Harris Corp (HRS) announced better-than-expected results for the second quarter of fiscal 2010 with adjusted (excluding acquisition-related costs) earnings per share of $1.08, well above the Zacks Consensus Estimate of 94 cents, boosted by strong demand for its advanced tactical radios. The company’s shares were up $1.20 (or 2.6%) at $48 in after market trade on NYSE. 

Reported net income for the quarter was $139.5 million or $1.06 per share compared to $140.6 million or $1.06 reported in the year-ago quarter. Consolidated revenue of $1,218 million came below the Zacks Consensus Estimate of $1,289 million and declined 8.6% year over year. 

Cost of sales for the quarter was $778.6 million compared to $925.3 million reported in the prior-year quarter. Engineering, selling, & administrative expenses were $215.7 million compared to $191.8 million in the year-ago quarter. 

Harris generated $321.4 million of cash from operations during the first half of fiscal 2010, a considerable improvement over $189.3 million registered in the same period a year-ago. Free cash flow (cash flow from operations less capital expenditures) for the first half was $245.3 million compared to $122.6 million achieved in the year-ago period. 

At the end of the second quarter, the company had cash and cash equivalent of $310.2 million and a total debt of $1,222.6 million. Buoyed by a healthy free cash flow, the company paid a second quarter dividend of 22 cents per share, an increase over the year-ago dividend of 20 cents. 

Harris reported continued strong performance across its RF Communications and Government Communications Systems segments. Total new orders for the quarter were $1.4 billion, an improvement from $1 billion registered in the year-ago quarter. During the quarter, the company secured orders worth $119 million for the Falcon III AN/PRC-152(C) handheld radio systems and $228 million for the Falcon II AN/VRC-104 high-frequency radio systems. According to our assessment, in the near-future, the company will benefit from higher defense expenditure of the US government together with new expansion drives in Asia, Europe & Africa. 

Following is the snapshot of results by segments: 

Government Communications System Segment 

Quarterly revenue was $647 million, down 13.5% year over year, as sales for the prior-year quarter benefited from a large handheld computer equipment delivery to the US Census Bureau. Operating income was $87 million compared to $85 million in the year-ago quarter. During the same quarter, the segment secured several international air traffic control communications contracts. The IT services business was awarded a $37 million order to migrate and consolidate communications systems for the US Southern Command. 

RF Communications Segment 

Revenue for the quarter registered $463 million, up 5.7% year over year with “Tactical Radio Communications” and “Public Safety and Professional Communications” accounting for 77% and 23% of the total, respectively. Operating income was $169 million compared to $144 million in the year-ago quarter. 

Harris generated $626 million worth of new orders compared to $709 million booked in the previous quarter. Total backlog in this segment at the end of the second quarter was $1.4 billion that includes $953 million in Tactical Radio Communications and $443 million in Public Safety and Professional Communications. New orders for tactical radio communication systems were driven by increased customer adoption of the company’s Falcon III radios and increased demand for equipping the new military vehicles shipped to Afghanistan. 

Broadcast Communications Segment 

This segment generated revenue of $117 million, down 28% year over year. Sales declined across all the product lines in both the international and US markets. Operating loss for the quarter was $5 million compared to an operating income of $12 million in the year-ago quarter. New orders achieved by the segment during the quarter were $139 million, an improvement over $124 million registered in the previous quarter. Harris successfully deployed several FAME solutions that are being developed for military applications. 

Outlook 

Management has raised the financial forecasts for fiscal 2010. Revenue is now expected in the range of $5.2 billion to $5.3 billion compared to an earlier forecast of $5.1 billion and $5.2 billion, a shade over the current Zacks Consensus Estimate of $5.18 billion. Fiscal 2010 non-GAAP (adjusted) EPS has been revised to a range of $4.25 to $4.35, an increase from the previous guidance of $3.85 to $3.95 while exceeding the current Zacks Consensus Estimate of $3.88. On a GAAP basis, EPS is forecasted in the range of $4.13 to $4.23, up from the earlier estimate of $3.74 to $3.84.
Read the full analyst report on “HRS”
Zacks Investment Research