L-3 Communications Holdings, Inc. (NYSE:LLL) L-3 Communications is a prime contractor in command, control, communications, intelligence, surveillance, and reconnaissance systems, aircraft modernization and maintenance, and government services. The company reported earnings before the market opened on 30Jan14 and on the surface everything looked good with the company reporting fourth quarter earnings of $2.17 per share (beating estimates by $0.19) on revenue of $3.3 billion (beating analysts' estimates by $140 million). What I'd like to at this time is delve into the weeds and pick out some highlights from different portions of the report to see if the stock is worth buying at the present time.
Segment results (millions)
Platform & Logistics Solutions
Compared to last year total revenue has decreased by 9%. C3ISR is the company's secure communications systems for intelligence, surveillance and reconnaissance aircrafts and this segment decreased revenues by 13%. The NSS or National Security Solutions segment is focused on defending networks and equipment against increasingly sophisticated attacks and applying forensics to deter cyberspace breaches but saw its revenues decrease by 11%.
Cost of sales
Interest and other income, net
Debt retirement charge
Income from continuing operations before income taxes
Provision for income taxes
Income from continuing operations
Income from discontinued operations, net of income tax
Net income from continuing operations attributable to noncontrolling interests
Net income from discontinued operations attributable to noncontrolling interests
Net income attributable to L-3
Avg. basic outstanding shares
Avg. diluted outstanding shares
Earnings per basic shares
Earnings per diluted shares
Looking at the income statement at first glance might be a bit unappealing as you look at the bottom lines and notice that earnings decreased by 4% from last year. The first thing to notice is that operating income decreased by 11% which was due to lower sales and higher severance costs. Interest and other income increased 100% while debt retirement charge decreased by the same percentage helping income from continuing operations before income taxes decrease by 10%. Provision for income taxes increased 17% helping income from continuing operations decrease by 7%. The company's operations for the fourth quarter of 2013 turned out a 4% drop in overall earnings.
Cash and cash equivalents
Contracts in process
Deferred income taxes
Other current assets
Total current assets
Property, plant and equipment, net
Identifiable intangible assets
Deferred debt issue costs
Accounts payable, trade
Accrued employment costs
Advance payments and billings in excess of costs incurred
Other current liabilities
Total current liabilities
Pension and postretirement benefits
Deferred income taxes
Noncontrolling interests of continuing operations
Total liabilities and equity
Cash and cash equivalents increased 43% while deferred income taxes increased 19% and other current assets decreased 10%, all of which helped contribute a 3% increase in total current assets. Deferred debt issue costs decreased 17% while other long-term assets increased 42% causing total assets to appreciate by 1%. Income taxes decreased by 52% helping current liabilities decrease by 2%. Pension and postretirement benefits decreased 47% while deferred income taxes increased 95% making total liabilities decrease by 4%.
The company reported earnings which were 4% lower than a year before on 9% less revenue while the share price was up 41.54% in the past year excluding dividends. The share count has decreased 4% for the entire year. I believe this to be an indication that management thinks the stock price may just be too inexpensive up here. I definitely don't like that earnings decreased on a year over year basis and that revenue was also down. On a fundamental basis I believe this company is inexpensively valued with respect to 2014 earnings. The stock was up 2.08% the day after reporting earnings in the face of an S&P500 which is losing 0.53%. Although the company beat analyst estimates the earnings per share were less than last year in a white hot industry of the economy, the aerospace industry. With earnings expected to decrease more in 2014 I believe I will be rotating out of LLL when February comes. I'd like to replace it with something else in the aerospace industry; I will be looking at United Technologies (NYSE:UTX) or Boeing (NYSE:BA).
Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!
Disclosure: I am long LLL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.