Q4 2019 Earnings Call
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[noise], good day, ladies and gentlemen, and welcome to the way beyond this fourth quarter 2019 earnings Conference call. My name is he tamra and I'll be your operator for today.
As a reminder, this conference is being recorded for replay purposes.
I would now I turn the call over to Miss kill seed.
Brian Vice President of Investor Relations. Please go ahead.
Thank you to Tamra. Good morning, everyone. Thank you for joining us today on our fourth quarter conference call. The results that we announced this morning, the audio feet of this call and the slides that will reference are available on our website at Raytheon Dot com. Following this morning's call an archive of both the audio replay and a printable version of this.
Slides will be available in the Investor Relations section of our website.
With me today, our Tom Kennedy, our chairman and Chief Executive Officer, and Toby O'brien, Our Chief Financial Officer will start with some brief remarks by Tom and Toby and then move on to questions before I turn the call over to Tom I'd like to caution you regarding our forward looking statements any matters disk.
Yesterday that are not historical facts, particularly comments regarding the company's future plans objectives and expected performance and the proposed merger with you Tc constitute forward looking statements.
These statements are based on a wide range of assumptions that the company believes are reasonable but are subject to a range of uncertainties and risks that are summarized at the end of our earnings release and are discussed in detail and our SEC filings.
And with respect to the proposed merger and related matters in the definitive merger proxy statement filed with.
The us with the FCC on September 10th 2019, with that I'll turn the call over to Tom.
Thank you Chelsea good morning, everyone.
Everything I had a very successful year in 2019.
Global growth strategy is delivering record results for our shareholders and customers.
We have many highlights and set many company records.
So let me start by touching on some of our financial results.
In 2019, we continue to see strong global demand for innovative solutions.
Illustrated by our book to Bill ratio of 1.5 for the fourth quarter and 1.25 for the full year.
And for the third time at 2019, we achieved record backlog, which rose almost $49 billion at the end of the year [noise].
This drove an increase in backlog of more than $6 billion year over year were up 15%.
And it positions us well for the future.
Sales were up 6.5% into fourth quarter.
7.8% for the full year.
And at 29 team, we accelerated our sales growth for the fifth time since 2015.
This year and the new company record for annual sales of $29 billion.
EPS exceeded our expectations for the quarter and for the year.
Cash flow is better than we expected and we achieved a new company record for operating cash flow for the full year.
Toby will review additional details about the fourth quarter enter 2020 outlook in a few minutes.
Now with all of our successes in 2019.
I wanted to share what I see as some of raytheon's key milestones during the year.
Successes from across the company that will drive future growth.
First let me highlight the strength of both our classified business and our international business.
[noise] and 29 team, we achieved record classified bookings for the full year almost $8 billion and we saw strong classified bookings across the businesses.
Including $2.8 billion at both missiles, and I guess and $2.1 billion NSS.
Briefly on also had record classified sales, which grew 15% versus 2018 and represented 20% of company sales.
Our shrinking classified is driven in large part by the need of our domestic customers to address advanced threats as outlined in the national defense strategy.
As we've said before.
Testified business is crucial for raytheon's growth and success.
It funds next generation technology development that is integral to the long term growth of our future franchises and production awards.
We also achieve company records in our international business.
If international bookings and sales at record levels for the year.
International sales were $8.6 billion for the year.
And year over year International sales of now increased for 16 consecutive years.
Turning to our franchises.
We further strengthened many of them in 2019.
To be long term value generators for years in decades to come.
The newest example of this is our clean sheet offering for the US armies next generation Air and missile defense radar.
In October we were pleased to be selected to develop the lower tier air and missile defense sensor, which extends raytheon's position as the world's Premier Air and missile defense rater capability provider for decades to come.
We expect attempts to have a potential lifetime value of over $20 billion from sales to domestic and international customers.
I will tams will operate on the Army's integrated air and missile Defense network.
Our Patriot franchise continued its momentum with the kingdom of marine.
Signing an agreement in August to purchase Patriot.
This letter of offer an acceptance allows us government to begin contract negotiations with their Patriot team.
Reign, as the 17th nation to procure Patriot.
With US approval all 17 of these Patriot partners will have the opportunity to add the l. tamps capability to each of their fire units.
This will enhance the performance and extend the life for their systems for many decades.
In addition, the capabilities of the Lcms radar also opens up a market for Standalone forward deployed applications.
