Raytheon Co. said Thursday profit rose in the third quarter on increased demand for the defense contractor's Patriot missile by foreign governments concerned about potential threats from other countries, and for its soldier training programs.
The company, whose products include missiles, sensors and radar systems, lifted its earnings guidance range for the rest of the year, but offered an outlook for 2010 weaker than Wall Street's forecast.
While the 2010 forecast was below analysts' estimates, it didn't seem to concern investors. Raytheon appears poised to be on track for a solid performance this year, and beyond, as international sales drive growth. International sales hit a record in the quarter and the company anticipates that in 2009, sales outside of the U.S. will rise as much as 22 percent above last year's level, the company said during a conference call with investors and analysts.
"Revenue growth is expected to be much higher than we had previously estimated, a very reassuring sign in a period of concern about declining defense spending," Morgan Keegan analyst Brian Ruttenbur said in a note to clients. He lowered his 2010 profit estimates for the company due to higher expected pension expense, but raised his 2011 estimates on anticipation of higher revenue growth.
"Raytheon is extremely well positioned to achieve better than industry average growth given its international exposure, diversification, and focus on high-demand areas of defense electronics," he said.
Shares of Raytheon added $1.65, or 3.7 percent, to $46.83 in late afternoon trading and traded as high as $47.40 earlier in the session.
In the third quarter, Raytheon's net income rose 15 percent to $490 million, or $1.25 per share, from $427 million, or $1.01 per share, a year earlier. Earnings from continuing operations, which include operations in which the company has a minority stake, rose to $499 million from $437 million.
Analysts expected profit of $1.16 per share, on average, according to a Thomson Reuters survey. Per-share results were aided by the company's stock buyback program. It repurchased 6.4 million shares in the quarter.
Revenue grew 6 percent to $6.21 billion from $5.86 billion led by its technical services division due to strong demand for its soldier training programs.
Much of Raytheon's growth came from outside the U.S. and that trend is expected to continue. The company predicts 2009 international sales will rise 20 percent to 22 percent above last year's results.
"Our international business continues to be strong and it's an important driver to our growth," said Chairman and CEO William Swanson, on the conference call.
Raytheon is one of the nation's largest Pentagon suppliers of military electronics, making missiles, radars and equipment. But as U.S. defense spending winds down, the company has expanded by ramping up sales abroad. It sells missile defense systems, like the Patriot missile, to nations in the Persian Gulf and Asia that are wary of potential threats from Iranian and North Korean missiles.
During the July-September period, Raytheon said it received a total of $5.14 billion in new business awards. Of those, 25 percent came from international customers.
"We're aware of downward pressure on defense spending, particularly in the U.S.," said Swanson. "(But) keep in mind as we look ahead that defense spending is really driven by the threat environment, and if I had a threat meter, I would not say it's gone down."
On upcoming foreign contracts, Swanson said Raytheon is wrapping up final negotiations with the United Arab Emirates and Saudi Arabia on several big weapons programs. It is also in talks with Taiwan, which could close as early as the fourth quarter, followed by Israel, Turkey, and others, he added.
Sales in all six of the company's operating units improved.
Raytheon's integrated defense systems division, which does work on the Patriot missile defense system, had a sales rise of 9 percent to $1.39 billion from $1.28 billion.
Raytheon's unit that makes munitions like Tomahawk cruise missiles recorded sales growth of 3 percent to $1.4 billion. The biggest percentage sales gain — 16 percent to $797 million — was in the technical services unit that holds contracts including a training program for the U.S. Army.
Based on year-to-date performance, Raytheon now predicts 2009 earnings per share between $4.70 and $4.80. The company previously forecast profit of $4.60 to $4.75 per share for the year.
Looking ahead to 2010, Raytheon is forecasting earnings per share between $4.75 to $4.90 — just below analysts' estimates of $5 per share. It anticipates sales will grow between 4 percent to 6 percent next year between $25.9 billion and $26.4 billion. Analysts expect sales of $26.01 billion.
Swanson said Raytheon is well positioned to meet military needs in Afghanistan by providing soldiers and Marines with training, surveillance and reconnaissance systems and precision-guided weapons.
The Waltham, Mass. company contributed $547 million to its pension plan in the third quarter, compared to $137 million in the quarter last year. That increase was largely offset by a $397 improvement in working capital.
The defense contractor is on plan to meet its target of $1.1 billion in cash contributions for its pension plan, in line with last year's results. Chief Financial Officer David Wajsgras expects similar overall cash contributions of $1.2 billion in 2010.