Harris Corp. (HRS - Analyst Report) reported mixed financial results for the second quarter of fiscal 2014. GAAP net income from continuing operations was $137.1 million or $1.27 per share compared with a net income of $138.5 million or $1.25 per share in the year-ago quarter. Moreover, the reported earnings significantly surpassed the Zacks Consensus Estimate of $1.17 per share.
However, consolidated revenues in the reported quarter was $1,223.2 million, down 5% year over year, missing the Zacks Consensus Estimate of $1,241 million. The second quarter saw new orders of $1.47 billion against $1.36 billion in the prior quarter. The book-to-bill ratio was 1.20 for the whole quarter.
Cost of sales in the reported quarter was $795.4 million against $845.4 million in the prior-year quarter. Gross margin was 35% compared with 34.3% in the year-ago quarter. Engineering, selling & administrative expenses were $204.7 million compared with $213.1 million in the comparable year-ago quarter. Quarterly operating margin was 16.6% against 15.6% in the year-ago quarter.
During the first half of fiscal 2014, Harris generated $279.5 million of cash from operations, remaining in line with the prior-year period. Free cash flow (cash flow from operations excluding capital expenditures) in the first half of fiscal 2014 was $194.5 million against $199.6 million in the year-ago period.
At the end of the reported quarter, Harris had cash and cash equivalents of $334.4 million compared with $321 million at the end of fiscal 2013. Total debt, at the end of the second quarter was $1,581.8 million compared with $1,490.5 million at the end of fiscal 2013. The debt-to-capitalization ratio was 0.48 compared with 0.50 at the end of fiscal 2013.
Government Communications System Segment
Quarterly revenues for the segment were up 1.1% year over year to $433 million. Operating income in the quarter was $66.5 million versus $64.8 million in the prior-year quarter. Quarterly operating margin was 15.4% against 15.1% in the year-ago quarter.
RF Communications Segment
Revenues in the quarter came in at $454.6 million, down 6.5% year over year. Tactical Radio Communications and Public Safety and Professional Communications contributed roughly 70.3% and 29.7%, respectively. Operating income was $142.1 million compared with $151 million in the year-ago quarter. Quarterly operating margin was 31.3% against 31.1% in the prior-year quarter.
In the reported quarter, the segment generated orders worth $387 million from the Tactical Radio Communications business and $125 million from the Public Safety and Professional Communications business. Total order backlog in the Tactical Radio Communications segment was $730 million and in the Public Safety and Professional Communications segment was $591 million.
Integrated Network Solutions
The segment generated revenues of $365.9 million, down 9.2% year over year. Operating income in the quarter was $32.7 million compared with $32.9 million in the year-ago quarter. Quarterly operating margin was 8.9% against 8.2% in the prior-year quarter.
For fiscal 2014, Harris increased its estimation for GAAP earnings per share from continuing operation to $4.8–$4.9 from $4.65 -$4.85. However, the company maintained its projection of a 1–3% decline in revenues from fiscal 2013.
Other Stocks to Consider
Harris currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the Wireless Equipment sector are ShoreTel, Inc. (SHOR - Snapshot Report), Sierra Wireless Inc. (SWIR - Snapshot Report) and Comtech Telecommunications Corp. (CMTL - Snapshot Report). All three stocks have a Zacks Rank #2 (Buy).