Raytheon Raises 2015 Profit Forecast on Contract Settlement

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Raytheon Co. raised its 2015 profit forecast after reaching a contract settlement with the U.K. that boosted the bottom line at the world’s largest missile maker.

Earnings from continuing operations will be $6.67 and $6.82 a share, a 47-cent increase to both ends of the previous range, Raytheon said Thursday. The company received about $131 million after taxes in resolving a dispute over the cancellation of work on the U.K.’s eBorders passenger information program.

During the quarter, Raytheon won a $769 million contract from South Korea to upgrade Patriot air and missile defense systems. Since December, the company has won at least $5 billion of international Patriot orders, including a $2 billion deal with Saudi Arabia, and it’s poised to seal a bid in Poland as that country bulks up defenses amid the conflict in neighboring Ukraine.

“We have a very specific focus on international,” Chief Financial Officer Toby O’Brien said Thursday in a telephone interview. “Our solutions and capabilities are here to meet the threats that our international customers are seeing.”

Raytheon rose 1.1 percent at 8:52 a.m. in New York. The shares gained 1.4 percent this year through Wednesday, compared with a 2.4 percent increase in the Standard & Poor’s 500 Index.

Specific Focus

First-quarter earnings from continuing operations fell 6.5 percent to $551 million, or $1.78 a share, Raytheon said in a statement. That exceeded the $1.35 average of 13 analysts’ estimates compiled by Bloomberg. Net sales fell 4 percent to $5.29 billion, beating the $5.23 billion average estimate.

“It continues to be one of the most consistent operating defense primes from many consecutive quarters despite the lumpiness within the defense market,” Peter Arment, an analyst with Sterne Agee & Leach Inc., said Thursday in a note. “International bookings continues to be one of the primary drivers and potential upside for the RTN stock.”

Like other U.S. defense contractors seeking to counter a slowdown in Pentagon spending, Waltham, Massachusetts-based Raytheon is depending on overseas orders to prop up revenue. U.S. business fell last year to 71 percent of Raytheon’s sales, the lowest share of the company’s total since at least 2000, according to data compiled by Bloomberg.

Defense Spending

U.S. defense-contractor revenue has been declining along with military spending in recent years. The trend may reverse in next year’s budget as the 2016 election converges with challenges including Islamic State, Ukraine and the extension of troop deployments in Afghanistan, according to Bloomberg Intelligence analysts.

Lockheed Martin Corp., the top defense contractor, raised its 2015 profit forecast this week and reported first-quarter earnings that beat analysts’ estimates.

While Raytheon doesn’t expect to book additional Patriot orders this year, it is competing for several awards that may lead to multibillion-dollar contracts next year, O’Brien said.

“There’s still a lot out there for Patriot,” he said.

Raytheon also is working to extend its military-intelligence expertise into commercial applications in the cybersecurity market, as highlighted by this week’s deal to invest $1.57 billion in a new firm that combines its own cyber unit with Vista Equity Partners LLC’s Websense Inc.

“With the U.S. defense budget outlook improving, Europe stabilizing and other export markets remaining robust, we think the overall fundamentals for global defense are looking up,” Robert Stallard, an RBC Capital Markets analyst, said in a note before the results were released. “Raytheon remains ahead of its peers in adjusting its strategy for a return to U.S. growth, and we see Websense as part of that forward looking approach.”

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