Our Patriot system fires multiple interceptors, including our guidance enhance missiles or agentes.
And during the fourth quarter, we booked over $700 million on a direct commercial contract to provide Jim team missiles for an international customer.
Demand for integrated Air and missile Defense solutions is also further in growth in our knee Sam's franchise.
A mid range solution jointly manufactured by Raytheon and cons Berg.
In 2019, we added two new countries to the knee Sam's family.
In may we booked over $500 million to provide nay Sam's for Australia.
And in July we received a $1.8 billion award to provide Qatar with 90 cents.
Qatar is the 11th country to procure nascent which uses a raytheon radar and will be capable of firing multiple interceptors, including our amiram.
Amiram extended range and aim ninex missiles.
As a result, naysayers helps support the growth of additional franchises Amiram and aim ninex for Amiram Raytheon is continuing the development of Amiram, EMR and expanding as capability to support land based applications.
This significantly extends both the range of Amram and the market of the Sam system.
Qatar will be the launch customer of am Ramey are.
As part of its procurement of the Sam system, We expect a foreign military sales contract award from Qatar for Amiram IAR in 2021.
Our airborne radar franchise was extended in July with our selection as a greater supplier for the be 52 radar manner on acquisition program displacing the incumbent.
Under the contract Raytheon will design develop produce and sustain these are radar systems for the entire US Air force be 52 fleet.
With improved navigation reliability mapping and detection range the advance rate or upgrade will ensure the aircraft remains mission ready through 2050 and beyond.
And we continue to see strength across our standard missile franchise.
Including the multiyear award for SM, six and then the bundle award for SM three block to a.
Both of which were booked in December for a total award value of around $3 billion.
We still expect a multiyear contract award for another SM three Varian SM three block one be worth about $2 billion in the first half of 2020.
The endo atmospheric SM six delivers a proven over the rise in offensive and defensive capability and supports anti air warfare anti surface warfare, and see based terminal ballistic missile defense and one solution.
And the next generation SM three block to a interceptor defeats missile threats outside the Earth's atmosphere and is produced in cooperation with Japan.
With the recent and expected awards for our standard missile product lines, we have production visibility until at least 2026.
Both the SM three block two way and one be are integral to Mds position in missile defense.
This month.
After the quarter close.
This was selected by the US Air force to develop the future operationally resilient ground evolution program also known as forge.
This newly developed open framework will be a capable of processing overhead persistent infrared satellite data from both the us air Force's evolving silvers constellation and the future Nexgen OPI, our constellation for missile warning.
Also in January we were awarded the force element terminal by the US Air Force, which extends our protected communications franchise NSS.
Finally, one of our most notable highlights of 2019 was announcing our transformational merger of equals with United Technologies.
These two industry, leading companies will create one of the best position Aerospace and defense companies.
Raytheon technologies will have a diversified platform agnostic suite of offerings that are balanced across end markets, which is a key differentiator through business cycles.
The combined company will also have a vast global footprint.
By combining our complimentary technologies, we can go after in when an increased number of new franchises.
We expect the revenue synergy opportunities from our combined technologies to continue to be value generators for decades to come.
Positioning the company to increase market share and outgrow the aerospace and defense markets.
Integration planning for the merger is progressing well and the merger is targeted to close early in the second quarter of 2020.
As we start to new year, we feel optimistic about the future and our ability to continue to grow both domestically and internationally.
We are pleased with the fiscal year 20 appropriations Bill enacted in December with our Raytheon programs faring well into the modernization account versus fiscal year 19.
In fiscal year 21 budget control that caps were increase last year. So we have topline certainty and includes a modest increase in the duty base budget.
Perhaps best of all.
Fiscal year 21 is the last year from the VCA.
Bottom line.
We have a strong foundation for the future.
And this was recognized last week and Fortune magazine's annual survey.
Raytheon was ranked the number one company in the aerospace and defense industry in the 2020 study of the world's most admired companies.
And this included number one rankings in key attribute categories, such as innovation financial soundness global competitiveness and social responsibility.
Let me close by thanking all the members of the Raytheon team worldwide.
When I think about our many successes in 2019 I.
I do so a deep appreciation from a dedicated colleagues who made it possible.
They are the ones, helping the company grow and muniz commitments.
The ones, creating value for shareholders.
