Harris Tops, Outlook Raised

Harris Corp. (HRS - Analyst Report) declared better-than-expected results for the fiscal first quarter.  Net income was $109 million or 83 cents per share, compared to a net income of $119.4 million or 89 cents per share in the year-ago quarter. EPS of 83 cents was significantly higher than the Zacks Consensus Estimate of 78 cents. Total revenues were $1,203 million mostly in line with the Zacks Consensus Estimate of $1,206 million. However, this was an improvement of 2.6% year over year.

Results were encouraging primarily due to strong performance in both the RF Communications and Government Communications Systems segments. During the reported quarter, Harris received $220 million in orders for the new Falcon III AN/PRC-117G multi-band manpack radio. New orders in the first quarter were $1.5 billion, an improvement of 16.3% over the previous quarter. According to our assessment, in the near-future, the company will benefit from higher defense expenditure by the U.S. government together with new expansion drives in Asia, Europe & Africa.

During the quarter, cost of sales was $812.1 million compared to $791.9 million in the prior-year period. Engineering, selling, & administrative expenses were $212.1 million, compared to $189.6 million in the year-ago quarter. During the same quarter, Harris generated $134.5 million of cash from operations compared to just $37.5 million in the prior-year quarter.

Free cash flow (cash flow from operations less capital expenditures) during the first quarter was $115.9 million, compared to $9.7 million in the year-ago quarter. At the end of the reported quarter, the company had $231.1 million of cash & marketable securities and $1,202.9 million of outstanding debt on its balance sheet.

The Board of Directors of Harris has increased the quarterly cash dividend by 10% from the first quarter of fiscal 2010. The company will now pay quarterly dividend of 22 cents per share compared to the previous quarterly dividend of 20 cents per share. As a result, the annual dividend rate will increase to 88 cents per share from the existing rate of 80 cents.

Government Communications System Segment

Quarterly revenues were $667.7 million, up 9.7% year over year.  The revenue growth was driven by a broad base of U.S. government programs including several broadband satellite programs for both the U.S. Navy and Air Force. Operating income was $86 million, compared to $66 million in the year-ago quarter. During the same quarter, this segment received $520 million of new contract.

RF Communications Segment

Quarterly revenues were $423.7 million, up 2% year over year. Operating income was $114 million compared to $142 million in the year-ago quarter. During the reported quarter, Harris generated $709 million worth of new orders compared to $441 million in the previous quarter. Total backlog in this segment at the end of the first quarter was $1.23 billion that includes $760 million in Tactical Radio Communications and $470 million in Public Safety and Professional Communications.

Broadcast Communications Segment

This segment generated $118.7 million, down 25% year over year. Sales declined across all the product lines in both the international and U.S. markets. Quarterly operating income was $0.3 million compared to an operating income of $5.3 million in the year-ago quarter. In the reported
quarter, new order generation was $124 million.

Outlook

Management has raised the financial outlook for the current fiscal year. Revenues for fiscal 2010 are now expected to range between $5.1 billion and $5.2 billion, compared to a range of $5 billion - $5.1 billion given in the previous estimate. This is also better than the Zacks Consensus Estimate of a little over $5 billion. The new estimated GAAP EPS range is $3.74 – $3.84, compared to the previous estimated range of $3.25 – $3.50. Non-GAAP EPS for fiscal 2010 is projected between $3.85 – $3.95 cents, far exceeding the Zacks Consensus Estimate of $3.39.