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Tickers in this Article: HRS, MSI, GD
Harris Corp. (HRS) declared fourth quarter 2012 financial results, where EPS meet the Zacks Consensus Estimates but revenue missed. Reported GAAP net loss in the quarter was $136.7 million or $1.20 per share compared with $133.6 million or $1.06 per share in the year-ago quarter. Quarterly adjusted (excluding acquisition related cost) earnings per share (EPS) of $1.42 were in line with the Zacks Consensus Estimate.

Consolidated revenue in the reported quarter stood at $1,436.2 million, down 5.57% year over year and also below the Zacks Consensus Estimate of $1,451 million.

Cost of sales in the quarter was $939.6 million compared with 1,013.5 million in the prior-year quarter. Engineering, selling & administrative expenses were $225.4 million versus $247.5 million in the year-ago quarter.

At the end of the fourth quarter of fiscal 2012, Harris generated $852.9 million in cash from operations compared with $833.1 million in the prior-year quarter. Free cash flow (cash flow from operations excluding capital expenditures) for the period was $643 million compared with $521.8 million in the year-ago quarter.

At the end of the reported quarter, Harris had cash and cash equivalents of $356 million compared with $366.9 million at the end of fiscal 2011. Total debt at the end of the quarter was $1,883 million compared with $1,887.2 million at the end of fiscal 2011. Debt-to-capitalization ratio was 0.49 compared with 0.43 at the end of 2011.

Government Communications System Segment

Quarterly revenue for the segment dipped 0.5% year over year to $497.2 million. Operating income in the quarter was $66.1 million versus $63.2 million in the prior-year quarter. Quarterly operating margin was 13.3% compared with 12.7% in the year-ago quarter.

RF Communications Segment

Revenue in the quarter was $583.6 million, down 7.1% year over year. "Tactical Radio Communications" and "Public Safety and Professional Communications" contributed roughly 70% and 30%, respectively. Operating income was $195.7 million compared with $190.7 million in the year-ago quarter. Quarterly operating margin was 33.5% compared with 30.4% in the year-ago quarter.

In the reported quarter, the segment generated new orders worth $529 million with $356 million in the Tactical Radio Communications business and $173 million in the Public Safety and Professional Communications business. Total order backlog in the Tactical Radio Communications segment was $665 million and $635 million in Public Safety and Professional Communications.

Integrated Network Solutions

The segment generated revenues of $379 million, down 9.6% year over year. Operating income in the quarter was $34.1 million compared with $33.1 million in the year-ago quarter. Quarterly operating margin was 9% compared with 7.9% in the year-ago quarter.

Financial Outlook

Management provided its financial outlook for full-year 2013. GAAP EPS guidance for fiscal 2013 remained unchanged at $5.10-$5.30. The company expects revenue growth of 0% to 2% for fiscal 2012.

Our Recommendation

Continuous order wins, huge order backlog coupled with strong demand for Harris' next-generation Falcon III tactical radio in the international markets will drive top-line growth going forward.

However, the slowdown in international as well as national defense expenditures coupled with intense competition from the likes of General Dynamics Corp. (GD) and Motorola Solutions, Inc. (MSI) will set Harris back. We thus maintain our long-term Neutral recommendation on Harris Corp.

Currently, Harris Corporation has a Zacks #3 Rank, implying a short-term Hold rating on the stock.

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