Harris' CEO Discusses Q2 2012 Results - Earnings Call Transcript

Harris (HRS)

Q2 2012 Earnings Call

January 31, 2012 8:30 am ET

Executives

Pamela Padgett - Vice President of Investor Relations

William M. Brown - Chief Executive Officer and President

Gary L. McArthur - Chief Financial Officer and Senior Vice President

Daniel R. Pearson - Chief Operating Officer and Executive Vice President

Analysts

Gautam Khanna - Cowen and Company, LLC, Research Division

Carter Copeland - Barclays Capital, Research Division

Noah Poponak - Goldman Sachs Group Inc., Research Division

Michael S. Lewis - Lazard Capital Markets LLC, Research Division

Richard Valera - Needham & Company, LLC, Research Division

Joseph Nadol - JP Morgan Chase & Co, Research Division

Mark C. Jordan - Noble Financial Group, Inc., Research Division

Chris Quilty - Raymond James & Associates, Inc., Research Division

Lawrence M. Harris - CL King & Associates, Inc.

Josh W. Sullivan - Sterne Agee & Leach Inc., Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Harris Second Quarter 2012 Earnings Conference Call. My name is Janeda, and I will be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host for today, Ms. Pamela Padgett, Vice President of Investor Relations. Please proceed.

Pamela Padgett

Thank you. Good morning, everyone, and welcome to our second quarter fiscal 2012 earnings call. It's so nice to be saying good morning instead of good afternoon. I'm Pamela Padgett, and on the call with me today is Bill Brown, President and CEO; Gary McArthur, Senior VP and Chief Financial Officer; Dan Pearson, Executive Vice President and Chief Operating Officer.

Before we get started, a few words on forward-looking statements. In the course of the 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 on the 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 and the related presentation, we will discuss certain financial measures and information that are non-GAAP financial measures. A reconciliation to the comparable GAAP measures 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 of our website.

And with that, Bill, I'll turn the call over to you.

William M. Brown

Okay. Thank you, Pam, and I want to welcome all of you to our second quarter fiscal 2012 earnings call. As you know, I came to Harris from United Technologies, where I've held a number of line and functional roles, including leading large global businesses from both the U.S. and Asia and executing on our large number of acquisitions and divestitures. I also spent 7 years in McKinsey & Company working on a variety of strategy and operational improvement projects for a number of industrial companies.

While my background is more in the commercial than the government space, I believe by global experience, track record for M&A and post-merger integration and operational excellence capabilities are all very relevant to Harris and important in the current environment. Given the challenges we now face with constrained government spending, we need to take a fresh look at our strategy and ensure we're as successful in the next decade as we were in the last.

So while the purpose of today's call is to detail our Q2 results and outlook for the year, I'd like to provide you a few initial thoughts and perspectives on what I've seen so far and what I expect to focus on in the near term, recognizing it's still early and I have much to see and learn. But first, I'd like to quickly review some of the highlights of our second quarter results, turn it over to Gary to walk through the details of the financials, and then come back to share with you a few perspectives.

Turning to Slides 3 and 4 in the presentation, Harris posted solid second quarter results with revenue of $1.45 billion and non-GAAP EPS of $1.22, both slightly ahead of the prior year. Orders were $1.2 billion, down 15% following a strong start in Q1, and we announced today that we received a very large $235 million Tactical Communications order from Australia in mid-January after the quarter closed, the second phase of the $500 million multiyear modernization program.

GAAP and non-GAAP net income were lower primarily due to the lack of the expedited MRAP shipments in Q2 of last year. All segments reported sequential operating margin improvement, and cash flow from operations increased significantly compared to the previous quarter and prior year, supporting expectations for strong cash flow again this year.

I'll turn it over to Gary to comment on segment results and guidance outlook, and then I'll come back with a few comments before we open the call to questions. Gary?

Gary L. McArthur

Thank you, Bill, and good morning, everyone. Moving to segment results on Slide 5, revenue for RF Communications was $526 million compared to $545 million in the prior year. Tactical Communications revenue was $391 million, declining 8%. Prior-year revenue benefited from the last quarter of expedited MRAP shipments to the DoD. Excluding the $80 million of MRAP revenue in the prior year, Tactical Communications revenue increased double digit, with international revenue more than offsetting the decline in DoD. International revenue growth was driven by major deliveries to countries in Africa and Asia.

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