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Raytheon (RTN) Beats on Q2 Earnings, Boosts EPS Outlook

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Raytheon Company reported second-quarter 2016 adjusted earnings from continuing operations of $1.75 per share, beating the Zacks Consensus Estimate of $1.70 by 2.9%. Earnings also increased 6.1% from the year-ago figure of $1.65.

Operational Performance

The company’s second-quarter revenues of $6,035 million registered 3.2% year-over-year growth. The reported number surpassed the Zacks Consensus Estimate of $5,841.5 million by 3.3%.

The company’s bookings in the second quarter were $7,118 million compared with $7,580 million in the year-ago period, reflecting a decrease of 6.1%. Total backlog at the end of the quarter was $35.31 billion, up from $34.49 billion a year ago, while funded backlog was $26.14 billion, up from $25.33 billion a year ago.

Total operating expenses decreased 2.4% to $5,075 million. As a result, operating income improved 48.1% to $960 million from $648 million a year ago.

Quarterly Segment Performance

Integrated Defense Systems: Segment revenues decreased 11% year over year to $1,399 million. Segment operating income improved to $375 million from $202 million a year ago.

Intelligence, Information and Services: Segment revenues of $1,642 million were higher than the year-ago level of $1,594 million due to higher sales on cybersecurity and special missions programs. Operating income in the reported quarter increased to $124 million from $122 million a year ago.

Missile Systems: Segment revenues grew 6% year over year to $1,656 million due to higher sales of Paveway programs. Operating income jumped 21% to $223 million from $184 million a year ago.

Space and Airborne Systems: Revenues in the quarter grew 9% year over year to $1,547 million due to higher sales on classified programs. Operating income improved 4% to $203 million due to a change in the program mix.

Forcepoint: This commercial cybersecurity company generated net sales of $128 million in the second quarter, up sharply from $57 million a year ago. The joint-venture entity registered an operating income of $7 million in the reported quarter.

Financial Update

Raytheon ended the second quarter with cash and cash equivalents of $2,016 million, down from $2,328 million as of Dec 31, 2015. Long-term debt was $5,333 million, up marginally from an outstanding debt of $5,330 million as of Dec 31, 2015.

Operating cash flow from continuing operations of $1,071 million in the first half of 2016 increased significantly from $431 million a year ago.

In the second quarter, Raytheon repurchased 1.6 million shares of common stock for $202 million.

Guidance

Raytheon maintained its 2016 revenue expectation of $24.0 billion to $24.5 billion. However, it increased its earnings projection to the range of $7.13-$7.33 per share from $6.93−$7.13 per share expected earlier for 2016.

The company expects 2016 operating cash flow from continuing operations to be $2.8−$3.1 billion (versus $2.7−3.0 billion expected earlier).

Peer Releases

Pentagon’s prime contractor, Lockheed Martin Corp. (LMT - Free Report) reported second-quarter 2016 earnings of $3.32 per share, surpassing the Zacks Consensus Estimate of $2.92 by 13.7%. Earnings also increased 12.9% from the year-ago level.

Northrop Grumman (NOC - Free Report) reported second-quarter 2016 adjusted earnings of $2.60 per share, beating the Zacks Consensus Estimate of $2.50 by 4%. Earnings also rose 5.3% from $2.47 earned in the year-ago quarter.

General Dynamics Corporation (GD - Free Report) announced second-quarter 2016 earnings from continuing operations of $2.44 per share, beating the Zacks Consensus Estimate of $2.30 by 6.1%.

Zacks Rank

Raytheon Company currently has a Zacks Rank #3 (Hold).

RAYTHEON CO Price, Consensus and EPS Surprise

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