Harris Corporation Reports Fiscal 2017 Third Quarter Results

  • 3Q17 EPS from continuing operations $1.31 GAAP, up 4%; $1.38 non-GAAP, up 2%
  • 3Q17 operating cash flow $194 million; free cash flow $164 million
  • Completed sale of government IT services business for $690 million in April 2017
  • Current and prior period results reflect government IT services as discontinued operations
  • Narrowed fiscal 2017 guidance – GAAP EPS from continuing operations of $5.20 to $5.25, non-GAAP EPS of $5.50 to $5.55; revenue down ~1%; free cash flow unchanged at ~$800 million

MELBOURNE, Fla. — (BUSINESS WIRE) — May 3, 2017 — Harris Corporation (NYSE: HRS) reported revenue in the third quarter of fiscal 2017 of $1.49 billion compared with $1.53 billion in the prior year, down 3 percent on an organic basis, excluding $21 million of prior-year revenue from the divested Aerostructures business. GAAP income from continuing operations was $164 million, or $1.31 per diluted share, compared with $159 million, or $1.26 per diluted share, in the prior year. Non-GAAP income from continuing operations was $172 million, or $1.38 per diluted share, compared with $170 million, or $1.35 per diluted share, in the prior year. Non-GAAP income from continuing operations excludes Exelis acquisition-related and other charges in both periods. A reconciliation of GAAP to non-GAAP financial measures is provided in the tables. As previously announced, current and prior period results reflect CapRock and government IT services as discontinued operations.

“We generated strong results in the third quarter and expect solid operating performance for the fiscal year as we successfully execute our strategy,” said William M. Brown, chairman, president and chief executive officer. “Last week we completed the sale of our government IT services business, which was another major step in our portfolio shaping strategy. As previously communicated, we plan to use proceeds from the divestitures to continue to support our capital allocation priorities, including deleveraging, pre-funding pension, and share repurchases.”

Communication Systems

Communication Systems revenue in the third quarter was $461 million, down 5 percent compared with the prior year. Tactical Communications revenue was $357 million, also down 5 percent. In legacy tactical, higher international revenue was partially offset by lower DoD revenue as anticipated due to the extended Continuing Resolution. Public Safety revenue was $104 million, down 5 percent. Segment operating income was $140 million compared with $151 million in the prior year, reflecting lower volume.

Notable tactical radio orders in the quarter included $90 million from a country in Eastern Europe, contributing to ongoing strength in Europe, $56 million for the third phase of a modernization program from a country in Northern Africa, $36 million for small tactical airborne terminals for various aircraft, and $42 million in night vision products under DoD IDIQ contracts. Public Safety orders included $17 million from Oklahoma City and $15 million from Norman County, Oklahoma.

Following the close of the quarter, Public Safety was awarded a 5-year, $75 million contract from a utility company to upgrade a legacy analog system to a P25 Phase 2 digital network.

Space and Intelligence Systems

Space and Intelligence Systems revenue in the third quarter was $475 million, down 3 percent compared with the prior year. Higher revenue from intelligence community customers was more than offset by lower revenue from environmental and space programs transitioning from buildout to sustainment. Segment operating income was $76 million compared with $75 million in the prior year.

Harris experienced continued strength in classified programs with contract awards in the quarter that included a 5-year, $500 million, single-award IDIQ contract from the National Geospatial Intelligence Agency, with an initial task order of $15 million to perform search and retrieval services for geospatial products. Other notable awards were an $80 million contract for a classified customer in a ground-based adjacency and $28 million and $18 million in follow-on contracts in support of U.S. missile warning, missile defense and space surveillance missions under the System Engineering and Sustainment Integrator (SENSOR) program.

Electronic Systems

Electronic Systems revenue in the third quarter was $553 million, flat compared to the prior year on an organic basis, excluding $21 million of prior-year revenue from the divested Aerostructures business. On an organic basis, higher revenue from electronic warfare solutions and the UAE integrated battle management system was offset by lower revenue from wireless products and the ADS-B program as it transitions from buildout to sustainment. Segment operating income was $115 million compared with $111 million in the prior year, reflecting continued strong program performance and higher pension income.

Notable contract awards in the quarter included a 4-year, $72 million follow-on contract for Sonobuoy Launching Systems for the U.S. Navy’s P-8 antisubmarine aircraft; a 7-year, $72 million follow-on contract to provide engineering services for Next Generation Air Traffic Management weather initiatives; and a 3-year, $25 million follow-on contract from the U.S. Air Force to support electronic warfare demonstrations.

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