Raytheon Reports Strong Fourth Quarter and Full-Year 2017 Results

WALTHAM, Mass., Jan. 25, 2018 /PRNewswire/ -- Raytheon Company (NYSE: RTN) today announced net sales for the fourth quarter 2017 of $6.8 billion, up 8.0 percent compared to $6.3 billion in the fourth quarter 2016. Fourth quarter 2017 EPS from continuing operations was $1.35 compared to $1.87 in the fourth quarter 2016. Fourth quarter and full-year 2017 included an unfavorable $0.59 provisional tax-related impact due to the enactment of the Tax Cuts and Jobs Act of 2017.

In addition, the company made a $1.0 billion pretax discretionary pension plan contribution in the fourth quarter 2017, which had an unfavorable tax-related EPS impact of $0.09 and was not included in the company's prior guidance. The company made a $500 million pretax discretionary pension plan contribution in the fourth quarter 2016, which had an unfavorable tax-related EPS impact of $0.04.

Net sales in 2017 were $25.3 billion, up 5.1 percent compared to $24.1 billion in 2016. Full-year 2017 EPS from continuing operations was $6.94 compared to $7.55 for the full-year 2016.

"Raytheon delivered record sales and strong cash flow in 2017 reflecting the continued hard work and dedication of the Raytheon team," said Thomas A. Kennedy, Raytheon Chairman and CEO. "Bookings strength across our broad portfolio of proven technology solutions positions the company well for the future."

The company generated strong operating cash flow for both the fourth quarter and full-year. Operating cash flow from continuing operations for the fourth quarter 2017 and full-year 2017 was $1.6 billion and $2.7 billion, respectively, after making the $1.0 billion pretax discretionary cash contribution to the company's pension plans.  Operating cash flow from continuing operations for the fourth quarter 2016 and full-year 2016 was $1.1 billion and $2.9 billion, respectively, after making the $500 million pretax discretionary pension contribution. Operating cash flow in the fourth quarter and full-year 2017, excluding the $1.0 billion pretax discretionary pension contribution, was better than the company's prior guidance primarily due to favorable collections.

In the fourth quarter 2017, the company repurchased 0.5 million shares of common stock for $100 million. For the full-year 2017, the company repurchased 4.9 million shares of common stock for $800 million. Also, as previously announced in November 2017, the company's Board of Directors authorized the repurchase of up to an additional $2.0 billion of the company's outstanding common stock.

The company had bookings of $8.5 billion in the fourth quarter 2017, resulting in a book-to-bill ratio of 1.26. Fourth quarter 2016 bookings were $7.6 billion. Full-year 2017 bookings were $27.7 billion, resulting in a book-to-bill ratio of 1.09. Full-year 2016 bookings were $27.8 billion.

Backlog at the end of 2017 was $38.2 billion, an increase of approximately $1.5 billion or 4 percent compared to the end of 2016.

Outlook

The company has provided its financial outlook for 2018. Charts containing additional information on the company's 2018 outlook are available on the company's website.

Effective January 1, 2018, the company adopted the new retirement benefit standard, which moves certain components of FAS pension and postretirement benefit expense from operating to non-operating income. The adoption of this standard increases operating income due to the removal of all components of FAS expense other than service cost, and decreases non-operating income by the same amount with no impact to net income. The standard does not impact our CAS expense, which is recorded in the results of each segment. As a result, our FAS/CAS Adjustment will be split into: FAS/CAS Operating Adjustment; and Other Pension Expense within non-operating. The 2017 Actuals - New Standard and the 2018 columns in the Financial Outlook table below reflect the adoption of the standard.

Segment Results

The company's reportable segments are: Integrated Defense Systems (IDS); Intelligence, Information and Services (IIS); Missile Systems (MS); Space and Airborne Systems (SAS); and Forcepoint™.

Integrated Defense Systems (IDS) had fourth quarter 2017 net sales of $1,553 million, up 6 percent compared to $1,460 million in the fourth quarter 2016. IDS had full-year 2017 net sales of $5,804 million compared to $5,529 million in 2016. The increase in net sales for both the quarter and the full-year was primarily driven by higher net sales on an international early warning radar program.

