Harris Corp. (HRS) announced better-than-expected results for the third quarter of fiscal 2010 with adjusted (excluding acquisition-related costs) net earnings per share of $1.30, well above the Zacks Consensus Estimate of $1.26, boosted by strong demand for its advanced tactical radios.
Reported GAAP net income for the quarter was $166.2 million or $1.27 per share compared to a net income of $135.9 million or $1.02 per share in the year-ago quarter. As a result, in after market trade on NYSE, the stock price of Harris was up $1.21 (2.43%) to $51.
Consolidated revenue for the third quarter was $1,329.5 million, below the Zacks Consensus Estimate of $1,383 million but an improvement of 10.3% year-over- year. This was primarily due to the strong performance of RF communications and Government Communications Systems businesses. Total orders in the third quarter were $1.45 billion compared to $1.03 billion in the prior-year quarter.
Cost of sales for the quarter was $820 million compared to $813.3 million reported in the prior-year quarter. Engineering, selling, & administrative expenses were $245 million compared to $188.4 million in the year-ago quarter.
Harris generated $635.3 million of cash from operations during the first nine months of fiscal 2010, a considerable improvement over $404.5 million in the same period a year-ago. Free cash flow (cash flow from operations less capital expenditures) for the first nine months of fiscal 2010 was $458.9 million compared to $298.5 million in the year-ago period.
At the end of the third quarter of fiscal 2010, Harris had cash & cash equivalents of $405.7 million and a total debt of $1,176.7 million compared to $281.2 million of cash & cash equivalents and a total debt of $1,283 million at the end of fiscal 2009.
Government Communications System Segment
Quarterly revenue was $665.7 million, up 2.6% year over year. Revenue increased mainly for GOES-R GS weather program for the NOAA, the MET program for the U.S. Army and the IT services relocation program for the U.S. Southern Command.
Operating income was $90.4 million compared to $73.9 million in the year-ago quarter. Quarterly operating margin was 13.6% compared to 11.4% in the prior-year quarter. Following the close of the reported quarter, Harris received a four-year, $35 million network operations support contract for the Defense Commissary Agency Global Network Services.
RF Communications Segment
Revenue for the quarter registered $550.7 million, up 25.4% year over year, with “Tactical Radio Communications” and “Public Safety and Professional Communications” accounting for around 78% and 22% of the total, respectively. Operating income was $204.7 million compared to $151.3 million in the year-ago quarter. Quarterly operating margin was 43.7% compared to 34.5% in the year-ago quarter.
In the reported quarter, Harris generated $656 million worth of new orders consisting of $488 million in the Tactical Radio Communications business and $168 million in the Public Safety and Professional Communications business. Total order backlog in this segment at the end of the third quarter was $1.5 billion that includes $1.01 billion in Tactical Radio Communications and $489 million in Public Safety and Professional Communications.
Broadcast Communications Segment
This segment generated revenue of $123 million, down 7% year over year. Sales declined across all the product lines in both the international and US markets. Operating loss for the quarter was $5.2 million compared to an operating income of $1.9 million in the year-ago quarter. New orders achieved by the segment during the quarter were $130 million, an improvement over $108 million in the previous quarter.
Future Financial Outlook
Management has raised the financial forecast for full fiscal 2010. Revenue forecast remains same in the range of $5.2 billion – $5.3 billion. Fiscal 2010 non-GAAP (adjusted) EPS has been revised to a range of $4.35 – $4.45, an increase from the previous guidance of $4.25 – $4.35. On a GAAP basis, EPS is forecasted in the range of $4.23 – $4.33, up from the earlier estimate of $4.13 – $4.23.
For full fiscal 2011, management has given a revenue approximation of $5.5 billion – $5.6 billion. Fiscal 2011 non-GAAP (adjusted) EPS has been guided in the range of $4.55 – $4.65.
Read the full analyst report on “HRS”
Zacks Investment Research
