Defense operator L-3 Communications Holdings Inc. LLL posted first-quarter adjusted earnings of $1.43 per share, lagging the Zacks Consensus Estimate of $1.53 by 6.5%. Earnings were also lower than the year-ago figure of $1.90 by 24.7%.
Including a loss of 18 cents per share related to the expected divestiture of Marine Systems International (“MSI”), earnings in the quarter came in at $1.25 per share compared with $1.90 per share a year ago.
Total Revenue
Total revenues of $2,713 million in the reported quarter missed the Zacks Consensus Estimate of $2,826 million by 4%. The top line was down 8% year over year due to lower demand from the U.S. government.
Sales to the U.S. government declined 10% year over year. Net sales to international and commercial customers declined 4% in the reported quarter.
Funded orders in the reported quarter were $2.9 billion, down 4% year over year while funded backlog increased 1% to $10.3 billion as of Mar 27, 2015, from $10.2 billion as of Dec 31, 2014.
Operational Highlights
The company’s operating income was down roughly 30.1% to $200 million in the reported quarter. Interest expenses were $44 million as compared to $43 million in the year-ago quarter.
Segment Performance
Aerospace Systems: Net sales at the segment increased 4.4% to $1,026 million from the prior-year figure of $1,073 million on account of lower sales for Platform and Logistics Solutions.
Electronic Systems: The segment recorded net sales of $1,009 million in the reported quarter, down 6.3% year over year. The decrease mainly reflects lower sales from MSI, lower volume from Precision Engagement & Training, Warrior System and for Security and Detection Systems.
Communication Systems: Net sales at the segment decreased 13.5% year over year to $435 million primarily due to lower demand and reduced deliveries.
National Security Solutions: The segment generated net sales of $243 million, down 20.1% from $304 million a year ago. The decrease reflects lower sales from Defense Solutions and Intelligence Solutions.
Financial Position
As of Mar 27, 2015, L-3 Communications had $317 million in cash and cash equivalents compared with $442 million as of Dec 31, 2014.
Long-term debt as of Mar 27, 2015, was $3,939 million, on par with the 2014-end level.
Net cash from operating activities was $87 million in the quarter versus cash used in operating activities of $62 million a year ago. Capital expenditure was $41 million compared with $40 million in the year-ago quarter.
During first-quarter 2015, L-3 Communications spent $158 million on share repurchases and dividend payouts.
Guidance
The company lowered its revenue guidance for 2015. It now expects total revenues to be in the range of $11.45 billion to $11.65 billion for 2015, down from $11.75 billion to $11.95 billion expected earlier.
Adjusted earnings per share are expected to be in the $7.35−$7.65 range for the year.
Interest expenses for 2015 are expected to be $190 million while segment operating margin is pegged at 9.4%. The capital expenditure forecast remained at $195 million. Additionally, management expects to generate $925 million of free cash flow.
Peer Comparison
General Dynamics Corporation GD announced first-quarter 2015 earnings from continuing operations of $2.14 per share, comfortably surpassing the Zacks Consensus Estimate of $1.94 by 10.3%. Earnings also increased 25.1% from the prior-year figure of $1.71, backed by improved operating margins.
The Pentagon’s prime contractor, Lockheed Martin Corp. LMT reported quarterly earnings of $2.74 per share, comfortably surpassing the Zacks Consensus Estimate of $2.48 by 10.5%. Earnings in the reported quarter however declined 4.5% from $2.87 per share a year ago, as lower fighter jet demand led to less revenue.
Northrop Grumman Corp. NOC delivered first-quarter 2015 adjusted earnings of $2.14 per share, missing the Zacks Consensus Estimate of $2.26 by 5.3%. The quarterly number decreased 7.4% from $2.31 per share a year ago.
Zacks Rank
L-3 Communications currently has a Zacks Rank #1 (Strong Buy).
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