UPDATE 2-Raytheon posts higher-than-expected profit, boosts forecast


* Company eyes orders from Middle East

* Earnings per share of $1.51 beat analysts' forecast of$1.33

* Sees strong margins, weaker sales in 2014

By Andrea Shalal-Esa

WASHINGTON, Oct 24 (Reuters) - Raytheon Co onThursday joined other U.S. arms makers in reportinghigher-than-expected quarterly earnings and raising full-yearforecasts, saying it expected to maintain strong margins andcash flow in 2014 despite an expected drop in sales.

Raytheon, maker of Patriot missile systems and a wide rangeof other military equipments, said it saw "tremendousopportunities" for landing several big orders later this year.

Chief Financial Officer Dave Wajsgras told Reuters he wasfairly confident about Raytheon's overall business outlook andthat mandatory U.S. military budget cuts required undersequestration were not hitting the defense industry as quicklyas initially expected.

He said Raytheon's large international business, whichaccounts for nearly 40 percent of the company's backlog, washelping to offset the effects of the U.S. budget cuts, and heremained hopeful that U.S. lawmakers would resolve the ongoingfiscal crisis in coming months.

"We exceeded our guidance on sales, earnings and cash flow,and we've taken the year up accordingly with respect to ouroverall financial guidance," Wajsgras said in a telephoneinterview. "On a year-to-date basis, we're seeing a lot ofstrength versus last year."

Chief Executive Officer William Swanson told a conferencecall that Raytheon was planning for a continuation of mandatory,across-the-board budget cuts required under sequestration nextyear, but still expected to generate strong profits and cashflow.

"I would tell you that '14 feels a lot like '13," Swansonsaid. "Revenue should be down just slightly, driven by domestic.I think the margins should continue to be strong, and thecompany is expected to have strong cash generation."

Wajsgras said Raytheon hoped to land orders to sell aPatriot missile defense system to Kuwait and a ground-based airdefense system for Oman as well as a possible Patriot sale toQatar and some additional U.S. orders.

JPMorgan analyst Joe Nadol said quarterly results were good,but the company would have to generate a lot of business in thefourth quarter to achieve its full-year bookings forecast of$23.5 billion, plus or minus $500 million.

Raytheon shares were down 1.8 percent at $77.05 in morningtrading.


Analysts welcomed Raytheon's results, which were largely inline with those of other big weapons makers, including LockheedMartin Corp and Northrop Grumman Corp.

Rob Stallard of RBC Capital Markets said he was heartened bythe better-than-expected performance of Raytheon's Intelligence,Information and Services (IIS) business, whose operating marginwas essentially steady at 13.7 percent.

"This was a strong quarter for Raytheon operationally,especially IIS," he wrote in a note to clients.

Wajsgras said Raytheon was confident that it would prevailin two separate protest actions filed against recent largecontract awards it won from the U.S. Navy, given what hedescribed as the company's superior technical solutions.

Swanson said Raytheon was also still ready to sell itsPatriot missile defense system to Turkey if that country changedits mind about buying a rival system offered by a Chinesecompany that is under U.S. sanctions.

Raytheon said third-quarter income from continuingoperations fell 2.8 percent to $487 million from $501 million ayear earlier. Earnings per share were flat at $1.51, whileanalysts polled by Thomson Reuters I/B/E/S had forecast $1.33.

Sales dropped 3.4 percent to $5.8 billion.

Raytheon said it expected full-year earnings per share of$5.67 to $5.77 from continuing operations, 16 cents more thanits previous forecast and up from $5.65 in 2012.

The company increased its 2013 sales forecast by $100million to a range of $23.6 billion to $23.8 billion. That wouldamount to drop of 2.5 percent to just over 3 percent from salesof $24.4 billion in 2012.

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