Will Missile Systems Unit Drive Raytheon's (RTN) Q3 Earnings?

Raytheon Company RTN is scheduled to release third-quarter 2019 results on Oct 24, before the opening bell.

In the last reported quarter, the missile maker delivered a positive earnings surprise of 11.88%. Furthermore, Raytheon’s earnings surpassed the Zacks Consensus Estimate in three of the trailing four quarters, the average positive surprise being 10.58%.

Sales growth in the company’s segments, particularly the Missile Systems segment, is likely to show on its overall top line in the quarter to be reported.

Let’s take a detailed look at the factors influencing Raytheon’s performance in the to-be-reported quarter.

Missile Systems: A Key Catalyst

Raytheon’s Missile Systems (MS) business unit, which represents almost 30% of total sales, has been one of the major revenue drivers. Increasing demand for integrated air and missile defense solutions — the National Advanced Surface-to-Air Missile System (NASAMS) AND Advanced Medium-Range Air-to-Air Missile (AMRAAM-ER) — along with other missile variants has been significantly driving the segment’s top line, a trend that most likely continued in the third quarter.

In line with this, the Zacks Consensus Estimate for the MS segment’s revenues in the third quarter is pegged at $2,238 million, implying a 7.5% increase from the figure reported in the year-ago quarter. The consensus mark for the segment’s operating income is pegged at $280 million, suggesting 8.9% growth from the figure reported in the year-ago quarter.

Interestingly, during the third quarter, the MS segment secured major contracts, including a $2.2-billion FMS contract from Qatar. These are expected to get reflected in the company's backlog count in the to-be- reported quarterly results.

Other Factors at Play

During the second-quarter earnings call, Raytheon expressed anticipations that the Intelligence, Information and Services (IIS) unit growth rate will moderate in the back half of the year, led by the planned ramp down and transition on the Warfighter FOCUS program. Such a projection might have impacted this segment’s third-quarter performance.

The Zacks Consensus Estimate for this segment’s third-quarter sales is pegged at $1,750 million, indicating only a 0.5% rise from the prior-year quarter's reported figure.

Revenue & Earnings Estimates

With the majority of its segments reflecting top-line growth, the Zacks Consensus Estimate for Raytheon’s third-quarter sales pegged at $7.26 billion indicates a 6.7% increase from the year-ago quarter’s reported figure.

During the second quarter, Raytheon successfully lowered its corporate expenses by approximately $25 million alongside improving net interest expenses and other non-operating expenses. Assuming that such trends have continued during the third quarter, the company’s bottom line might reflect growth.

In line with this, the consensus mark for the company’s third-quarter earnings pegged at $2.85 indicates 26.7% growth from the year-ago quarter’s reported figure.

Also, on the second-quarter earnings call, Raytheon raised its 2019 operating cash flow guidance by $100 million, anticipating earnings growth. This is likely to get reflected in the company's bottom line in the upcoming quarterly results.

Why a Likely Positive Earnings Surprise

Our proven model predicts an earnings beat for Raytheon this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Raytheon has an Earnings ESP of +1.35% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here. 

Raytheon Company Price and EPS Surprise

 

Raytheon Company Price and EPS Surprise

Raytheon Company price-eps-surprise | Raytheon Company Quote

Other Key Picks

Here are some other defense companies you may want to consider, as our model shows that these also have the right combination of elements to post an earnings beat this quarter:

Northrop Grumman Corp. NOC is scheduled to report third-quarter 2019 results on Oct 24. The company has an Earnings ESP of +2.26% and a Zacks Rank #3.

Leidos Holdings Inc. LDOS is expected to report third-quarter 2019 results on Oct 29. The company has an Earnings ESP of +1.52% and a Zacks Rank #2.

Huntington Ingalls Industries, Inc. HII is expected to report third-quarter 2019 results on Nov 7. The company has an Earnings ESP of +2.09% and a Zacks Rank #3.

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