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L3 Technologies' (LLL) Q1 Earnings Beat, 2019 Sales View Up

Zacks Equity Research

L3 Technologies, Inc. LLL reported first-quarter 2019 adjusted earnings of $2.89 per share from continuing operations, which surpassed the Zacks Consensus Estimate of $2.52 by 14.7%.

Excluding one-time items, the company reported GAAP earnings of $2.71 compared with $2.34 registered in the year-ago quarter.

The year-over-year bottom-line improvement can be attributed to solid sales and operating income growth in the reported quarter.

L3 Technologies Inc. Price, Consensus and EPS Surprise

L3 Technologies Inc. Price, Consensus and EPS Surprise | L3 Technologies Inc. Quote

Total Sales

In the quarter under review, total sales came in at $2.70 billion, outpacing the Zacks Consensus Estimate of $2.52 billion by 7%. The topline also improved 14% year over year.

Organic sales to the U.S. government rose 18%, while that to international and commercial customers improved 6%. Overall, organic sales increased 14%.

Orders & Margin

Funded orders in the first quarter totaled $3.38 billion, reflecting a 28% surge from the year-ago quarter. Funded backlog was $10.40 billion as of Mar 29, 2019, up 7% from $9.70 billion as of Dec 31, 2018.

Operating margin expanded 90 basis points (bps) to 11.5% in the reported quarter.

Segmental Performance

Electronic Systems: Net sales at the segment rose 2% to $662 million from the prior-year quarter’s $648 million driven by organic sales growth.

Operating income summed $97 million compared with $94 million in the year-ago quarter. As a result, operating margin expanded 20 bps to 14.7%.

Intelligence, Surveillance and Reconnaissance Systems (ISRS): The segment recorded net sales of $1,253 million in the first quarter, up 23% year over year. The upside can be attributed to higher sales volume related to procurement and ISRmissionization of business jet aircraft systems.

Also, increased deliveries of night vision products to an international customer and that of airborne turret systems to U.S. and foreign militaries contributed to the top line.

While operating income increased to $130 million from $93 million in the year-ago quarter, operating margin expanded 120 bps to 10.4%.

Communications and Networked Systems (C&NS): Net sales at this segment increased 11% to $785 million owing to higher production volume for Unmanned Aerial Vehicle (UAV) communication systems as well as increased deliveries of mobile and ground-based SATCOM systems.

Operating income improved 31% to $84 million while operating margin expanded 160 bps to 10.7%.

Financial Position

As of Mar 29, 2019, L3 Technologies had $1,108 million in cash and cash equivalents compared with $1,066 million as of Dec 31, 2018.

Long-term debt as of Mar 29, 2019, was $3,322 million, almost in line with that at the end of 2018.

Net cash inflow from operating activities totalled $174 million at the end of the first quarter compared to the year-ago cash outflow of $35 million. Capital expenditures summed $49 million compared with the year-ago figure of $56 million.

2019 View

L3 Technologies has revised its guidance for 2019. The company now anticipates net sales of $10.90 billion compared with $10.75 billion projected earlier. The Zacks Consensus Estimates for current-year sales, pegged at $10.78 billion, is below the company’s latest guidance.

The company, however, continues to project operating margin of 12%. Meanwhile, the effective tax rate is now expected to be 19% instead of prior projection of 20%. Additionally, it now expects net cash of $1,285 million from operating activities, slightly up from earlier estimate of $1,275 million.

Expectation for free cash flow now stands at $1,055 million compared with the earlier projection of $1,045 million.

Zacks Rank

L3 Technologies currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Recent Defense Releases

Textron Inc. TXT reported first-quarter 2019 earnings of 76 cents per share from continuing operations, surpassed the Zacks Consensus Estimate of 70 cents by 8.6%.

Lockheed Martin Corp.’s LMT first-quarter 2019 earnings came in at $5.99 per share, which outpaced the Zacks Consensus Estimate of $4.29 by 39.6%.

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