April 26, 2018 / 12:09 PM / 10 months ago

UPDATE 3-Raytheon quarterly profit helped by tax cut, shares slip

(Adds analyst)

By Mike Stone and Ankit Ajmera

April 26 (Reuters) - Tomahawk missile maker Raytheon Co reported a better-than-expected 26 percent increase in quarterly profit on Thursday, but its shares dipped as investors cooled on the sector after double digit gains in the past year.

The company was the latest defense stock showing flagging support this week. Defense giants Lockheed Martin Corp and General Dynamics Corp also fell after reporting first quarter earnings.

Broader profit taking in defense was cited as the cause for deflation across the sector, analyst Robert Stallard of Vertical Research said in a note, adding "overall fundamental outlook remains robust."

The Waltham, Massachusetts-based company raised its 2018 profit forecast about 15 cents per share to a range of $9.70 to $9.90, a range that exceeds analysts' full-year target of $9.71 per share, according to Thomson Reuters I/B/E/S.

Raytheon Chief Financial Officer Toby O'Brien told Reuters in an interview that about two-thirds of the increase in projected earnings per share was due to tax cuts pushed by U.S. President Donald Trump and passed by the Republican-controlled Congress last year.

The rest of the improved forecast reflected higher sales volume at Raytheon's Integrated Defense Systems unit, which makes the Patriot missile system, he said.

That unit also helped the company's reported first-quarter earnings per share attributable to common stockholders of $2.20 per share top analysts' average expectation of $2.11 per share.

O'Brien said the unit's 18 percent first-quarter profit margin was up from 15.2 percent in the prior year, "which was considerably higher."

In March, Poland signed a $4.75 billion agreement to buy Raytheon's Patriot missile defense system as it modernizes its forces against a bolder Russia.

Last week, the Trump administration rolled out a long-awaited overhaul of U.S. arms export policy aimed at expanding sales to allies, benefiting Raytheon and other U.S. weapons makers.

Non-U.S. customers represented about 30 percent of Raytheon's sales in the first quarter, but the year could see that number go as high as 33 percent, O'Brien said.

Raytheon projects its 2018 tax rate to be 18 percent, down from 35.8 percent in 2017.

The weapons maker said its 2018 net sales would now be in a range of $26.5 billion to $27.0 billion, up from its previous forecast of $26.4 billion to $26.9 billion. Analysts had expected $26.74 billion.

Raytheon, however, kept its 2018 outlook for operating cash flow from continuing operations unchanged at between $3.6 billion and $4.0 billion.

Sales at Raytheon's missile systems unit, its biggest by revenue, rose 5.2 percent to about $1.85 billion in the quarter ended April 1, driven by higher sales from classified programs. Raytheon's Tomahawk missiles were used in the recent U.S. strikes in Syria.

The company said first-quarter operating margin in the unit fell to 11.5 percent from 12.3 percent a year earlier, due to a change in program mix.

Sales in Raytheon's intelligence, information and services business, its second-biggest in the quarter, rose about 5 percent to $1.58 billion. Operating margin was flat at 7.4 percent.

Forcepoint, the commercial cybersecurity business had a loss of 7 million in the first quarter. O'Brien reiterated previous guidance that the unit would become profitable in the second half of the year.

The company's income from continuing operations rose to $624 million in the first quarter, from $497 million a year earlier.

First-quarter net sales rose 4.5 percent to $6.27 billion.

Raytheon shares were down 2.3 percent to $208.67 in late morning trading on the New York Stock Exchange, in their third straight day of declines. (Reporting by Mike Stone in Washington and Ankit Ajmera in Bengaluru Editing by Scott Malone and Chizu Nomiyama)

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