Harris Corporation HRS performed well in the fourth quarter of fiscal 2015 (ended Jul 3, 2015), reporting better-than-expected earnings as well as revenues. The inclusion of Exelis’ results boosted the outcome in the reported quarter. Harris Corporation completed the acquisition of Exelis in late May 2015.
The company’s earnings (on an adjusted basis) of $1.32 per share breezed past the Zacks Consensus Estimate of $1.21. Quarterly earnings were 3.1% above the year-ago figure. The Exelis acquisition boosted the bottom line by 9 cents.
Revenues came in at $1.53 billion, surpassing the Zacks Consensus Estimate of $1.25 billion. Revenues improved 15% from the year-ago figure. The Exelis acquisition boosted the top line by $280 million.
Cost of product sales and services in the reported quarter stood at $1 billion compared with $899.6 million in the prior-year period. Engineering, selling & administrative expenses totaled $405.1 million versus $203.9 million in the final quarter of fiscal 2014.
At the end of the fourth quarter of fiscal 2015, the company had cash and cash equivalents of $481.1 million compared with $561 million at the end of fiscal 2014. Total long-term debt stood at $5,216.1 million, compared with $1,623.6 million at the end of fiscal 2014. The debt-to-capitalization ratio for the quarter was 0.61, compared with 0.48 at fiscal 2014-end.
Segmental Information
Government Communications Systems
Quarterly revenues at this segment inched up 1% year over year to $485 million. Increased revenues from the Foundation GEOINT Content Management program, the F-35 program, and Highband Networking Radios for the U.S. Army’s Warfighter Information Network – Tactical (WIN-T) Increment 2 program were partially mitigated by soft revenues from two classified programs and the U.S. Navy’s Commercial Broadband Satellite scheme. Moreover, operating income declined 4.3% to $66 million in the fourth quarter of fiscal 2015.
RF Communications
Segmental revenues in the quarter were $505 million, up 2.4% year over year. Weakness in the Public Safety group led to the marginal increase. The Tactical Communications and Public Safety sub-groups contributed roughly 72.5% and 27.5%, respectively. Operating income (excluding restructuring costs) in the reported quarter was $159 million, up 12.8% year over year.
During the fourth quarter, the segment generated orders worth $402 million from the Tactical Communications business and $128 million from the Public Safety business. Funded backlog came in at $488 million for the Tactical Communications sub-unit and $514 million for the Public Safety sub-group. The book-to-bill ratio for RF Communications stood at 1.05 compared with 0.93 in the fourth quarter of fiscal 2014.
Integrated Network Solutions
The segment generated revenues of $289 million, down 23% year over year. Segmental revenues were hurt by the weak market in addition to the winding down of two IT Services programs. Operating income in the quarter was $16 million, down 51.5%.
We note that this was the last quarter when the company reported through the Government Communications Systems Segment, RF Communications Segment and the Integrated Network Solutions Segment. Following the closure of the Exelis acquisition, the company restructured its business. Effective first-quarter fiscal 2016, Harris will report in the form of the following segments: Space and Intelligence Systems, Communication Systems, Critical Networks and Electronic Systems.
Annual Results
Harris Corporation reported earnings per share of $5.14 in fiscal 2015 that beat the Zacks Consensus Estimate of $5.02. The company recorded revenues of $5.08 billion in fiscal 2015, surpassing the Zacks Consensus Estimate of $4.8 billion. Revenues improved 1.4% from the figure recorded in fiscal 2014.
Fiscal 2016 Projection
The company expects earnings per share (on an adjusted basis) for fiscal 2016 in the band of $5.60–$5.80. The Zacks Consensus Estimate for fiscal 2016 is currently pegged at $5.15 per share, way below the company’s guidance range. The company anticipates fiscal 2016 revenues in the band of $7.67 billion to $7.83 billion. The Zacks Consensus Estimate for fiscal 2016 currently stands at $7.98 billion.
Zacks Rank
Currently, Harris Corp. carries a Zacks Rank #3 (Hold). Better-ranked stocks in the same space include Juniper Networks Inc. JNPR, Motorola Solutions MSI and Ericsson ERIC. Juniper Networks sports a Zacks Rank #1 (Strong Buy), while both Motorola Solutions and Ericsson carry a Zacks Rank #2 (Buy).
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