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Harris Corporation delivered solid second-quarter fiscal 2019 results with record earnings and high single digit revenue growth driven by strong margin expansion across all the segments. Moreover, both the top line and the bottom line surpassed the respective Zacks Consensus Estimate.
Net Income
On a GAAP basis, net income for the reported quarter increased 72% year over year to $225 million primarily due to top-line growth, diligent execution of operational plans and a lower share count. GAAP earnings from continuing operations increased to $1.88 per share from $1.08 in the year-ago quarter.
Adjusted earnings for the reported quarter improved 19% year over year to $1.96 per share, beating the Zacks Consensus Estimate of $1.91.
Harris Corporation Price, Consensus and EPS Surprise
Quarterly revenues increased 9% year over year to $1,666 million, driven by growth across all three segments and healthy demand curve. The top line exceeded the Zacks Consensus Estimate of $1,637 million. Orders for the quarter increased to $1,766 million from $1,390 million in the year-earlier quarter.
Segmental Performance
Revenues from Communication Systems segment came in at $540 million, up 10% year over year, due to impressive growth in all three businesses — Tactical Communications, Public Safety and Night Vision. Operating income grew 12% year over year to $162 million owing to increased volume and operational efficiencies.
Revenues from Electronic Systems unit were $617 million, up 6% year over year. The seventh consecutive quarter of healthy growth dynamics was attributable to strong performance in the Avionics business on increased F-35 production, Electronic Warfare from F/A-18, F-16 and rotary platforms. Harris continued to strengthen its position in electronic warfare and avionics markets and received orders worth $115 million to upgrade electronic warfare systems on international F-16s for Poland and Iraq. The company also received $71 million worth of orders for F-35 avionics components under LRIP 12-14.Operating income for the segment was $117 million, up 21% year over year.
Revenues from Space and Intelligence Systems unit increased 11% year over year to $513 million, owing to growth in classified programs, driven by small satellites and exquisite systems. Operating income was up 15% year over year to $92 million due to higher volume and strong program execution.
Merger Update
The merger with L3 Technologies, Inc. is reportedly on track to close in mid-calendar year 2019, subject to customary closing conditions. The all-stock-merger-of-equals transaction aims to create a global defense technology leader with the combined entity being the sixth largest defense company in the United States and a top 10 defense company globally. The combined firm will boast approximately 48,000 employees and customers in more than 100 countries. The deal will enable Harris to increase scale, strengthen core businesses and fortify its position.
Cash Flow and Balance Sheet
Harris generated $469 million of cash from operating activities in the first half of fiscal 2019 compared with $373 million in the year-ago period. During the reported quarter, the company generated free cash flow of $316 million compared with $258 million in the previous-year period, bringing the respective tallies for the first six months to $402 million and $330 million. At the end of second-quarter fiscal 2019, the company had $343 million of cash and cash equivalents with net long-term debt of $3,411 million.
Harris returned $363 million to shareholders through dividends and share repurchases in first-half of fiscal 2019.
FY19 Guidance Up
Owing to solid second-quarter performance, Harris raised guidance for fiscal 2019. The company expects revenues in the range of $6.66-$6.69 billion, up 8-8.5% from fiscal 2018 (previously expected 6-8% revenue increase). Non-GAAP earnings per share are anticipated between $7.90 and $8.00, up from the previous guidance range of $7.80 and $7.90.
Moving Forward
Harris’ superlative performance despite high volatility in the equity markets is a testament of its strong fundamentals and healthy growth dynamics due to higher demand for security products amid geopolitical tensions. The merger deal with L3 will further augment its market position and lead to industry consolidation, offering it economies of scale. The long-term growth prospects of the company, therefore, appear quite enterprising.
United States Cellular Corporation delivered average positive earnings surprise of 340.4% in the trailing four quarters, beating estimates in each.
Sprint has a long-term earnings growth expectation of 19.6%. It delivered average positive earnings surprise of 320.8% in the trailing four quarters, beating estimates on each occasion.
Wall Street’s Next Amazon
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
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Harris (HRS) Trumps Q2 Earnings & Revenue Estimates, Ups View
Harris Corporation delivered solid second-quarter fiscal 2019 results with record earnings and high single digit revenue growth driven by strong margin expansion across all the segments. Moreover, both the top line and the bottom line surpassed the respective Zacks Consensus Estimate.