And the ones, providing the trusted innovative solutions our customers depend upon.
Given the expected timing of the mergers close this could will be the last earnings call for me and for the Raytheon Company.
For nearly 100 years.
This company has provided mission critical technologies.
To our customers supported a diverse and engaged workforce.
And has been a good corporate citizen.
That legacy.
Built on a foundation of Trust respect collaboration innovation and accountability.
We will continue.
And we are excited.
To redefine the future of the aerospace and defense industry as Raytheon technologies with that let me turn the call over to too.
Thanks, Tom.
I have a few opening remarks, starting with the fourth quarter and full year results.
Then I'll discuss our outlook for 2020.
After that we'll open up the call for questions.
During my remarks, I'll be referring to the web slides that we issued earlier this morning.
Which are posted on our website.
On pages, two and three we have our fourth quarter and full year highlights and summary results for the year.
We are pleased with the strong performance the team delivered and both the fourth quarter and the full year.
With bookings sales operating income.
Yes, and operating cash flow that all met or exceeded our expectations.
We had record bookings in the fourth quarter at 12.1 billion.
Resulting in a book to bill ratio of 1.54.
And for the year.
We also had record bookings of 36.3 billion, resulting in a book to bill ratio of 1.25.
This sets the stage for continued strong growth in 2020.
Which I'll discuss in more detail and just a few minutes.
And we achieved record backlog of 48.8 billion.
Up 15% year over year.
Sales were $7.8 billion in the quarter up 6.5% from the same period last year.
We saw growth across all of our businesses.
For the year sales were up 7.8%, reaching a new company record of 29.2 billion.
Our EPS from continuing operations was $3.16 for the quarter.
And $11.92 for the full year.
I will give a little more color on EPS in a few minutes.
We also generated strong operating cash flow of 2.8 billion for the quarter and 4.5 billion for the year.
It's worth noting that we exceeded our operating cash flow guidance by approximately 400 million at the midpoint.
And achieved a new company record for operating cash flow.
This increase was driven by operations and improved working capital.
The company ended the year with a strong balance sheet and net debt of approximately $500 million.
Now turning to page for.
Let me go through some of the details of our fourth quarter and full year results.
As I mentioned earlier, we had strong bookings of 12.1 billion in the quarter and 36.3 billion for the full year.
Resulting in a record backlog of 48.8 billion.
This is an increase the backlog of over 6 billion or 15% over year end 2018, and provides us with a strong foundation for the future.
International orders represented 28% of our total company bookings for both the quarter and the full year.
At the end of 2019, approximately 38% of our total backlog was international.
Turning now to page five.
We had fourth quarter sales of 7.8 billion.
An increase of 6.5% compared with the fourth quarter of 2018.
And in line with our expectations.
International sales continued to be strong representing 31% of our total sales for the fourth quarter and 29% for the full year of 2019.
So looking at the businesses.
Rds had net sales of 2 billion in the quarter up 18% from the same period in 2018.
Primarily due to higher net sales on an international Air and missile Defense system program awarded in the third quarter 2019.
And then international missile Defense radar program.
Hi, I asked had net sales of 1.7 billion in Q4 up 2% compared with Q4 2018.
Net sales at missile systems in the fourth quarter were 2.3 billion.
Up compared with the same period in 2018.
And for the full year missile sales of 8.7 billion were up 5% over 2018.
It's worth noting that missiles had strong bookings performance for the full year 2019 with bookings up 23% over the prior year.
In the fourth quarter 2019, as SAS had net sales of 2 billion.
The 7% increase from the fourth quarter 2018 was primarily driven by higher sales on classified programs.
The next Gen OPI our program.
And tactical communications systems programs.
For the full year total company sales were 29.2 billion.
Up 7.8% over full year 2018.
[laughter].
Moving ahead to page six we delivered strong operational performance in the quarter.
Our operating margin was 16.3% for the total company.
On a business segment basis, our operating margin was 12.7%.
Up 70 basis points and higher than Q4, 2018, primarily due to higher net program efficiencies.
Total business segment operating income of 993 million grew 109 million or 12% in the quarter.
So now looking at the business margins.
Yes fourth quarter 2019 operating margin was strong at 15.5%.
Up 80 basis points compared to the fourth quarter of 2018.
Hi, I saw operating margin of 8.6% was up 20 basis points compared to the fourth quarter of 2018 and better than expectations.
