Raytheon Joins March to Profits -- WSJ
July 29 2016 - 3:03AM
Dow Jones News
By Doug Cameron
U.S. defense contractors are enjoying a turnaround year.
Raytheon Co. on Thursday reported higher quarterly profits and
raised its full-year earnings guidance, marking a clean sweep of
improved outlooks among the four largest defense companies. The
forecasts have pushed share prices to record highs in recent
weeks.
Rising military budgets in the U.S. and overseas as well as cost
cuts have made 2016 a banner year for defense companies as revenue
starts to climb after four years of flat or declining sales.
Companies are also continuing to funnel cash back to investors
who viewed defense as more resilient than diversified industrial
companies more exposed to the slowdown in emerging markets.
Raytheon joined larger peers including Lockheed Martin Corp. and
Northrop Grumman Corp. in raising its profit expectations for the
year as conflicts in the Middle East boosted demand for bombs,
missiles and intelligence services
Improving prospects for the defense unit of Boeing Co. accounted
for half of the aerospace giant's own boost this week to 2016
profit expectations, excluding the latest charge against problems
building a new Air Force tanker.
Raytheon has the biggest exposure among U.S. defense companies
to overseas sales, with exports accounting for almost a third of
revenue. While the slide in oil prices had slowed down the pace of
some new orders in the Middle East earlier this year, Raytheon said
deals for sophisticated equipment such as missile defense systems
continued apace.
"We are very bullish on international sales," Raytheon Chief
Financial Officer Toby O'Brien said in an interview. He said half
the growth in its missiles business this year stems from the U.S.
and allies replenishing stocks depleted by the multiple conflicts
in the Middle East.
Rising profits and buybacks have helped defense stocks
outperform the broader market and outweighed concerns over some
problematic military programs such as Boeing's tanker and a new GPS
ground station being developed by Raytheon that is late and over
budget.
U.S. defense stocks are up 12% so far this year compared with a
4% rise in the broader market, according to RBC Capital. Lockheed
Martin, the world's largest defense company by sales, leads the
pack with a gain of almost 17%.
Raytheon reported net profit of $704 million for the second
quarter, compared with $503 million a year earlier, with per-share
earnings rising to $2.38 from $1.65 as sales rose 3% to $6 billion.
All four units at the maker of Patriot missile-defense systems and
Paveway laser-guided bombs reported higher profits, including its
Forcepoint cybersecurity business.
Raytheon maintained its forecast for revenue to climb to between
$24 billion and $24.5 billion in 2016 -- compared with $23.2
billion last year -- but lifted per-share profit guidance by 20
cents to $7.13 to $7.33.
Write to Doug Cameron at doug.cameron@wsj.com
(END) Dow Jones Newswires
July 29, 2016 02:48 ET (06:48 GMT)
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