Raytheon in Restructuring Mode

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Raytheon Company (RTN) has decided to reorganize its business through segment realignment, announcement of key executive roles and job cuts. The restructuring would aim to streamline operations, increase productivity and achieve stronger alignment with customers’ preferences. The restructuring will be effective from Apr 1, 2013.

Currently, Raytheon’s operations are classified into six business segments: Integrated Defense Systems (:IDS), Intelligence and Information Systems (:IIS), Missile Systems (MS), Network Centric Systems (NCS), Space and Airborne Systems (:SAS), and Technical Services (TS).  However, post re-alignment, this number will come down to four.

Intelligence and Information Systems and Raytheon Technical Services businesses will combine to form a new segment called Intelligence, Information and Services. Parts of the Network Centric Systems business will be added to Integrated Defense Systems, Missile Systems, Space and Airborne Systems and the newly formed Intelligence, Information and Services. Therefore, effective Apr 1, 2013, the company will operate through four business segments, namely, Intelligence, Information and Services, Integrated Defense Systems, Missile Systems, and Space and Airborne Systems.

Moreover, Dr. Thomas A. Kennedy has been elected to the position of executive vice president, chief operating officer who earlier served as vice president, Raytheon Company, and president of Integrated Defense Systems. Also, in conjunction with the business consolidation, Swanson, Raytheon's Chairman and Chief Executive Officer announced new roles for members of the Raytheon Leadership Team.

As a result of the consolidation the company expects to reduce the work force by 200 employees out of Raytheon's 67,800 employees. Therefore, this would not generate significant severance charges, thereby having no effect on the full year 2013 financial guidance.

The company expects the new structure to drive productivity, agility and affordability in a challenging defense and aerospace market environment. It expects consolidation to bring in savings of $85 million on an annual basis.

Other big names in the defense space have also resorted to cost-cutting measures, layoffs and structural changes to cut overhead costs and maintain profits. In Nov 2012, The Boeing Company (BA) had announced a major restructuring of its defense division and decided to cut 30% of management jobs in comparison to 2010 levels, closed facilities in California and consolidated several business units to cut costs. In Oct 2012, Lockheed Martin Corporation (LMT) had announced the restructuring of the organization in order to streamline its operations while enhancing customer alignment.

Based in Waltham, Mass., Raytheon Company is a technology and innovation leader specializing in defense, homeland security and other government markets throughout the world.

Looking forward, Raytheon enjoys strong order bookings and order backlog, an improving balance sheet, growing cash flow, and operational improvements. However, we remain concerned about defense cutbacks, the fate of high-cost programs, risks related to key project executions and order cancellations. The company presently retains a short-term Zacks Rank #3 (Hold).

In the near term, we would advise investors to accumulate its short-term Zacks Rank #2 (Buy) peer FLIR Systems, Inc. (FLIR).

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