IDS recorded $247 million of operating income in the fourth quarter 2017 compared to $238 million in the fourth quarter 2016. The increase in operating income for the quarter was primarily driven by higher volume and a favorable change in program mix. IDS recorded $935 million of operating income in 2017 compared to $971 million in 2016. The change in operating income for the full-year was primarily driven by a favorable change in program mix, higher net program efficiencies and higher volume, which was more than offset by the $158 million tax-free gain from the ThalesRaytheonSystems (TRS) transaction in the second quarter 2016.

During the quarter, IDS booked $304 million on an Early Warning Surveillance Radar System (EWSRS) support program for an international customer; $280 million to provide Consolidated Contractor Logistics Support (CCLS) for the Missile Defense Agency (MDA); $264 million to provide advanced Patriot Air and Missile Defense system capabilities for international customers; and $81 million on the Army Navy/Transportable Radar Surveillance-Model 2 (AN/TPY-2) radar sustainment program for the MDA.

Shortly after the quarter close, as previously announced, IDS received a direct commercial contract worth more than $1.5 billion to provide Patriot Air and Missile Defense system capability to a member of the 14-nation Patriot partnership.

Intelligence, Information and Services (IIS) had fourth quarter 2017 net sales of $1,572 million, up 4 percent compared to $1,516 million in the fourth quarter 2016. The increase in net sales for the quarter was primarily driven by higher net sales on a U.S. Air Force program and classified programs. IIS had full-year 2017 net sales of $6,177 million compared to $6,169 million in 2016.

IIS recorded $117 million of operating income in the fourth quarter 2017 compared to $120 million in the fourth quarter 2016. IIS recorded $455 million of operating income in 2017 compared to $467 million in 2016.

During the quarter, IIS booked $244 million on domestic and foreign training programs in support of Warfighter FOCUS activities; $233 million to upgrade the Phalanx^® Closed-In Weapon System (CIWS) for the Royal Canadian Navy; $98 million on the Development, Operations and Maintenance (DOMino) Cyber program for the Department of Homeland Security (DHS); $97 million on the Standard Terminal Automation Replacement System (STARS) program for the Federal Aviation Administration (FAA); and $77 million to support the Naval Communication Station, Harold E. Holt facility for Australia. IIS also booked $410 million on a number of classified contracts.

Missile Systems (MS) had fourth quarter 2017 net sales of $2,185 million, up 15 percent compared to $1,897 million in the fourth quarter 2016. The increase in net sales for the quarter was primarily driven by higher net sales on the Advanced Medium-Range Air-to-Air Missiles (AMRAAM^®), Standard Missile-3 (SM-3^®) and Paveway™ programs. MS had full-year 2017 net sales of $7,787 million compared to $7,096 million in 2016. The increase in net sales for the full-year was primarily driven by higher net sales on the Paveway, SM-3 and Standard Missile-2 (SM-2) programs.

MS recorded $278 million of operating income in the fourth quarter 2017 compared to $261 million in the fourth quarter 2016. MS recorded $1,010 million of operating income in 2017 compared to $921 million in 2016. The increase in operating income for both the quarter and the full-year was primarily due to higher volume in 2017.

During the quarter, MS booked $1,132 million for Paveway; $696 million for AMRAAM; $423 million for the Joint Standoff Weapon (JSOW^®); $269 million for Tomahawk; $109 million for Phalanx CIWS; $107 million for SM-3; $80 million for the Mobile Range program; and $77 million for Horizontal Technology Integration (HTI) forward-looking infrared kits. MS also booked $310 million on a number of classified contracts.

Space and Airborne Systems (SAS) had fourth quarter 2017 net sales of $1,670 million, up 4 percent compared to $1,600 million in the fourth quarter 2016. The increase in net sales for the quarter was primarily due to higher net sales on airborne radar programs. SAS had full-year 2017 net sales of $6,430 million compared to $6,182 million in 2016. The increase in net sales for the full-year was primarily due to higher net sales on an electronic warfare systems program and a domestic classified program.

SAS recorded $242 million of operating income in the fourth quarter 2017 compared to $221 million in the fourth quarter 2016. SAS recorded $862 million of operating income in 2017 compared to $808 million in 2016. The change in operating income for the quarter and full-year was primarily driven by higher volume in 2017 and a favorable change in program mix.

