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Harris (HRS) Beats on Q3 Earnings & Revenues, Ups Guidance

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 Harris Corporation reported healthy third-quarter fiscal 2018 results, wherein both the top line and the bottom line surpassed the respective Zacks Consensus Estimate.

Earnings from continuing operations increased to $1.67 per share from $1.31 in the year-ago quarter on top-line growth and tax benefit. Non-GAAP earnings from continuing operations were $1.67 per share compared with $1.38 in the year-earlier quarter, comfortably beating the Zacks Consensus Estimate of $1.62.

Revenues for the quarter increased 5% year over year to $1,568 million, supported by growth across all three segments led by Electronic Systems and Communication Systems. The top line exceeded the Zacks Consensus Estimate of $1,548 million.

Total operating income for the quarter was $256 million compared with $275 million in the year-ago quarter. Operating margin was 16.3% compared with 18.5% in the prior-year period, due to higher operating expenses in the reported quarter.
 

Harris Corporation Price, Consensus and EPS Surprise

 

Harris Corporation Price, Consensus and EPS Surprise | Harris Corporation Quote

Segmental Performance

Revenues from Communication Systems segment came in at $481 million for the quarter, up 4% year over year, owing to growth in Tactical Communications and Night Vision. Operating income grew 5% to $147 million due to increased volume and operational efficiencies.

Revenues from Electronic Systems unit were $609 million, up 10% year over year, due to higher volume in Avionics with growth in F-35 and other international platforms, growth in Electronic Warfare (EW) on F-16 and F/A-18 platforms and in C4ISR from the ramp of U.K. robotics and the UAE battle management system.

Operating income for the segment was $112 million, down 3% year over year as the benefit of higher volume was more than offset by increased research and development investment and program revenue mix.

Revenues from Space and Intelligence Systems unit improved 1% year over year to $482 million, owing to growth in Classified programs, driven by the ramp of small satellites, ground-based processing adjacency and space surveillance programs. Operating income increased 8% year over year to $82 million due to strong program execution and incremental pension income.  

Balance Sheet & Cash Flow

The company generated $230 million as cash from operating activities for the first nine months of fiscal 2018 compared with $489 million in the year-ago period.

At the end of the fiscal third quarter, the company had cash and cash equivalents of $443 million with net long-term debt of $3,391 million.

FY18 View Up

The company tweaked its projection for fiscal 2018 owing to its impressive performance in the fiscal third quarter. It expects fiscal 2018 adjusted earnings per share in the band of $6.45-$6.50, up from prior expectations of $6.30-$6.50.

Fiscal 2018 revenues are expected to be approximately $6.14 billion, reflecting a year-over-year increase of 4% from the earlier expectations of $6.08-6.14 billion. The company also anticipates adjusted free cash flow between $900 million to $925 million, up from the previous guidance of approximately $900 million.

Zacks Rank & Stocks to Consider

Harris currently carries a Zacks Rank #4 (Sell). Better-ranked stocks in the broader industry include Comtech Telecommunications Corp. (CMTL - Free Report) , Micron Technology, Inc. (MU - Free Report) and SMC Corporation (SMCAY - Free Report) . While Comtech Telecommunications and Micron Technology sport a Zacks Rank #1 (Strong Buy), SMC carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Comtech Telecommunications has an expected long-term earnings growth rate of 5%. It exceeded earnings estimates in each of the trailing four quarters, with an average of 111.4%.      

Micron Technology has an expected long-term earnings growth rate of 10%. It has exceeded earnings estimates in each of the trailing four quarters, with an average of 8%.    

SMC has an expected long-term earnings growth rate of 13.7%.

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