(Reuters) - U.S. weapons maker Raytheon Company (RTN.N) reported better-than-expected third-quarter profit on Thursday and raised its full-year earnings and sales outlook, helped by higher demand for space programs, weapons and missile warning systems.
Shares of the maker of the Patriot missile-defense system were up 2.3% in morning trading.
During an interview with Reuters on Thursday, Chief Financial Officer Toby O’Brien said higher profit margins due to timing were helpful in the quarter and that across the business units, “the segment margins of 12.1% exceeded our expectations.”
The company maintained its revenue growth expectations of 6% to 8% in 2020, he said.
Massachusetts-based Raytheon and other U.S. weapons makers are expected to benefit from the $733-billion defense bill for fiscal 2020, which is about 2% higher than the bill for 2019.
Sales of U.S. military equipment to foreign governments fell slightly, however, in the government’s fiscal year ended Sept. 30.
The space and airborne systems business, Raytheon’s second biggest by revenue, jumped 14.4% to $1.94 billion, on higher sales from classified programs and Next Generation Overhead Persistent Infrared (Next Gen OPIR) missile warning program. Margins in the unit rose to 14% from 13.2%.
Sales in Raytheon’s missile systems unit, which makes radar threat-countering high-speed anti-radiation missiles and rapid-fire, radar-guided guns for ships, rose 4% to $2.17 billion in the quarter. But margins in the unit fell to 10.1% from 12.3%.
After the quarter ended, Raytheon was selected by the U.S. Army to develop the Lower Tier Air and Missile Defense Sensor (LTAMDS) to upgrade the radar on Patriot missile defense systems.
O’Brien said there will be about 250 radars that will need to be upgraded, and that contract could be in “the plus or minus $20 billion dollar range” over 10 years.
“This is a huge extension of the Patriot franchise,” O’Brien said.
O’Brien said on a conference call with analysts that Vista Equity Partners, joint venture partner in struggling cybersecurity unit Forcepoint, told Raytheon earlier this month it had exercised its put option “to require Raytheon to purchase their interest in Forcepoint.”
As a result, O’Brien said, the parties were engaged in a formal process to determine the fair value of their interest.
Forcepoint saw sales decline 3% from the same quarter last year.
The company now expects 2019 net sales to be between $29.1 billion and $29.4 billion, up from its prior range of $28.8 billion to $29.3 billion.
It raised its full-year forecast for earnings per share from continuing operations to between $11.70 and $11.80, from $11.50 to $11.70.
Earnings from continuing operations rose to $3.08 per share in the quarter, from $2.25 per share, a year earlier.
Overall sales rose 9.4% to $7.45 billion.
Analysts on average had expected quarterly earnings of $2.86 per share on revenue of $7.28 billion, according to IBES data from Refinitiv.
Reporting by Mike Stone in Washington, and Dominic Roshan K.L. and Ankit Ajmera in Bengaluru; Editing by Vinay Dwivedi and Bernadette Baum