Harris (HRS) Beats on Q2 Earnings, Updates FY18 Guidance

Harris Corporation HRS reported second-quarter fiscal 2018 (ended Dec 29, 2017) earnings (excluding 52 cents from non-recurring items) of $1.67 per share, comfortably beating the Zacks Consensus Estimate of $1.40. The bottom line expanded 17.6% on a year-over-year basis.

Revenues in the quarter came in at $1,535 million, outpacing the Zacks Consensus Estimate of $1,483.7 million. However, the top line decreased 9.7% year over year. The decline was due to underperformance by the Space and Intelligence Systems unit.

Cost of product sales and services in the reported quarter was $999 million compared with $920 million in the prior-year quarter. Engineering, selling & administrative expenses totaled $264 million compared with $252 million in the second quarter of fiscal 2017.

Segmental Performance

Revenues at the Communication Systems segment came in at $489 million in the quarter, up 13% mainly owing to a 56% rise in DoD Tactical revenues. Notably, tactical revenues on the international front increased 9% on the back of strong growth in the Middle East area. Segmental operating income increased 19% year over year to $144 million, riding on volume growth and improved efficiencies.

Revenues at the Electronic Systems unit were $584 million, up 2%. Results were aided by volume growth in Avionics. Operating income for the segment was $101 million, down 25%. The metric was hurt by contract adjustments in Mission Networks, increased research and development costs apart from an unfavorable mix.

Revenues at the Space and Intelligence Systems unit declined 1% to $465 million. The downturn was mainly due to lower environmental programs revenues. Productivity and incremental pension income contributed to the 7% rise in segmental operating income to $81 million.

At the end of the second quarter of fiscal 2018, the company had cash and cash equivalents of $422 million compared with $484 million at the end of fiscal 2017. Total long-term debt at the end of second-quarter fiscal 2018 was $3,391 million compared with $3,396 million at the end of fiscal 2017.

In the first half of fiscal 2018, orders grew 24%, resulting in a book-to-bill ratio of 1.3.

FY18 View Updated

The company tweaked its projection for fiscal 2018 owing to its impressive performance in the first half of the fiscal and benefits from the new tax law. It expects fiscal 2018 earnings per share (on an adjusted basis) in the band of $6.30- $6.50 (old guidance: $5.85-$6.05 per share). The Zacks Consensus Estimate for fiscal 2018 earnings is pegged at $6.08 per share.

Fiscal 2018 revenues are expected in the range of $6.08-$6.14 billion, reflecting a year-over-year increase between 3% and 4%. (old guidance: $6.02-6.14 billion). The Zacks Consensus Estimate for revenues in fiscal 2018 is projected at $6.08 billion. The company also anticipates free cash flow of approximately $900 million (old guidance: $850-$900 million).

Zacks Rank & Other Key Picks

Harris carries a Zacks Rank #2 (Buy). Some other top-ranked stocks in the broader Computer and Technology sector are Motorola Solutions MSI, Comtech Telecommunications Corp. CMTL and InterDigital Inc. IDCC. While Motorola and Comtech carry a Zacks Rank #2, InterDigital sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of Motorola and Comtech Telecommunications have rallied more than 22% and 99%, respectively, in a year’s time. Meanwhile, the InterDigital stock has witnessed the Zacks Consensus Estimate for the fourth quarter of 2017 being revised 50.3% upward over the last 30 days.

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