Net Income
On a GAAP basis, net income for the reported quarter increased 72% year over year to $225 million primarily due to top-line growth, diligent execution of operational plans and a lower share count. GAAP earnings from continuing operations increased to $1.88 per share from $1.08 in the year-ago quarter.
Adjusted earnings for the reported quarter improved 19% year over year to $1.96 per share, beating the Zacks Consensus Estimate of $1.91.
Harris Corporation Price, Consensus and EPS Surprise
Harris Corporation Price, Consensus and EPS Surprise | Harris Corporation Quote
Revenues
Quarterly revenues increased 9% year over year to $1,666 million, driven by growth across all three segments and healthy demand curve. The top line exceeded the Zacks Consensus Estimate of $1,637 million. Orders for the quarter increased to $1,766 million from $1,390 million in the year-earlier quarter.
Segmental Performance
Revenues from Communication Systems segment came in at $540 million, up 10% year over year, due to impressive growth in all three businesses — Tactical Communications, Public Safety and Night Vision. Operating income grew 12% year over year to $162 million owing to increased volume and operational efficiencies.
Revenues from Electronic Systems unit were $617 million, up 6% year over year. The seventh consecutive quarter of healthy growth dynamics was attributable to strong performance in the Avionics business on increased F-35 production, Electronic Warfare from F/A-18, F-16 and rotary platforms. Harris continued to strengthen its position in electronic warfare and avionics markets and received orders worth $115 million to upgrade electronic warfare systems on international F-16s for Poland and Iraq. The company also received $71 million worth of orders for F-35 avionics components under LRIP 12-14.Operating income for the segment was $117 million, up 21% year over year.
Revenues from Space and Intelligence Systems unit increased 11% year over year to $513 million, owing to growth in classified programs, driven by small satellites and exquisite systems. Operating income was up 15% year over year to $92 million due to higher volume and strong program execution.
Merger Update
The merger with L3 Technologies, Inc. is reportedly on track to close in mid-calendar year 2019, subject to customary closing conditions. The all-stock-merger-of-equals transaction aims to create a global defense technology leader with the combined entity being the sixth largest defense company in the United States and a top 10 defense company globally. The combined firm will boast approximately 48,000 employees and customers in more than 100 countries. The deal will enable Harris to increase scale, strengthen core businesses and fortify its position.
Cash Flow and Balance Sheet
Harris generated $469 million of cash from operating activities in the first half of fiscal 2019 compared with $373 million in the year-ago period. During the reported quarter, the company generated free cash flow of $316 million compared with $258 million in the previous-year period, bringing the respective tallies for the first six months to $402 million and $330 million. At the end of second-quarter fiscal 2019, the company had $343 million of cash and cash equivalents with net long-term debt of $3,411 million.
Harris returned $363 million to shareholders through dividends and share repurchases in first-half of fiscal 2019.
FY19 Guidance Up
Owing to solid second-quarter performance, Harris raised guidance for fiscal 2019. The company expects revenues in the range of $6.66-$6.69 billion, up 8-8.5% from fiscal 2018 (previously expected 6-8% revenue increase). Non-GAAP earnings per share are anticipated between $7.90 and $8.00, up from the previous guidance range of $7.80 and $7.90.
Moving Forward
Harris’ superlative performance despite high volatility in the equity markets is a testament of its strong fundamentals and healthy growth dynamics due to higher demand for security products amid geopolitical tensions. The merger deal with L3 will further augment its market position and lead to industry consolidation, offering it economies of scale. The long-term growth prospects of the company, therefore, appear quite enterprising.
Zacks Rank & Stocks to Consider
Harris currently has a Zacks Rank #3 (Hold). Better-ranked stocks in the broader industry include United States Cellular Corporation (USM - Free Report) and Sprint Corporation (S - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
United States Cellular Corporation delivered average positive earnings surprise of 340.4% in the trailing four quarters, beating estimates in each.
Sprint has a long-term earnings growth expectation of 19.6%. It delivered average positive earnings surprise of 320.8% in the trailing four quarters, beating estimates on each occasion.
Wall Street’s Next Amazon
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
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