LLL’s outlook for the future



2014 guidance reduced

Due to lower-than-expected performance in the quarters, L-3 Communications Holdings Inc. (LLL) has reduced its estimated 2014 earnings per share by $0.60 at the midpoint to $7.40. The company also decreased its consolidated sales guidance for fiscal 2014 by $50 million. L-3 increased its share repurchase estimate for the full year by $125 million to $825 million. The company expected to end 2014 with a cash balance of about $500 million after dividend and share repurchase payouts.

Let’s turn our attention to LLL’s outlook for the future.

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Strengths for 2015

L-3 sees opportunities in providing a wide range of national security initiatives to the US DoD (Department of Defense). The DoD faces a number of potential risks, including the global Jihadist resurgence that has increased cyber threats around the globe and activities in Russia and China. The company is focusing on the DoD’s growth areas:

  • SOCOM (special operations command)
  • ISR (intelligence, surveillance, and reconnaissance)
  • electronic warfare
  • cyber security

The non-US market for ISR systems, simulators, and aircraft modifications is a large and growing one in the United Kingdom, Canada, Saudi Arabia, Australia, the United Arab Emirates, and other countries. L-3 is already a contractor in C3ISR systems, aircraft modernization, and aircraft maintenance, so the company can look for expansion opportunities in those areas.

LLL has a good combination of strong, free cash flow generation and manageable financial leverage. The company has won many contracts. The latest one is a $218-million National Geospatial-Intelligence Agency contract.

Guidance for 2015

L-3 expects its revenues to fall by about 2% next year due to the weakness of the company’s Aerospace segment. The company anticipates that this segment weakness will continue as the US military completes the drawdown in Afghanistan and the Army’s C-12 contract ends.

LLL also has concerns over its pension expenses. The company expects these expenses to increase by approximately $73 million. Causes of this significant increase include a lower discount rate, the impact of the Highway and Transportation Funding Act of 2014, and actuarial assumption changes, primarily mortality rates.

L-3 Communications looks well-prepared to grow in the future using its acquisition-based strategy. This will help the company stay ahead of its competitors, which include United Technologies Corporation (UTX), the Boeing Company (BA), and Spirit AeroSystems Holdings (SPR). Some of these competitors are part of the SPDR Dow Jones Industrial Average ETF (DIA).


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