Raytheon 3Q16 Earnings Call Notes

posted in: Notes | 0

Raytheon (RTN) Q3 2016 Results
Thomas A. Kennedy

Demand in Europe focused on deterrence, demand in Middle East is focused on counter terrorism

“In Europe, I think the big one there is deterrence. We’re seeing Eastern Europe very concerned in that area, and so they’re looking for systems that will provide in that kind of a deterrence capability. And so we’re seeing a lot of action on things like the Patriot System and then also our NASAMS system that we have at the nation’s capital and we had a sale in Oman and several other countries out there. So we’re seeing significant pull for those deterrence type systems in Europe. As we move to the Middle East, you’re correct. I would say it’s a little different in Middle East. It’s demand from both the counter insurgency, counter terrorism bucket, and then also the deterrence bucket. And on the counter insurgency, I think you can understand that. That’s some of the demand, OPTEMPO pull here, for precision weapons and some other ground systems that we have.”

Asia Pacific also focused on deterrence

“On the deterrence side, I mean there is a concern, there is neighbor of the GCC that the GCC is concerned about and so you’re getting into deterrence there and therefore you see the demand for systems like Patriot across the whole region, and so that’s the deterrence bucket. And if we go over to the Asia-Pacific region, it’s clear that it’s most of the effort there, demands signals is again coming from this deterrence bucket, looking for solutions like Patriot advanced weapons, radars to be able to see things, ballistic missiles before they hit them and so the Asia-Pacific region is in big demand on the deterrence.”

Department of Defense shifting to dealing with near-peer threats

“The third bucket is really coming directly from the Department of Defense, obviously for all regions in the global area to be able to essentially come up from 20 years of fighting wars of insurgency to now dealing with near-peer threats that potentially have capabilities that are at or potentially in some cases maybe better or perceived to be better than what the U.S. has, and so it’s a big catch up area there. I mentioned, we did mention on the call about a significant increase in classified work. I think that’s really addressing that bucket and to help the Department of Defense regain in some cases its superior capabilities over near-peer threats.”

The demand signals have never been as strong

“I think what’s different here in my entire career is each of those buckets is overflowing, and so the demand signals have never been as strong in each of the three buckets and across those three regions. And you’re seeing that in our book-to-bill, the 1.15 for the third quarter, 1.14 year-to-date and then over the trailing four quarters, 1.16. We wouldn’t be having those book-to-bills if the demand signals isn’t as high as it is and across three regions and across three buckets.”