed by the company allow it to have a competitive edge and ensure a continuous flow of contracts from the U.S. defense department and from its global customers.   

Towards the end of the second quarter, Raytheon made a strategic acquisition of privately held Visual Analytics Inc. This acquisition will enhance Raytheon's capabilities in the area of data analytics

However, we remain concerned about apprehensions over the sequester impact on the U.S. defense budget, the fate of high-cost programs, risks related to key project executions and order cancellations. The company presently retains a short-term Zacks Rank #3 (Hold).
 

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