Reading time ( words)
Harris Corporation reported revenue in the fourth quarter of fiscal 2017 of $1.54 billion compared with $1.53 billion in the prior year. GAAP income from continuing operations was $166 million, or $1.35 per diluted share, compared with $142 million, or $1.13 per diluted share, in the prior year. Non-GAAP income from continuing operations was $183 million, or $1.49 per diluted share, compared with $163 million, or $1.30 per diluted share, in the prior year. Fourth quarter orders were $1.57 billion with a book-to-bill of 1.02.
For the fiscal 2017 full-year period, revenue was $5.90 billion compared with $5.93 billion in the prior year on an organic basis, excluding $60 million of prior-year revenue from the divested Aerostructures business. GAAP income from continuing operations was $638 million, or $5.12 per diluted share, compared with $611 million, or $4.87 per diluted share, in the prior year. Non-GAAP income from continuing operations for the fiscal 2017 full-year period was $689 million, or $5.53 per diluted share, compared with $645 million, or $5.14 per diluted share, in the prior year. Fiscal 2017 orders were $6.03 billion with a book-to-bill of 1.02. Excluding a $400 million voluntary pension contribution in the fourth quarter, fiscal 2017 adjusted net cash provided by operating activities was $969 million and adjusted free cash flow was $850 million. Non-GAAP income from continuing operations excludes acquisition-related and other items, and non-GAAP segment operating income discussed below excludes restructuring and other charges. A reconciliation of GAAP to non-GAAP financial measures is provided in the tables.
“Our solid fiscal 2017 results reflect the successful execution of our strategic priorities,” said William M. Brown, chairman, president and chief executive officer. “We completed two important divestitures to focus on technology-differentiated, high-margin businesses while continuing to invest in innovation, drive operational excellence and successfully integrate Exelis. We grew EPS by 8 percent, generated record free cash flow representing 123 percent of non-GAAP income, and used divestiture proceeds and operational cash to pay down debt, pre-fund pension, and return about $900 million to our shareholders through repurchases and dividends.”
“Our fiscal 2017 performance, including higher revenue and strong orders in the fourth quarter, positions us well for returning to growth in fiscal 2018 and accelerating in the medium term,” Brown continued. “We enter the year at an inflection point, with positive momentum and a continued focus on generating organic growth, driving flawless execution, maintaining margins through operational excellence, and deploying capital in a balanced manner.”
Communication Systems revenue in the fourth quarter was $449 million, up 3 percent compared with the prior year. Tactical Communications revenue was $334 million, up 8 percent, driven by higher legacy international tactical radio sales. Public Safety revenue was $115 million, down 8 percent. Segment operating income was $146 million compared with $117 million GAAP and $120 million non-GAAP in the prior year, reflecting higher tactical radio volume.
Harris continued to see DoD modernization progress in the quarter with the award of a 6-year, $255 million, single-award IDIQ contract from the U.S. Special Operations Command to provide next-generation, 2-channel multiband manpack radio systems. Harris is now a vendor on all five major U.S. tactical radio contracts awarded over the last four years. Harris also received a $23 million order from the DoD for tactical radios on U.S. Air Force MRAP vehicles.
Notable international tactical radio orders in the quarter include $39 million from Saudi Arabia for SINCGARS radios, $38 million from Canada for Falcon III® multiband manpack radios and $15 million from the Iraq Ministry of Interior for multiple tactical radio products. Harris also received a $19 million order from Australia, and following the close of the quarter, a letter of intent for 2072 Phase 3 modernization.
Public Safety awards in the quarter include a 5-year, $75 million contract from a utility company to upgrade a legacy analog system to a P25 digital network. Following the close of the quarter, Harris was also awarded a 5-year, $461 million, multi-award IDIQ contract with an initial $10 million order from the U.S. Army to upgrade and modernize existing land mobile radio system infrastructure.
Electronic Systems revenue in the fourth quarter was $591 million, up 4 percent compared with the prior year. Higher revenue from electronic warfare solutions, avionics and the UAE integrated battle management system was partially offset by lower revenue from wireless products and the ADS-B program as it transitions from buildout to sustainment. Segment operating income was $104 million compared with $119 million GAAP and $122 million non-GAAP in the prior year, reflecting the ADS-B program transition.
Harris strengthened its strategic position in electronic warfare and avionics on large platforms in the quarter. The company was selected by BAE Systems to produce phased array antennas for the C-130J Radio Frequency Countermeasures electronic warfare system. Harris also was selected by Lockheed Martin to provide the Aircraft Memory System and the Panoramic Cockpit Display Electronic Unit as part of the third Technology Refresh program for the F-35 platform, expanding Harris’ content on future aircraft.
Avionics awards also include a 3-year, $30 million contract from the U.S. Navy for 300 aircraft ejector racks for the F/A-18 and a 2-year, $10 million development contract for release systems on the Korean Next Generation Indigenous Fighter with the potential for significant follow-on production orders. Other notable awards include two, 3-year contracts totaling $64 million for production and other services from the U.S. Army under the Modernization of Enterprise Terminals (MET) program and an 8-year, $36 million air traffic management contract to implement surveillance and broadcast services at seven airports.
Space and Intelligence Systems
Space and Intelligence Systems revenue in the fourth quarter was $506 million, down 4 percent compared with the prior year. Higher revenue from intelligence community customers was more than offset by lower revenue from environmental programs. Segment operating income was $80 million, flat to prior year.
Harris continued to see strength in classified space program orders in the quarter, including $63 million from the U.S. Air Force in support of U.S. missile warning, missile defense and space surveillance missions under the System Engineering and Sustainment Integrator (SENSOR) program. Harris also received a $51 million production order for navigation payloads for GPS III space vehicles 9 and 10, and met key program milestones, including the delivery of the navigation payload for the third GPS III satellite.
Harris extended its strong position on the GOES-R program, receiving an additional $32 million contract to support instrument usability modifications, enhancements and post-launch support. Harris also met key milestones on an international weather program, delivering an advanced digital satellite instrument to the Korea Aerospace Research Institute that will enable improved weather forecasting.
Initial guidance for fiscal 2018 income from continuing operations is a range of $5.85 - $6.05 per diluted share. Initial guidance for fiscal 2018 revenue is a range of $6.02 - 6.14 billion, up 2 - 4 percent from fiscal 2017. Harris expects fiscal 2018 free cash flow in a range of $850 - 900 million.
About Harris Corporation
Harris Corporation is a leading technology innovator, solving customers’ toughest mission-critical challenges by providing solutions that connect, inform and protect. Harris supports government and commercial customers in more than 100 countries and has approximately $6 billion in annual revenue.