Missiles operating margin was 12.7% in the quarter.
Up 90 basis points compared to Q4 2018.
The fourth quarter of 2019 benefited from a favorable change in program mix and higher net program efficiencies.
SCS fourth quarter 2019 operating margin was 13.8%.
And in line with the fourth quarter of 2018.
And SCS had a $21 million gain from the sale of real estate, which was assumed in our fourth quarter 2019 guidance.
Turning to page seven.
We had solid operating margin performance for the year.
Our operating margin was 16.4% for the total company.
And 12.1% on a business segment basis.
An increase of 10 basis points compared with 2018.
Total business segment operating income was $3.5 billion in 2019.
And was up 290 million for the year or 9% over full year 2018.
On page eight you will see both the fourth quarter and full year EPS.
In the fourth quarter 2019, our EPS was $3.16 and for the full year was $11 a 92 cents.
Both the quarter and full year were higher than the comparable periods in 2018.
Primarily driven by operational improvements from higher sales volume and favorable pension related items.
Overall, we had strong operating performance for both the quarter and full year.
Now let me update you on our 2020 outlook on page nine.
As we sit here today, we currently see the book to Bill ratio above one.
I would expect to achieve another record backlog here.
We also see strong sales growth for 2020.
For the underlying Raytheon business of 6% to 8%.
Over our 2019 results.
Additionally, we expect growth across all of our businesses, we would expect Rds and assess our highest margin businesses to have higher growth rates and the others. Both was expected sales growth of 6% to 8% versus 2019.
And it is we'd expect sales growth of 46%.
At missiles, we would expect sales growth of 5% to 7%.
Although not on the page I want to spend a minute talking about our expectations for the first quarter of 2020.
We remain confident in our growth rate of 6% to 8% for the full year 2020.
We expect the first quarter sales growth to be in the low single digits due to a tough comp with last year's first quarter.
We see the sales growth profile of 2022nd half weighted.
With sales ramping up throughout the year, which has driven by the strong bookings in the second half of 2019.
Before concluding.
I want to touch on the pending merger with United Technologies.
A collaborative merger efforts and integration planning between Raytheon and United Technologies are continuing to progress well.
We look forward to the next steps in the process.
Including continued to work closely with regulatory authorities in the us and other jurisdictions.
To secure the required clearances and approvals for the merger.
We are targeting the merger to close early in the second quarter of 2020.
And post closing, we look forward to Raytheon technologies, delivering strong free cash flow growth.
And deploying a significant amount of its free cash flow to its shareholders.
In the form of share repurchases and dividends.
Let me conclude by saying that 2019 was a very successful year for Raytheon.
Where we once again delivered strong financial results.
We set many new company records in 2019, including record operating cash flow backlog bookings in sales.
And records for both sales and bookings in the classified and international areas.
We have a strong balance sheet, which gives us a strong foundation as we move forward with the merger.
And our business segments are well positioned to grow in 2020 and beyond.
So with that we'll open the call up for questions.
Thank you to ask your question. Please press star one of the telephone keypad.
In the interest of time and to allow for broader participation you ask to limit yourself to one question.
The first question will come from the line of Carter Copeland. Please go ahead.
Hey, good morning, guys and thanks for the time.
Morning, Werent Carter I Hope I hope close post the close we don't lose the Boston Sports banter on this on this whole call. It a bright spot of a week so.
It go and let's go yes, we've got to do it. So just a quick clarification and a question just on the EPS growth Toby.
Seemed like for a Threeq to 19 award.
The impact on top line pretty fast was that work that was done that got on contract I just wanted to be help us with that and then Tom I wondered if you.
You could give us some color on where the customer.
It's kind of thinking are heading on the on three dealer in the change there. Thanks.
Yes, so on I'd ask Carter were real pleased with their performance for the quarter end the year.
The 12% growth. They delivered 19 was real strong, but you got it right there was some inventory liquidation.
It took place in order to.
Ensure we had the right scheduled schedule cadence on the program going forward.
And on the on a three dealer you may remember, we initially one that back in 2014.
With the technology and there was a bunch of protests and everything else like Thats as kind of a program that kind of got off to kind of an interesting start with the protest, but any case that technology baseline was.
It was back until about 2008, when the when the essentially the whole solicitation efforts started with the Air Force and as you can imagine muted by Tommy got started after the protests there were many advancements in technology. Since then but we had a baseline that was kind of rigid and is also under the old older menu recall at the acquisition strategies or.
