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Raytheon Rocks on Earnings Day

By Rich Smith - Jan 29, 2016 at 5:13PM

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And don't bother knocking Raytheon -- because these earnings are still rocking.

RTN Chart

Raytheon shares are on a tear -- again. RTN data by YCharts

Raytheon (RTN) shares spiked after the company reported a bumper crop of earnings Thursday -- and they haven't looked back since. After jumping 3.5% Thursday, Raytheon shares continued to climb through close of trading Friday -- up another 4.9% on the day.

So clearly, Raytheon's news was good. But precisely how good was it?

The week that was
Here's how the quarter went down:

  • Q4 sales of $6.3 billion showed a 3% increase over Q4 2015 levels, matching analyst estimates.
  • Profits from continuing operations of $1.85 declined by one penny -- but still beat estimates by $0.04.

That's a nice start. But those were just the quarterly results. Since we only get a chance to view Raytheon's performance for an entire year-at-a-glance once a year, let's not miss that chance. Here's how Raytheon performed over the course of 2015 as a whole:

  • Sales grew a respectable 5% to $25.2 billion, matching estimates.
  • Operating margins slipped 110 basis points, however, falling to 12.9%.
  • Consequently, profits declined year over year. The $6.80 per diluted share that Raytheon earned in 2015 was down 5% year over year (but again, it beat estimates).
  • On the other hand, cash profits -- free cash flow -- increased 5% to $1.95 billion.

The weeks (months, and quarters) to come
And Raytheon's cash profits could keep on growing. Raytheon noted that its backlog of work to be done increased by a modest 3%, growing to $34.7 billion. Of that, 72% is funded backlog -- for which Congress has already appropriated funds. That's roughly enough backlog to keep Raytheon at work for one full year, even if it wins no new contracts.

Even better, Raytheon is showing strong momentum on new order bookings -- the input that causes a company's backlog to grow. New bookings for 2015 amounted to $25.2 billion, nearly 9% more than the $23.2 billion in revenues (the output from backlog) that Raytheon brought in. And things picked up speed as the year progressed. Q4 bookings shot up to $7.9 billion, versus sales of just $6.3 billion. That gave Raytheon a book-to-bill ratio of 1.24 for the final quarter of the year, versus 1.09 for the year as a whole.

Either way, though, the story here is clear: Raytheon's bringing in new orders faster than it's turning those orders into delivered products and collected revenues. The company's business is growing -- and profits and free cash flow will grow with it.

Not long ago, Fool contributor Rich Smith gave serious thought to selling his Raytheon shares -- but never quite got around to it. Now, he's kind of happy about that. You can find him on Motley Fool CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 249 out of more than 75,000 rated members.

The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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