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Will Lack of Orders Dent L3 Technologies (LLL) Q1 Earnings?

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L3 Technologies, Inc. (LLL - Free Report) is scheduled to release first-quarter 2018 results on May 1, before the opening bell.

In the last reported quarter, the company delivered a positive earnings surprise of 2.17%. Moreover, it surpassed the Zacks Consensus Estimate in the trailing four quarters, with an average beat of 6.61%.

Let’s see how things are shaping up prior to this announcement.

Dearth of Order: A Concern

Usually contract wins from the Pentagon as well as foreign allies of the United States drive revenues for defense contractors like L3 Technologies. Unfortunately, the company secured no notable contract during the first quarter of 2018. This in turn is likely to weigh on the company’s revenues for the to-be-reported quarter.

In line with this, the Zacks Consensus Estimate for sales indicate year-over-year decline in the two major segments of the company.

Moreover, soft commercial satellite market conditions continue to hurt aviation security and electronic systems along with commercial SATCOM and communication systems. Cumulatively, these factors are expected to drag down the company’s overall top line number.

Evidently, the Zacks Consensus Estimate for revenues is pegged at $2.33 billion, implying a 12.7% year-over-year decline.

Tax Reform: A Boon?

The latest U.S. tax reform boosted L3 Technologies’s fourth-quarter earnings per share by 99 cents. Expecting to witness similar gains in 2018 as well, the company has increased its 2018 earnings guidance.  However, the company is expected to incur $15 million pension expenses during the year, which will dent its earnings growth.  We believe, this along with the significant dearth of orders might impact the company’s bottom line adversely.

In line with this, the Zacks Consensus estimate for earnings shows 3.4% year-over-year decline for the upcoming quarterly result.


L3 Technologies Inc. Price and EPS Surprise


L3 Technologies Inc. Price and EPS Surprise | L3 Technologies Inc. Quote


Solid Cash Figures

L3 Technologies’ strong balance sheet provides financial flexibility in matters of incremental dividends, ongoing share repurchases and earnings accretive acquisitions. Continuing with its trend of consistent dividend hike, the company raised its quarterly dividend by 6.7% in February 2018 to 80 cents. This hike marked the 14th consecutive dividend increase for the company. Keeping up with its trend we may expect the company’s upcoming results to reflect similar solid balance sheet figures.

Vertex Divesture: What Lies Ahead?

Contract price modifications at Vertex Aerospace unit raised concern about L3 Technologies’ Aerospace Systems segment’s growth.  In fact, the company has identified this segment to be its most challenging business and remains skeptical about this unit’s growth rate as well as profitability.  However, as the company remains on schedule to sell Vertex by the middle of 2018, the divesture is likely to not have any impact in L3 Technologies’ first quarter results.

Earnings Whispers

Our proven model shows that L3 Technologies is likely to beat on earnings this quarter because it has the right combination of two key ingredients. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to be able to beat estimates.

Zacks ESP: L3 Technologies has an Earnings ESP of +2.51%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: L3 Technologies carries a Zacks Rank #3, which along with positive Earnings ESP increases the probability of a positive earnings surprise.

Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) while going into an earnings announcement.

Other Stocks That Warrant a Look

Here are a few other stocks in the Aerospace and Defense space worth considering on the basis of our model which shows that they have the right combination to pull off a beat:

Rockwell Collins (COL - Free Report) is slated to report second-quarter fiscal 2018 results on Apr 27. The company has an Earnings ESP of +0.19% and a Zacks Rank #2.

Heico Corporation (HEI - Free Report) is expected to report second-quarter fiscal 2018 results on May 22. The company has an Earnings ESP of +4.67% and a Zacks Rank #2.

KLX Inc. (KLXI - Free Report) is slated to report first-quarter fiscal 2018 results on May 23. The company has an Earnings ESP of +1.44% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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