Harris (HRS) Beats on Q4 Earnings by a Penny, Cuts View

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Harris Corp. (HRS) reported financial results for the fourth quarter of fiscal 2014. GAAP net income from continuing operations came in at $137.6 million or $1.28 per share compared with a net income of $70.5 million or 65 cents per share in the year-ago quarter. The reported earnings beat the Zacks Consensus Estimate by a penny. 
 

Moreover, consolidated revenues in the reported quarter stood at $1,329.4 million, down 2.2% year over year. However, the figure easily surpassed the Zacks Consensus Estimate of $1,299 million. 

Cost of sales in the reported quarter stood at $899.6 million against $887.8 million in the prior-year quarter. Gross margin was 32.3% compared with 34.7% in the year-ago quarter. Engineering, selling & administrative expenses totaled $203.9 million compared with $300.7 million in the comparable year-ago quarter. Quarterly operating margin was 17% against 12.5% in the year-ago quarter. 
 
At the end of the fourth quarter of 2014, Harris generated $849.2 million of cash from operations against $833 million in the year-earlier quarter. Free cash flow (cash flow from operations excluding capital expenditures) in the fourth quarter of 2014 stood at $639.9 million as against $668.2 million in the year-ago quarter. 
 
At the end of fourth-quarter 2014, Harris had cash and cash equivalents of $561 million compared with $321 million at the end of fiscal 2013. Total debt stood at $1,575.8 million compared with $1,577.1 million at the end of fiscal 2013. The debt-to-capitalization ratio for the reported quarter was 0.46 compared with 0.50 at the end of fiscal 2013.
 
Government Communications System Segment
 
Quarterly revenues at the segment were up 2% year over year to $480 million. Meanwhile, operating income stood at $69 million versus $54.3 million in the prior-year quarter. Quarterly operating margin was 14.4% against 11.5% in the year-ago quarter.
 
RF Communications Segment
 
Revenues in the quarter came in at $493.2 million, down 1.5% year over year. Tactical Radio Communications and Public Safety and Professional Communications segments contributed roughly 70.5% and 29.5%, respectively. Operating income was $140.5 million compared with $175.7 million in the year-ago quarter. Quarterly operating margin was 28.5% against 35.1% in the year-earlier quarter.
 
In the reported quarter, the segment generated orders worth $232 million from the Tactical Radio Communications business and $129 million from the Public Safety and Professional Communications business. Total order backlog stood at $564 million in the Tactical Radio Communications segment and $570 million in the Public Safety and Professional Communications segment. 
 
Integrated Network Solutions
 
The segment generated revenues of $373.4 million, down 9.4% year over year. Operating income in the quarter was $32.6 million compared with a loss of $16.9 million in the year-ago quarter. 
 
Financial Outlook
 
For fiscal 2015, Harris projected GAAP earnings per share from continuing operations of $4.75–$5. Moreover, the company expects revenues to decline 1–3% from fiscal 2014.
 
Other Stocks to Consider
 
Harris currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the wireless equipment sector are Comtech Telecommunications Corp. (CMTL), InterDigital, Inc. (IDCC) and DragonWave Inc. (DRWI). Comtech and InterDigital have a Zacks Rank #1 (Strong Buy) while DragonWave has a Zacks Rank #2 (Buy). 
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