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Harris (HRS) Surpasses Q4 Earnings and Revenue Estimates

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

GAAP earnings from continuing operations increased to $1.74 per share from $1.35 in the year-ago quarter on top-line growth and tax benefit. For fiscal 2018, GAAP earnings per share from continuing operations increased 16% year over year to $5.94.

Fiscal fourth-quarter non-GAAP earnings from continuing operations were $1.78 per share compared with $1.49 in the year-earlier quarter, beating the Zacks Consensus Estimate of $1.76.

Harris Corporation Price, Consensus and EPS Surprise

Revenues for the reported quarter increased 8% year over year to $1,666 million, driven by growth in Communication Systems and Electronic Systems. The top line surpassed the Zacks Consensus Estimate of $1,618 million. Fiscal 2018 revenues increased 5% to $6,182 million.

Total operating income for the quarter was $322 million compared with $275 million in the year-ago quarter. Operating margin was 19.3% compared with 17.8% in the prior-year period.

Segmental Performance

Revenues from Communication Systems segment came in at $523 million for the quarter, up 16% year over year, owing to growth in Tactical Communications and Night Vision. Operating income grew 11% to $162 million due to increased volume and operational efficiencies.

Revenues from Electronic Systems unit were $640 million, up 8% year over year, driven by growth in Avionics on increased F-35 production, in Electronic Warfare from F-16 and F/A-18 platforms and in C4ISR from the ramp up of the U.K. robotics and UAE battle management programs.

Operating income for the segment was $119 million, up 14% year over year due to higher volume and productivity.

Revenues from Space and Intelligence Systems unit remained flat year over year at $508 million, owing to growth in Classified programs, driven by the ramp of small satellites, ground-based processing adjacency and space surveillance programs, somewhat offset by lower sales in environmental projects. Operating income increased 8% to $86 million due to strong program execution and incremental pension income.  

Cash Flow and Balance Sheet

The company generated $751 million as cash from operating activities in fiscal 2018 compared with $569 million a year ago.

In fiscal 2018, the company generated adjusted free cash flow of $915 million compared with $850 million in the previous-year period.

At the end of fiscal 2018, the company had cash and cash equivalents of $288 million with net long-term debt of $3,408 million compared with respective tallies of $484 million and $3,396 million in the prior-year period.

Harris returned $544 million to shareholders through dividends and share repurchases in fiscal 2018.

FY19 Guidance

Harris provided guidance for fiscal 2019. The company expects revenues in the range of $6.53-$6.65 billion, up 6-8% from fiscal 2018. EPS from continuing operations in expected between $7.65 and $7.85. While free cash flow is projected to be more than $1 billion, tax rate is assumed to be around 17%.

Zacks Rank & Stocks to Consider

Harris currently has a Zacks Rank #4 (Sell). Better-ranked stocks in the industry include Comtech Telecommunications Corp. (CMTL - Free Report) , Juniper Networks, Inc. (JNPR - Free Report) and Motorola Solutions, Inc. (MSI - Free Report) . While Comtech sports a Zacks Rank #1 (Strong Buy), Juniper and Motorola carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Comtech 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 123.7%.      

Juniper has an expected long-term earnings growth rate of 5.7%. It exceeded earnings estimates thrice in the trailing four quarters, with an average positive surprise of 4.9%.

Motorola has an expected long-term earnings growth rate of 8.5%. It exceeded earnings estimates in each of the trailing four quarters, with an average of 12.1%.      

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