By Doug Cameron
Raytheon Co. said Thursday that its big push into commercial
cyberspace services would pay off a year ahead of schedule, even as
rival defense contractors bailed out of the sector because of tough
competition.
The maker of Patriot missile-defense systems in May paid $1.6
billion for control of Websense Inc. and combined it with its
government-focused cyberbusiness in an effort to cross-sell to
customers seeking protection from a dizzying array of Internet
threats.
At the time, the deal was the largest defense acquisition in a
decade and followed more than a dozen smaller purchases, but met
with skepticism from some investors and analysts, with Raytheon
shares underperforming peers amid concerns the company would find
it tough to secure profitable growth.
However, Raytheon said the cyberventure would be accretive in
two to three years, 12 months earlier than expected. Its shares
were recently up 7.7% at $104.53.
"It's not as dilutive as we thought," Chief Financial Officer
Toby O'Brien said of Websense in an interview after Raytheon
reported forecast-beating quarterly earnings. It also lifted its
full-year sales forecast, targeting a rise of up to 2% from 2014,
reversing annual declines stretching back to 2010. Mr. O'Brien said
the return to growth was a year ahead of its prior
expectations.
Raytheon is the Pentagon's fourth-largest supplier by revenue
and a closely watched barometer of the industry's health because of
its relatively large overseas exposure, a run of domestic contract
wins and its efforts to tap commercial as well as core defense
markets.
The cyber push has attracted even more scrutiny as rivals gave
up on their own efforts to leverage their prowess in military and
intelligence markets into winning deals for customers such as banks
and utilities. Lockheed Martin Corp. this week announced plans to
sell or spin off its commercial cyberbusiness, and Boeing Co. and
General Dynamics have already exited a segment both built through
acquisitions.
Defense companies have found they lack the sales skills to tap
nongovernment clients and lacked the scale of some established
commercial operators such as Symantec Corp. and FireEye Inc. to do
so.
Raytheon Chief Executive Tom Kennedy said there was pent-up
demand from commercial and government customers for what he called
defense-grade cyber solutions, with Websense's main product having
double-digit sales growth in the June quarter.
Patriot sales have been boosted by tensions in the Middle East,
and international orders climbed to a record 46% of its backlog at
the end of the quarter, boosted by around $7 billion in deals for
the Patriot booked in recent months.
With international sales growing at midsingle-digit levels and
U.S. business flat or slightly down this year, Mr. O'Brien said he
expected domestic sales to turn up again late next year or in early
2017.
His comments came as Raytheon said profit from continuing
operations rose to $504 million from $499 million, with per-share
earnings climbing to $1.65 from $1.59, above analysts'
expectations.
The company trimmed its 2015 earnings guidance to a range of
$6.47 to $6.62 from $6.67 to $6.82 to reflect the Websense deal,
ahead of analysts' expectations, and boosted its share-buyback
plan.
The company raised its 2015 sales guidance by $400 million, with
Austin, Texas-based Websense expected to add an extra $100 million
and the unit that builds the Patriot missile-defense system
boosting revenue by an additional $300 million.
Patriot sales helped lift revenue by 2.8% to $5.85 billion in
the quarter, with $7.6 billion in orders boosting its book-to-bill
ratio to 1.3.
Write to Doug Cameron at doug.cameron@wsj.com
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