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A look at L-3’s largest business segment

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L-3 Communications business segments

L-3 Communications Holdings Inc. (LLL) operates in four business segments:

  • Aerospace Systems
  • Electronic Systems
  • Communications Systems
  • National Security Solutions

In this article, we will see how Aerospace Systems, L-3’s largest business segment, performed in 3Q14.

 

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Aerospace Systems

L-3’s Aerospace Systems segment delivers solutions for the global ISR (intelligence, surveillance, and reconnaissance) market. The segment also provides modernization, upgrade, maintenance, and logistics support for a wide variety of aircraft and ground systems to military, government, and commercial customers.

Aerospace Systems specializes in the highly customized design, integration, and certification of mission subsystems. The segment designs interiors for VIP aircraft as well. This segment’s capabilities include C3ISR Support Services, SIGINT Systems, SPYDR, and FORCE ICS.

Performance in 3Q14

 

L-3’s Aerospace segment had third-quarter net sales of just over $1 billion, which was a 5% year-over-year decline from $1.09 billion. The main reason for this decline was decreased platform systems sales. A $26-million sales increase in the ISR systems area partially offset the decline. As mentioned in the previous article of this series, the Aerospace segment underwent an internal audit that cost the company $24 million and also saw order delays and reductions.

Operating margins declined to 6.2%. L-3 expects this trend of poor performance to continue, given military budget weaknesses. To learn more about this, read Why are US defense expenditures falling?

Year-to-date performance

For the year-to-date 2014 period, Aerospace Systems’ net sales fell by 7% or $243 million due to sales decreases of $213 million and $30 million for platform systems and ISR systems, respectively. Sales for logistics solutions remained the same.

Operating income for the same period decreased by 42% or $140 million, clocking an operating margin of 6.2%.

L-3’s competitors include Rockwell Collins (COL), the Boeing Company (BA), and Exelis Inc. (XLS). Some of these companies are part of the Industrial Select Sector SPDR (XLI).

In the next article, we will look at L-3’s electronic systems segment.

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