Raytheon Company Earnings Call Insights: Bookings Expectations, Share Repurchases

On Thursday, Raytheon Company (NYSE:RTN) reported its third quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Bookings Expectations

Joseph Nadol – JPMorgan: I just wanted to start out I hear you on the international items and thanks for the details you gave there. So, wondering if you guys have formally adjusted your expectations or the components of those bookings for the year or if you are just kind of sticking with what you have so far since you are keeping your overall number. And then also Bill, just any color you can give on the hold-up is this end market related or is this is the FMS process in Washington that’s holding it up etcetera?

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William H. Swanson – Chairman and CEO: Joe, let me try and frame it first from the top. We still expect bookings to be in around that 25% to 28% of our total bookings. So, from our standpoint we feel pretty good that what we said we were going to do in January we are doing. The good part on the international is now no cancellations and we are just being cautious as we look at the market getting into it, we said the back half of the year was where our activity was going to be and we brought in over $7 billion worth of bookings and we expect Q4 to be strong. Maybe what I should do is give you some color the way I think about it. If I look at the Q4 bookings, we expect IDS to bring in about $2.5 billion worth of bookings 60% of that is international, Kuwait Patriot will drive that. We have a Congressional notification that’s been approved. That total award is in the $1.2 billion range, but we probably expect $750 million to $800 million in that because they’ll buy the fire units first and then they’ll go to buy the spares and the services shortly thereafter. The balance of what they are going to bring in is domestic orders. Those are mainly in the naval area and they’ve got few other international contracts there. IIS will bring in about $750 million, these are all plus or minus little and they are mainly in the classified area. I think about Missiles, they have bookings of around $1 billion. Two-thirds of what they are going to bring in is international. The largest there is Munition program, Paveway. We expect to get that approval and we expect it to happen and the balance will be domestic. In NCS, our bookings there will be about $1.5 billion. As Dave mentioned, we’ve signed and expect customer to sign momentarily an award probably around $600 million or $700 million in that range and the balance there will be domestically as we look at it. SAS, we expect bookings there about $1 billion, about 60% of those are international and the biggest piece is related to tactical airborne radars classified probably a couple of hundred million there. And TS bookings, we estimate around $300 million, and that will be in training and logistics program; about 60% of those internationally. So, overall, we see a strong Q4 bookings around $6 billion to $7 billion, and from our standpoint, over half of those will be international. I think that gives you a pretty good color of what we’re trying to do and to finish up the year.

Joseph Nadol – JPMorgan: No, that’s very helpful, Bill. Just any color on the FMS process and if that’s creating any delays or its normal?

William H. Swanson – Chairman and CEO: Yeah, there’s a little bit of a delay there. I mean we have to go through the congressional notification process, things are moving – not pointing any fingers at anything, but we’d sure like the process to be quicker. If we can move on these international sales, there are good jobs here domestically, and we like to keep pushing as hard as we can. But we are in an election year, and we kind of looked at this at the beginning of the year and knew something would happen, but we’re getting great support out of the building and people are trying here, but it’s taken us just a little bit longer.

Share Repurchases

Carter Copeland – Barclays: Just a couple of quick ones. One, I noticed that the share repurchase was a little bit less in Q3 than you’d done earlier in the year; at least it looked like that. Was there any just sort of conservatism given the budget uncertainty that we’re dealing with as we head into the back half of the – the last quarter of the year, and with sequestration sitting there next year, did that weigh on your share repurchases in the quarter?

David C. Wajsgras – SVP and CFO: So, back in January, Carter, we had talked about moderating our share repurchases for 2012 going forward relative to prior years. So, frankly we are executing along those lines and the way the cadence had played out with something that we had essentially anticipated back in January. I think importantly, we feel very good about the cash flow generation both on the quarter and year-to-date, and I think it’s worth noting that we’ve increased our guidance to between $1.8 billion and $2 billion of cash on the year.

Carter Copeland – Barclays: That’s what I recalled I just wanted to make sure there was no sort of difference in message, so thank you for that. Second question, Dave, is more mechanical one. We are all struggling to figure out what sequestration is going to mean for 2013 as you are as well and I am sure you are evaluating lots of scenarios. But putting the top line impact aside, if you were to think about the mechanics about how you will evaluate the impact of sequestration on margins given that will already be done with Q4 and you’ll probably be closing out your EAC shortly thereafter and we won’t know really what’s going to happen with contractual actions by the time you report Q4 results and may not know by the time you report Q1 results. When is it realistic in the sort of mechanical process of how you are going to set EACs and determine profit rates that you’ll have a realistic read on what the impact of sequestration could be for your margin rates?

David C. Wajsgras – SVP and CFO: So, I will try to answer the number of questions that you just put forward. There are many factors to consider when you’re thinking about this, and frankly at this stage, it’s hypothetical. So, the speculation isn’t all that easy. Now, with that said, a lot of this depends – for various companies, not just Raytheon, but if you stand back, a lot this depends on how companies’ programs are going to be impacted overall. So for example, if the decreases are tied to a dedicated facility – and that’s not a situation that we would want to be in and frankly we don’t find ourselves in that situation, the cost associated with the facility could have a negative impact on the margin profile. It also depends on whether a program or programs are being canceled or stretched out, whether they are funded or unfunded. The overall program mix of the Company – and whether or not you have offsets, things like our international business, and again from Raytheon’s perspective, we believe that’s a strength. I think most importantly is our ability to react quickly to any type of reductions from a cost structure standpoint. We know how to react in this regard and you can see that – especially if you look in the rearview mirror, just look at the facts and look at the results we’ve posted and the margins we’ve been able to achieve, we do have a broad portfolio of programs and the fact that we have Companywide systems, again which we’ve talked to in the past, it does provide us with a lot of flexibility to help mitigate any kind of pressure on the margin profile. I hope that answers the question.

Carter Copeland – Barclays: It does. As kind of a follow-up to that, and thank you for that; is it fair to say that it will take an extended period of time into 2013 before we really have a decent handle on what some of those impacts might be?

David C. Wajsgras – SVP and CFO: Again, it depends what kind of guidance we get from the customer, and if and how sequestration is actually implemented. So, my crystal ball is a little foggy this morning. It’s a fair question, but it’s very difficult to answer in the hypothetical.

William H. Swanson – Chairman and CEO: Yeah, just a little color to what Dave said. We do not expect the Department to cancel programs starting in January. At least some of the discussions have stated that. They’ll plan their way through it, as Dave said, and for us, we’ll do our planning based on both scenarios; a normal – I guess a normal year you’d call what we’re in versus a year of sequestrations. And what’s important is we have a healthy funded backlog.

A Closer Look: Raytheon Earnings Cheat Sheet>>