L-3 Tops, Boosts Guidance - Analyst Blog

L-3 Communications Holdings Inc. (LLL) released robust fourth quarter results. In the reported quarter, the company achieved earning per share (EPS) of $1.93, beating the Zacks Consensus Estimate of $1.86. Net sales rose 5% to a record $4.2 billion in the reported quarter from $4.0 billion in the year-ago quarter. The upside mainly came from the Command, Control, Communications, Intelligence, Surveillance and Reconnaissance (C3ISR) and Electronic Systems segments.
 
C3ISR Segment
 
The C3ISR segment sales rose 17% year-over-year primarily due to increased demand and new business from the U.S. Department of Defense (DoD) for airborne ISR and networked communication systems for manned and unmanned platforms.
 
AM&M Segment
 
Aircraft Modernization and Maintenance (AM&M) sales increased marginally (by 1%) due to higher revenues from systems field support services, Special Operations Forces logistics support and higher sales for Joint Cargo Aircraft (JCA).
 
Government Services Segment
 
The Government Services segment sales also improved slightly (by 0.2%) from the year-ago period. This was mainly on account of increased revenues for information technology (IT) support services.
 
Electronic Systems Segment
 
Electronic Systems sales was up 4% year-over-year, reflecting higher sales volume primarily for deliveries of tactical quiet generators (TQG) for mobile electric power for the U.S. Armed Services, electro-Optical/Infrared (EO/IR) products, precision engagement and displays, and  a new international contract for the atomic weapons establishment.
 
Operating Statistics
 
Operating income in the reported quarter increased 7% year over year, while operating margin was up from 10.4% in the previous-year quarter to 10.6%. Higher margins for C3ISR segment and certain businesses within the Electronic Systems segment were partially offset by higher pension expense. The increase in pension expense reduced operating income by $14 million, or 12 cents per diluted share, and reduced operating margin by 50 basis points.
 
Cash Position
 
L-3 Communications reported $429 million in cash from operating activities in the reported quarter, compared to $356 million in the year ago quarter. Cash and cash equivalents at the end of 2009 was $1.0 billion, while long term debt stood at $4.1 billion.
 
Guidance
 
L-3 Communications increased the revenue guidance for fiscal 2010 to $15.8 billion – $16.0 billion from the earlier guidance range of $15.7 billion – $15.9 billion. The company also increased its EPS guidance range for fiscal 2010 to $8.00 – $8.20 from the earlier guidance range of $7.85 – $8.05. We maintain our market Neutral recommendation on the shares.
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