Raytheon (RTX) posted mixed Q3 results and announced deeper job cuts as the ongoing collapse in global commercial air travel hits its aviation businesses hard. Raytheon stock sank.
Estimates: Early Tuesday, Raytheon should see EPS crumble 78% to 48 cents as revenue drops 22% to $15.13 billion.
Results: Raytheon earnings dived 54% to 58 cents a share on sales of $14.7 billion. Sales fell 34% apiece at Pratt & Whitney and Collins Aerospace; Raytheon Intelligence & Space posted sales of $3.7 billion and Raytheon Missiles & Defense had sales of $3.8 billion. Raytheon generated $1.23 billion in free cash flow in Q3, down nearly 4%.
The decrease in P&W commercial sales was driven by significantly lower shop visits and related spare part sales and commercial engine deliveries due to the pandemic, Raytheon said.
The former Dow Jones industrial giant added its defense business remains robust. Results were boosted by “significantly better” than expected cost cutting and conserving actions, it added.
Stock: Shares closed down 7% at 56.53 on the stock market today. Raytheon stock retreated well below its 50-day line, according to MarketSmith charts analysis. Jet engine rival General Electric (GE) lost 3.8%. Avionics rival Honeywell (HON) sold off 2%. GE reports Wednesday and Honeywell Friday.
Aviation Collapse Weighs On Raytheon Stock
The coronavirus pandemic has led to declining air traffic and canceled flights. Raytheon’s Pratt & Whitney and Collins units, which make jet engines and avionics respectively, have suffered as a result.
Collins supplies the troubled Boeing 737 Max, which remains grounded after two fatal flights.
On Tuesday, Raytheon CEO Greg Hayes said the company will cut 20,000 positions. Last month, he announced more than 15,000 job cuts, which at the time was nearly double a prior July estimate.
Most of the cuts will come from Pratt & Whitney and Collins Aerospace. Raytheon is also cutting 20%-25% of its office space, up from initial plans for a 10% cut, as more employees are expected to work from home even after the pandemic ends.
The company’s military units continue to perform well amid the coronavirus, helping shield Raytheon stock overall. Raytheon Intelligence & Space as well as Raytheon Missiles & Defense are not seeing pay cuts and job cuts. And management said Tuesday the defense businesses are hiring engineers.
But Raytheon announcement Monday that it will sell its Forcepoint cybersecurity business to the Francisco Partners private equity firm for $1.5 billion. The deal should close in three to four months, Hayes said.
On Sept. 21, Goldman Sachs added Raytheon stock to its conviction buy list, saying “it is too high quality and well positioned of a company to trade at an 11% free cash flow yield.”
Find Aparna Narayanan on Twitter at @IBD_Aparna.
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