Techniques at the Department has and so couple of things they want to do one is they wanted to refresh on the technology and then the other one is to get more into an OTI a structure, where they thought they could get the program through faster and so they're they're going to do a go often conduct the.
Industry day here shortly we have more details.
Part of that as Theyre going to try to do a sense off it was very so similar to what the United States Army did with the L. Tams rater on if you guys remember that the last year. They conducted a sense softened in the end game. We went one of winning that program with the a solution that we brought to to the sense off.
Yes, the only thing I would add given the state aware the program was that from a development point of view it doesnt have a material impact on our financial results for 2020, and and even the next year or two beyond that.
Thank you your next responses from Sheila Highland. Please go ahead.
Hi, Good morning, Kevin Kevin Kelsey.
Tom while we have you.
How do we think about I'd ask them profitability mix, given Fms sales pick up and just the cadence of those unrelated to that.
How do we think about pen Patria international opportunities, our without hands when you add.
I think I'd us as a really bright future yield from number one is there they have the largest content of international but they've also developed some key franchises that here recently.
Aaron missile defense radar despise six for the DDG 50 ones. They also develop the enterprise air surveillance radar for the Navy and as you know the Navy is pushing for 350 ships. A lot of then we're going to be frigates into in the Easter has been already designated as the radar for those frigates. So thats I think thats a good.
They are moving forward. They also won the lower tier air missile defense sensor, which is the l. tams for for Patriot and as we mentioned during the scripts. That's got about a 20 billion dollar future here, both the between domestic and international customers.
Just last year, Bahrain became our 17th the country that that has the Patriots system. So we have 17 countries that we work with on the Patriots system. They obviously, they're buying spares aftermarket efforts in those areas, but they also continue to buy new solutions for the Patriots system and now we have a brand new solution to bring newness.
Significantly enhances the capability of the patriotism called the L. Tams radar.
And there's a about an opportunity for over 240 of those those radars here over the next the next next decade or so so they are very strong all across the board in terms of new franchises coming on board refreshing the Patriot franchise on international marketplace, they've done quite well.
Balancing both the Fms, which has higher margins than the domestic but the also bringing on quite a bit of I would could we called Dcs direct commercial sales business, which has higher margins than the and the Fms all in all I think.
Hi, This is on a very strong foundation, but they built to I call launch pad for.
Increased success the through the through the decade.
And maybe I can just add a little bit and I'll start Sheila at at the highest level as a company right. So we're not given guidance for 2020, consistent what we said back in October but that said I would tell you specifically around margins nothing's changed right, we still see the opportunity and to.
Improved margins incrementally going forward improve our operating income overall number one.
As far as Rds in their Fms Dcs mix.
In the near term, yes, thats a headwind.
It's a good problem to have given the volume of the Fms work coming in and we still have solid Dcs work.
I would tell you and remind you I think you all know right.
Yes has been historically, our highest margin business we expect.
That to continue in the future and we talked about the improved margin in Q4 for the company a lot of it through net program efficiencies I'd EPS was a big contributor to that and we'd expect strong performance from Rds going forward.
Let me just expand to a little bit on L. tams because.
Back when we were awarded in October we mentioned that.
The contract vehicle here is in OTI a.
Given that I think as folks know that does require periods of investment and we're going to experience that here.
For for four Raytheon.
We have been spending on this for a while as Tom alluded to leading up to the sense off in the hardware we delivered there.
You know, we're delivering six represent production representative units under the the contract it's about a three year.
Effort. The majority of the cost are going to be incurred in 2020, and you might have seen in our release, we took a 13 million dollar expense at the corporate level related to L. tams.
We are managing this is a corporate project given the strategic significance tied back to the 20 billion dollar opportunity the standalone opportunities.
And consistent with that will be recording an expense throughout the year.
The corporate level.
Probably in the $200 million range, plus or minus and then it would tail off into.
Into 2021.
As well there is no impact.
On the EPS margins are the yes.
Yes segment margins as a result of that.
Your next responses from Cai von Rumohr. Please go ahead.
Yes. Thank you so you'd mentioned.
The fastest growth as his ideas and say, yes, which are your higher margin highest margin business.
Excluding the 200 million investment in an L. Tams I mean should we assume that your margins. If you were a standalone company would be up.
