Raytheon Management Discusses Q2 2012 Results - Earnings Call Transcript

Raytheon (RTN)

Q2 2012 Earnings Call

July 26, 2012 9:00 am ET


Todd B. Ernst - Former Vice President of Investor Relations

William H. Swanson - Chairman, Chief Executive Officer and Chairman of Executive Committee

David C. Wajsgras - Chief Financial Officer and Senior Vice President


Joseph Nadol - JP Morgan Chase & Co, Research Division

Douglas S. Harned - Sanford C. Bernstein & Co., LLC., Research Division

Howard A. Rubel - Jefferies & Company, Inc., Research Division

George D. Shapiro - Access 3:42, LLC

Jason M. Gursky - Citigroup Inc, Research Division

Samuel J. Pearlstein - Wells Fargo Securities, LLC, Research Division

Robert Stallard - RBC Capital Markets, LLC, Research Division

David E. Strauss - UBS Investment Bank, Research Division

Robert Spingarn - Crédit Suisse AG, Research Division

Myles A. Walton - Deutsche Bank AG, Research Division



Good day, ladies and gentlemen, and welcome to the Raytheon Second Quarter 2012 Earnings Conference Call. My name is Deanna and I'll be the operator for today. [Operator Instructions] As a reminder, today's conference is being recorded for replay purposes. I would like to turn the call over to your host, Mr. Todd Ernst, Vice President, Investor Relations. Please go ahead.

Todd B. Ernst

Thank you, Deanna. Good morning to everyone. Thank you for joining us today on our second quarter conference call. The results that we announced this morning, the audio feed of this call and the slides that we'll reference are available on our website at raytheon.com. Following this morning's call, an archive of both the audio replay and the printable version of the slides will be available in the Investor Relations section of our website.

With me today are Bill Swanson, our Chairman and Chief Executive Officer; and Dave Wajsgras, our Chief Financial Officer. We'll start with some brief remarks by Bill and Dave, and then move on to questions.

Before I turn the call over to Bill, I'd like to caution you regarding our forward-looking statements. Any matters discussed today that are not historical facts, particularly comments regarding the company's future plans, objectives and expected performance, constitute forward-looking statements. These statements are based on a wide range of assumptions that the company believes are reasonable, but are subject to a range of uncertainties and risks that are summarized at the end of our earnings release and are discussed in detail in our SEC filings.

With that, I'll turn the call over to Bill. Bill?

William H. Swanson

Thank you, Todd. Good morning, everyone. Raytheon reported strong or solid second quarter operating performance, driven by great execution across the company. I'm pleased with our performance in the quarter. We continue to focus our efforts on driving efficiencies across the operations and leveraging our portfolio of advanced technologies to capture new business.

Bookings were solid in the quarter, with a book to bill of over 1.0, driven largely by our domestic and classified business. Notable bookings include awards for the Exoatmospheric Kill Vehicle, Standard Missile-6, domestic and foreign training and several classified contracts. Funded backlog increased by over $600 million year-to-date and by approximately $2.1 billion compared to the second quarter of 2011.

Our international pipeline remains robust. At Farnborough International Airshow earlier this month, I had the opportunity to meet with a number of our international customers. And what I can tell you is that there was considerable interest in Raytheon solutions from a broad set of both existing and new customers. Overall of this year's show, we hosted 30 delegations and had over 600 meetings within a short time frame. I'm encouraged by what I've heard from our international customers. They continued to look to us for solutions in the areas of missile-defense, radars, ISRs, cybersecurity, Air Traffic Management and training. In the international market, we continue to set the pace among our peer companies, and in the quarter, international represented approximately about 25% of our total sales.

I'd like to take a few minutes to highlight an important achievement in the quarter. Our standard missile 3 had 2 successful intercept test, one on May 9 and the other on June 27. These intercepts, which had been compared to a bullet hitting a bullet outside the atmosphere demonstrate a critical capability for the United States and our allies. Another example of how Raytheon continues to provide some of the world's most advanced technologies to meet our customers most pressing needs.

In terms of contract awards, we received an order for the next block of Multi-Spectral Targeting System for the U.S. Air Force Reaper, UAV in the quarter. The MTS-B, as it's called, is a multi-use electro-optical infrared sensor that also provides target acquisition. This is basically the round ball that many of you see on the predator and reaper drones, and it's just one of the many products across Raytheon that leverage our core EO/IR capabilities.

This follows an order received for the dismounted detection radar, DDR, in the first quarter, also for the reaper. DDR is a synthetic aperture radar pod that can be used to detect ground moving targets in all weather, day or night, and it's a product of our core RF capabilities being applied in innovative ways to meet the demands of the war fighter. These products reflect our strong position in the ISR markets, alignment with our customers' priorities, and demonstrate our platform agnostic strategy at work. This strategy gives us the flexibility to place products on multiple platform, vehicles and systems.

I would be remiss if I didn't address sequestration. On this topic, there isn't too much enthuse to report from where we were at the end of the first quarter. Congress continues to look at alternative courses of action. However, the reality is this is an election year, which makes coming to a final agreement more challenging. Further, the Office of Management and Budget has not rendered its interpretation of the legislation and the Department of Defense has not indicated its plan for implementing sequestration. So in this context, we continue to plan for a range of potential outcomes. And like we do every day here at Raytheon, we're focused on reducing our costs, optimizing our resources so that we can provide the best value for our customers. Whether sequestration happens or not, it's ingrained here in our culture, and you can see that reflected in our performance. It's a product of our heritage that goes back 9 decades.

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