Harris Corporation CEO Discusses F2Q11 Results - Earnings Call Trasncript

Harris Corporation ( HRS)

F2Q11 (Qtr Ended 12/31/10) Earnings Call

January 26, 2011 4:30 pm ET

Executives

Pamela Padgett - VP of IR

Howard Lance - Chairman, President and CEO

Gary McArthur - SVP and CFO

Analysts

Peter Skibitski - Suntrust Robinson Humphrey

Joe Nadol - JP Morgan

Rich Valera - Needham & Company

Gautam Khanna – Cowen And Company

Chris Quilty - Raymond James

Jim McIlree - Merriman

Jason Kupferberg - UBS

Mark Jordan - Noble Financial

Josephine Millward - Benchmark Company

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Second Quarter 2011 Harris Earnings Conference Call. My name is Alicia, and I will be your operator for today. [Operator Instructions] I would now like to turn the call over to Ms. Pamela Padgett, Vice President of Investor Relations. Please proceed.

Pamela Padgett

Good afternoon everyone. Welcome to Harris’s. second quarter fiscal 2011 conference call. I'm Pamela Padgett, and on the call with me today is Howard Lance, Chairman, President and CEO; Gary McArthur, Senior Vice President and Chief Financial Officer.

Before we get started a few words about forward-looking statements. In the course of this teleconference, management may make forward-looking statements. Forward-looking statements involve assumptions, risks and uncertainties that could cause actual results to differ materially from those statements.

For more information and a discussion of such assumptions, risks and uncertainties, please see the press release and filings made by Harris with the SEC.

In addition, in our press release and on this teleconference, we will discuss certain financial measures and information that are non-GAAP financial measures. A reconciliation to the comparable GAAP measure is included in the tables of our press release and on the Investor Relations section of our website, which is www.harris.com. A replay of this call will also be available on the Investor Relations section on our website.

And with that, Howard, I'll turn it over to you.

Howard Lance

Thank you, Pam, and I want to welcome all of you to our second quarter fiscal 2011 earnings call. Harris’s second quarter results were excellent with contributions from all of operating segments. RF communications posted strong international growth.

Government communication systems showed continued stability with better than industry average margins. And we saw good improvement in Broadcast Communication results.

I am please to report that the previously announced Schlumberger’s Global Connectivity Services acquisition is still expected to close in our third fiscal quarter.

GCS-add scale to our global managed satellite communications services business, expands our global footprint and further diversifies the company into faster-growing markets. When combined with the previous acquired CapRock Communications business, this merger will create exciting new channels to provide Harris Assured Communications solutions to both government and commercial customers alike.”

Our consolidated revenue in the second quarter was $1.44 billion. That was 18% higher than the prior year. On an organic basis when we adjust for the impact of acquisitions, revenue increased by a strong 9%.

Non-GAAP income, which exclude acquisition related costs was a $155 million in the second quarter or $1.20 per diluted share, that was a 12% compared with the prior-year quarter. Non-GAAP earnings before interest, taxes, depreciation and amortization and also excluding acquisition related costs was $296 million in the quarter and a 11% increase compared to the prior year.

Consolidated orders in the second quarter were $1.41 billion, about even with the very strong $1.42 billion in the prior year quarter. Off course the prior year benefited significantly from tactical radio orders for MRAPs and M-ATVs for the U.S. Department of Defense.

Second quarter revenue for the RF Communication segment was $545 million, 18% higher compared to the prior year. Operating income was $189 million and operating margin for the segment continued very strong at 35% due to favorable product mix and continuing operating efficiencies.

Second quarter orders for the RF segment were $391 million, segment backlog of $1.52 billion at the end of the quarter remains high and is expected to rise in the second half of our fiscal year thanks to several large multiyear contract wins that were awarded during and following the close of the quarter. These wins included the greater than $300 million international tactical radio contract. The province wide Alberta, Canada first responder program and the statewide Oregon Wireless interoperability network contract.

Tactical communications revenue was $426 million in the quarter; increasing 20% compared to the prior year. Revenue growth was driven by strong international deliveries on multiyear modernization programs for Pakistan, Australia and Iraq.

As well as an uptick in the U.S Department of Defense adoption of the company’s new line of Falcon III radios. These increases were partially offset by fewer radio deliveries for the military’s MRAP vehicles program. The remaining $80 million of the fiscal 2010 MRAP backlog was shipped during this quarter. And that compares to a $195 million in MRAP shipments in the second quarter of fiscal 2010.

The positive note however is that even with this significant decline in MRAP deliveries we were able top more than take up the slack through higher shipments of our Falcon III radios such that the total US DoD revenue in the quarter actually increased year over year by 4%

Orders for tactical communications were $300 million in the quarter. The corresponding book to bill of 0.70 and compared to orders in the prior year of $554 million. Tactical communications backlog was a healthy $1.06 billion at the end of the quarter. We expect year end Tactical Commutations backlog to be in the $900 million to $1 billion range. So our U.S. Tactical Radio business remains healthy and is benefiting from strong customer demand for our next generation Falcon III Radios. These are being procured to address a wide range of applications for both ongoing operations as well communications modernization.

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