Yes, so I think tied.
Again, both for 2020 and beyond.
I think we've been consistent right we are.
On a path to incrementally on an annual basis.
Improve margins. We are segment margins were up 10 basis points in 2019 compared to 2018.
That said, we do have to think about mix impacts and as she'll asked that I. Just mentioned, we do see some mixed with more Fms less dcs in ideas, but we are focused on.
You know operational excellence and driving more efficiencies through the business.
You know missiles as an example, we expect their margins to be improved.
After some of the challenges they had and in 2019, we expect their margins to improve in 2020, but theyre still dealing with more development work more classified work again big picture of kind of Punch line is yes, as a standalone business, we would expect the companys segment margins to incrementally improve and too.
2020 and beyond.
Thank you. Your next question is your line of Myles Walton. Please go ahead.
Thanks, Good morning.
In summary, mildest on the remaining 19% for Forcepoint quarter I'm, just curious if that now.
Allows you to or or or.
Pushes view to.
Pursuit of process, there and also how indicative as the price paid for Vista to what you think you'll get in the open market and maybe can you just give us where the pension ended thanks.
Yes, sure. So let me start with force the the Forcepoint.
Part of your question.
So ill look back to when we acquired websites almost five years ago.
We had disclosed the liquidity rights that both sides had.
I think you know we invest ahead of been aligned all along right that ultimately the endgame here was to monetize the investment in Forcepoint. They chose to do it through the the put process.
We followed a very you know stipulated process per our agreement with Vista, We had outside advisors involved and amongst other things it took into account market conditions comparable.
You know trading companies et cetera. So at the time, yes. We think we think it is indicative of that obviously at the end of the day, we still want to monetize the asset.
We're going to do that in a smart way evaluate all of our options.
The whole software security market.
Continues to trade pretty favorably here.
And so as we move along we'll we'll be looking to do what makes the most sense for the company and shareholders.
Around that is switching over to the pension.
We had a return of about 19%.
For last year compared to our 7.5%.
Long term assumptions a discount rate.
That we're using for 2020 now is down about 100 basis points from what it was last year, it's at 3.3% and we also did through our normal process update our long term.
Return on asset assumptions, and we reduce that from 7.5% to 7% that all said I'll just remind everyone that once the merger closes because of.
Purchase accounting there will be some significant changes in this area.
You know SaaS operating and nonoperating expense will will improve as a result of that and I. Thank also to keep in mind.
There will not be an impact on our Cas recovery, if you want to think of that from a.
From a cash flow perspective that the cash recovery stays intact.
Your next responses from David Strauss. Please go ahead.
Thanks, Good morning.
Hey, David.
On to ask about.
About the castle obviously.
Very strong performance. This year I think it came in 700 million or so above what you were when you were thinking or what was in the four.
Does any of that representing sort of working capital pull forward that you had expected to come through in 20, because I know what's in the us for looks like it reflects a pretty big working capital benefit and then.
Capex came in a little lighter than what you were thinking can you just.
Address kind of the Capex profile from here as well thanks sure sure. So on the on the cash flow.
I'm real pleased with how the company performed and delivered and Overachieved in this area.
And it was from improvements in working capital right All program.
Operational related.
That said.
So again, we're not giving guidance for 2020, but I would expect.
Excluding the effects of the merger right. So taking the merger related cost in cash cash impacts out of it.
I'd expect stronger cash flow in 2020 right. Despite the over performance in 2019, So said another way, it's not a timing issue right, it's not not moving from one year to another.
Again, I think thats indicative of our focus on on running the business executing the business and and obviously, having a strong.
Balance sheet here for the first part of your question.
Secondly on.
Capex a couple things right, we had talked about 2019 being a peak year for capital spending.
We still feel that way, even though it did come in a little.
Below what the original expectation was.
As far as 2020 goes we'd expect it to be down a little bit further, albeit slightly of the.
The reduction compared to what we were expecting in 2019 some of that was permanent where we found ways to do things more efficiently and a little bit of it. It was timing that move from 2020 from 2019 to 2020, but again more on a downward trajectory consistent with what we had said.
This time last year.
Thank you. Your next response from George Shapiro. Please go ahead.
Okay.
Thanks.
Yes, good morning.
George.
