L-3 2Q profit rises, boosts guidance

AP News
Posted: Jul 28, 2011 11:56 AM
L-3 2Q profit rises, boosts guidance

L-3 Communications Holdings Inc. said Thursday its second-quarter profit rose 6.6 percent and announced plans to spin off its government services business into a new publicly-traded company.

The company, which manufactures secure communications systems and specialized communications products, boosted its full-year profit guidance. Its shares jumped $2.71, or 3.4 percent, to $82.83 in midday trading.

For the quarter ended June 30, L-3 reported net income of $242 million, or $2.26 per share, up from $227 million, or $1.95 per share, a year ago. The recent quarter's results included a tax benefit of 11 cents per share. Without that, its adjusted earnings amounted to $2.15 a share.

Sales fell 5 percent to $3.77 billion from $3.97 in the same quarter last year, partially as a result of the loss of military contracts, along with lower demand for some of its systems used by the military.

Analysts, on average, expected earnings of $2.11 per share on $3.84 billion in sales, according to a FactSet survey.

L-3 raised its full-year guidance to earnings of $8.65 to $8.75, up from its previous prediction of $8.50 to $8.60 per share, to reflect a lower tax rate. Analysts expect a profit of $8.25 per share.

L-3 said the new company, to be called Engility, will be able to more effectively address government services needs as an independent entity. Tony Smeraglinolo, executive vice president of L-3 Services Group, will be named as Engility's chief executive once the spin-off is complete, the company said.

Engility is expected to post pro forma sales of about $2 billion and operating income of about $179 million. The spin-off is expected to be completed in the first half of 2012 and the new company will have about 10,000 employees, L-3 said.

L-3 said it will retain its cyber, intelligence and security solutions businesses, which are currently part of the government services segment. The new segment will be named National Security Solutions once the deal closes. That segment is expected to post pro forma sales of about $1.65 billion and operating income of about $108 million. It will have about 6,000 employees.