During the quarter, SAS booked $411 million on a number of classified contracts.

Forcepoint had fourth quarter 2017 net sales of $156 million compared to $143 million in the fourth quarter 2016. Forcepoint had full-year 2017 net sales of $608 million compared to $586 million in 2016.

Forcepoint recorded a loss of $8 million in the fourth quarter 2017 compared to operating income of $21 million in the fourth quarter 2016. Forcepoint recorded $33 million of operating income in 2017 compared to $90 million in 2016. The decrease in operating income for both the quarter and the full-year was primarily driven by higher selling and marketing costs.

About Raytheon
Raytheon Company, with 2017 sales of $25 billion and 64,000 employees, is a technology and innovation leader specializing in defense, civil government and cybersecurity solutions. With a history of innovation spanning 96 years, Raytheon provides state-of-the-art electronics, mission systems integration, C5I™ products and services, sensing, effects, and mission support for customers in more than 80 countries. Raytheon is headquartered in Waltham, Massachusetts. Follow us on Twitter.

Conference Call on the Fourth Quarter and Full-Year 2017 Financial Results
Raytheon's financial results conference call will be held on Thursday, January 25, 2018 at 9 a.m. ET. Participants will include Thomas A. Kennedy, Chairman and CEO; Anthony F. O'Brien, vice president and CFO; and other company executives.

The dial-in number for the conference call will be (877) 280-4958 in the U.S. or (857) 244-7315 outside of the U.S. The conference call will also be audiocast on the Internet at www.raytheon.com/ir. Individuals may listen to the call and download charts that will be used during the call. These charts will be available for printing prior to the call.

Interested parties are encouraged to check the website ahead of time to ensure their computers are configured for the audio stream. Instructions for obtaining the free required downloadable software are posted on the site.

Disclosure Regarding Forward-looking Statements
This release and the attachments contain forward-looking statements, including information regarding the company's financial outlook, future plans, objectives, business prospects and anticipated financial performance. These forward-looking statements are not statements of historical facts and represent only the company's current expectations regarding such matters. These statements inherently involve a wide range of known and unknown risks and uncertainties. The company's actual actions and results could differ materially from what is expressed or implied by these statements. Specific factors that could cause such a difference include, but are not limited to: the company's dependence on the U.S. government for a significant portion of its business and the risks associated with U.S. government sales, including changes or shifts in defense spending due to budgetary constraints, spending cuts resulting from sequestration, a government shutdown, or otherwise, uncertain funding of programs, potential termination of contracts and performance under undefinitized contract awards; difficulties in contract performance; the resolution of program terminations; the ability to procure new contracts; the risks of conducting business in foreign countries; the unpredictability of timing of international bookings; the ability to comply with extensive governmental regulation, including export and import requirements such as the International Traffic in Arms Regulations and the Export Administration Regulations, anti-bribery and anti-corruption requirements including the Foreign Corrupt Practices Act, industrial cooperation agreement obligations, and procurement and other regulations; the ability to obtain timely U.S. government approvals for international contracts; changes in government procurement practices; the impact of competition; the ability to develop products and technologies, and the impact of associated investments and costs; the ability to recruit and retain qualified personnel; the impact of potential security and cyber threats, and other disruptions; the risk that actual pension returns, discount rates or other actuarial assumptions, including the long-term return on asset assumption, are significantly different than the company's current assumptions; the risk of cost overruns, particularly for the company's fixed-price contracts; dependence on component availability, subcontractor and partner performance and key suppliers; risks of a negative government audit; risks associated with acquisitions, investments, dispositions, joint ventures and other business arrangements; the ability to grow in the government and commercial cybersecurity markets; risks of an impairment of goodwill or other intangible assets; the impact of financial markets and global economic conditions; the use of accounting estimates in the company's financial statements, including with respect to the provisional impact of the Tax Cuts and Jobs Act of 2017; the outcome of contingencies and litigation matters, including government investigations; the risk of environmental liabilities; and other factors as may be detailed from time to time in the company's public announcements and Securities and Exchange Commission filings. The company undertakes no obligation to make any revisions to the forward-looking statements contained in this release and the attachments or to update them to reflect events or circumstances occurring after the date of this release, including any acquisitions, dispositions or other business arrangements that may be announced or closed after such date.