Toby can you tell us what's actually happening missiles I mean, the sales growth. This quarter was clearly came below your revised guidance and for 2021, not expecting a lot a growth on the positive the margin got a lot lot better, but whats happened on the sales side for kind of.
What was compared to what we're saying.
Sure sure so for Q4 overall at the company level.
The 6.5% growth the contributed the seven eight for the year that was within.
The range, we expected Youre right missiles was a bit lower than we previously expected.
We saw a little bit more strength in some of the other businesses.
The way to think of missiles sales in the fourth quarter was really you know some supplier delivery volume on a couple of production programs.
We were expecting didn't materialize.
And we had a few awards that had some inventory liquidations that again, we're a little less than expected.
That said the way to think of missiles going forward as they close the year real strong as I mentioned relative to their bookings being up 23% year over year. Tom in his opening comments spoke about 3 billion dollars' worth of awards in the standard missile family.
They came in in the fourth quarter, we have the and one of those was the one of the two multi years that we had previously talked about the second multi year for the SM three one be we expect in the first half of this year.
Skews me. So we believe all that taken as a whole supports and provides for a foundation for missiles to grow and at a higher rate than we saw during Q4.
Again in the 5% to 7% rate for the year.
Your next responses from Robert Stallard. Please go ahead.
Thanks, so much good morning.
[music].
Tom is this could be on lost opportunity I was wondering if you could give us your usual run through.
What you're saying at the moment in some of these key export markets can you seen another good year bookings I was wondering how has that could progress from here.
Ill start off a let's start off in Europe , we have seen significant uptick over the last several years in Europe lot of its been the pressure from our administration to push these countries to get to a 2% NATO countries to 2% of their GDP for defense. So we had we have seen an uptick there and patriot.
Trees like Romania.
And Sweden buying the Patriots system as part of that but we also have additional opportunities in that region for integrated air and missile defense and upgrading the their systems military systems across the board over to Middle East that continues to be an issue of significant demand for our solution set as weve recently so.
All in Iraq.
Anyone who has forces in that region. These that have integrated air missile defense capabilities in print and and do defender troops, there and the resources and our infrastructure. So we're seeing significant demands across the region for integrated Air and missile defense solutions that range all away from countering.
Drones to do ballistic missiles to cruise missiles. So it's the right in our sweet spot and again, we're doing quite well in that region already but we see significant upside potential in the middle East and the Asia Pacific Region, North Korea has not quieted down.
They are still doing testing. So there is considerable concern relative to for example of South Korea and then also.
Japan also in Korea is not out you don't see it out there in the press a lot, but there is going to be a hand off of the as defensive South Korea from the South Korean go from the U.S. government to the South Korean government and Thats going to provide a an uptick required for us to be able to help provides the south Koreans and solutions they need to maintain their defense in.
Region at them as a primary defender and then also relative to Japan significant uptick there not just from the North Korea issue, but also from the pressures from China.
'cause there's considerable push from China, as we know expansionism relative to the first and second Allen chains, Japan was to make sure. They havent defense against that so that is requiring some higher end solution sets that we are working with the Japanese government to provide.
And all the regions that we've really participate in Europe , and the Middle East and also in Asia Pacific region.
We're seeing significant demand signals for our solution sets across the board. Obviously, we have created a bunch of new solution sets like this by six radar the Ace ER.
Now with the cell Tams radar, so we have new solutions to bring to those markets and we're working very hard.
And Rob I, just you know from a quantitative point of view just reinforce and we mentioned right last year was a record year for international including bookings. So were you know we're seeing the results of that freight environment. The Tom just walked through materialize in our results. We have we talked about a 1.25 book to Bill.
The domestic and international book to Bill, where plus or minus in that ballpark right. So it was.
Not one side of the the house, if you will drive driving the growth.
We said, 28% of the bookings were in international 38% of the backlog, 29% of the sales and plus or minus.
We'd expect that same level a contribution from both in 2020 as well.
Your next responses from Seth Seifman. Please go ahead.
Thanks, very much and good morning.
Thanks, Toby if I just look at the the guidance for the individual segments and.
Proportion of the company it looks like the growth for 2020 would come in more at the six then then that the eight and is that is that right takeaway at this point and.
Where where might there be potential upside.
Yes, I think the way I think of it right you've got to think of it is that ranges, 6% to 8% right. We're not.
Specific beyond that.
Don't forget Thats total sales right don't have on on the chart, we didn't talk about what would happen with.
