Defense operator L-3 Communications Holdings Inc. (LLL) posted fourth-quarter adjusted earnings of $2.27 per share, beating the Zacks Consensus Estimate of $2.19 per share by 3.7%. The reported figure was also higher than the year-ago figure of 2.04 cents by 11.3%.
Including a charge of 17 cents per share related to a product specifications issue at the Electronic Systems segment and a tax benefit of 26 cents, GAAP earnings per diluted share came in $2.36 in the reported quarter.
Total Revenue
Total revenue of $3,208 million in the reported quarter surpassed the Zacks Consensus Estimate of $3,150 million by 1.8%. However, the top line was down 0.8% year over year due to lower demand from the U.S. government.
Sales to the U.S. government declined 2% year over year. Net sales to international and commercial customers made up for 31% of the net sales in the reported quarter, up from 30% in fourth-quarter 2013.
Funded orders in the reported quarter were $3.4 billion, up 14% year over year whereas funded orders for the year remained flat at $12.1 billion. Funded backlog declined 1% to $10.2 billion as of Dec 31, 2014 from $10.4 billion as of Dec 31, 2013.
Operational Highlights
The company’s operating income was down roughly 1% to $303 million in the reported quarter. Operating margin in the reported quarter declined by 10 basis points to 9.4%. Interest expenses were $49 million as compared to $46 million in the year-ago quarter.
Segment Performance
Aerospace Systems: Net sales at the segment increased 1.1% to $1,152 million from the previous-year figure of $1,139 million in the reported quarter on account of higher sales for Platform and Logistics Solutions, and ISR systems.
Electronic Systems: The segment recorded net sales of $1,331 million in the reported quarter, up 6.4% year over year. The increase reflects higher deliveries made to international customers.
Communication Systems: Net sales at the segment decreased 13.7% year over year to $461 million primarily due to lower volume for air-borne and ground-based networked communication systems. The decline in volume can be attributed to lower demand from the U.S. government, which came due to budget cuts in the defense sector.
National Security Solutions: The segment generated net sales of $264 million, down from 14.8% from $310 million a year ago. The decrease reflects lower sales generated from Defense Solutions due to lower demand.
Financial Position
As of Dec 31, 2014, L-3 Communications had $442 million in cash and cash equivalents compared with $500 million as of Dec 31, 2013.
Long-term debt as of Dec 31, 2014 was $3,939 million, higher than $3,630 million at the end of 2013.
Net cash from operating activities decreased 11% to $1,125 million in 2014 from $1,263 million a year ago. Capital expenditure was $179 million in 2014compared with $197 million in the year-ago period.
During fourth-quarter 2014, L-3 Communications spent $460 million on share repurchases and dividend payouts.
Guidance
L-3 Communications now expects 2015 revenues to be in the range of $11,750 million to $11,950 million (old guidance: $11,800 million). The company also revised its earnings expectation for the year to $7.35−$7.65 per share from its prior expectation of $7.50 per share.
Interest expenses for 2015 are expected to be $190 million ($189 million projected earlier) while operating margin is pegged at 9.3%. The capital expenditure forecast remained at $195 million. Additionally, management expects to generate $925 million of free cash flow.
Peer Comparison
Rockwell Collins Inc. (COL) reported adjusted first-quarter fiscal 2015 earnings of $1.10, missing the Zacks Consensus Estimate by 1.8%.
Lockheed Martin Corp. (LMT) reported adjusted fourth-quarter 2014 earnings of $3.01 per share, comfortably surpassing the Zacks Consensus Estimate of $2.81 by 7.1%.
General Dynamics Corp.’s (GD) fourth-quarter 2014 earnings from continuing operations of $2.19 per share on a diluted basis comfortably surpassed the Zacks Consensus Estimate of $2.10 by 4.3%.
Zacks Rank
L-3 Communications currently has a Zacks Rank #4 (Sell).
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