A limited elimination so those numbers.
Exclude eliminations, which are closer to inline we expect them to be more in line with 2019. So I think that may be part of what is our drove you to the question.
You did there from from.
The 6% versus either mid point or something else that said I mean, we're confident in the range right the 6% to 8% the strong backlog the 49 billion in backlog up 15% growth across all the businesses, where we see that.
Happening consistent with what we've laid out there so no no concerns on aren't.
Your next responses from Peter Arment. Please go ahead.
Thanks, Good morning, Tom Toby.
Well, we know, yes, we know you're not going anywhere so, but thanks for all your guidance over the years, but.
Toby just.
Back to kind of I guess follow up on Seth's question, if we look at the 6% to 8%.
And offer the base at 2019 and compared to the sport really seemed closer to 2021 numbers that you had out there or not but 2020 I guess what would you highlighted the differences I assume lpms might be one of them are some thanks.
Yes, so actually L. tams would not would not be one Peter just because of the nature of the OTA into kind of as I described before the the funded R&D concept.
Right now we're not recording revenue on that were really trading at.
As funded R&D and the related expense that I talked about earlier.
Earlier.
Just as a reminder.
From the origin of that S. Four data.
So we we talked about in the us for the process that led to the merger and the timeline around that and that as for data the origin of it predated that right. So you've got to go back to the the 2018 timeframe for when we pulled that together and I think the simplest way to think of it as you know last.
Last year, we ended 2018 with a backlog growth of 11% that was better than our expectations, because our bookings were higher and the similar thing happened here with the 15% increase.
Now, including multiple increases in the bookings outlook throughout 2019, so really tie it back to the strong bookings growth and the the translation into the.
The $49 billion and backlog Thats driving it.
It out as you did the math the absolute dollar profile compared to the data in the S. Four just shows the underlying strength of the business and how well positioned in the portfolio was.
Your next responses from Hunter K. Please go ahead.
Hey, good morning. Thanks.
Good morning.
Obviously, how much you can say on this topic, but at a high level. How is the classified arena evolving as you think about areas of priority in can you just help us understand.
Pro forma Rts exposure that market once the deals close.
I asked the question because I didn't really here you guys talk about Hypersonics in your prepared remarks, either so if you want to deal of let me just thanks, Yeah 100, I'll, Let me just talk little about the classified I mean, obviously you're right. It's called the reason is classified as you can't talk about it but.
In any case, it's really driven out of the national defense strategy, which really outlined this next generation capability that United States needs to be able to defend itself against these new evolving threats and that really sets sets I would say the overarching requirement and then from there we go down to what.
He has to occur.
And there is all the areas of we the NDS calls out the fact that we need to protect space and so there's a whole set of efforts going on to ensure we protect space or space assets. The assets that we need to just do in our economy, but also for the defense of our nation's so thats a large area. There. There's also a large area in the.
I would call it missile defense capabilities and how to how do we defend our nation against the missile Intercontinental ballistic missile threat or other types of threats like hypersonic weapons. So there's a whole counter hypersonics.
And the counter advanced Intercontinental ballistic missile threat type work, that's going on and then there's the whole issue of the of the South China C and our ability to be able to maintain a presence there keep those ceilings open and what type of technologies, we need there and what would advanced capabilities, we need so thats at the other may.
Your threat, but it all starts with the National Defense strategy, and it's driven our business up we have a solid set a friend of not just franchises, but we also have a solid set of technical capabilities across the company that we're seeing in significant demand to satisfy these needs of these I would call classified requirements needs driven out of the national defense strategy.
And that's driven our sales up 20% of order or company sales. This year has has been classified and I've said this on calls in the past, but this classified work we use as term is the C corn of our for our future franchises would I mean by that is a this classify work allows us to take or our technical.
Capabilities and resources, and IP and work hand in glove with our customers to evolve. The next set for us RC franchises that will enable our customers to meet their mission needs and specialty relative to the NDS and so I think one way of looking at this for Raytheon is the greater.
The amount of classify work, we have the distance stronger our future will be in our ability to generate new franchises that last for decades to come.
And the classified bookings represented 22% of our total bookings in 19.
It was up 17% over 2018 again, setting a new company record and I think it just sets it sets the company up for a for a great future to come.
That's all the time, we have today. Thank you for joining us this morning.
Thanks.
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