Raytheon to Focus on International Market As US Government Business Declines
[Via Satellite 01-31-2014] Raytheon reported high earnings in the fourth quarter of 2013, but reported lower-than-expected revenues due to the decline in U.S. military spending, an effect of the 2011 Budget Control Act. The 2013 fourth quarter and full-year results call also revealed that 2014 and 2015 are expected be transitional or “down” years for the company’s domestic sales. As a result, Raytheon will turn its focus to its growing international markets over the next two years.
“We’ve always viewed [these years] as the transition,” said Raytheon’s CEO Bill Swanson. “When you look at the budget process, even with sequestration and the Budget Control Act, 2016 was always the year where there was an uptick where it started to come back again, and even when you look at it, 2017 and on [is when] the budgets start to increase.”
With last year’s net sales being $23.7 billion — down 2.9 percent from last year — a 3 percent increase in international sales offset the decline of domestic sales. International business accounted for 29 percent of Raytheon’s total sales and 43 percent of total bookings in 2013. According to Swanson, the 10 percent increase in overall bookings for the last fiscal year was a result of the company’s “strategic focus on global markets.”
“Our international business continues to be a significant driver of our results,” said Swanson. “It takes a while to establish your credit internationally, and our customers really count on the fact that we’ve been in the Middle East, Japan, Taiwan for 50 years. To me, it’s all about relationship and trust, and that does not happen overnight.”
Raytheon’s largest international deals are in the Middle East. New contracts in the region include a $1.28 billion agreement with Oman for ground support equipment, a full training package and technical assistance; as well as a $2 billion deal with Qatar for a Patriot missile defense system.
“The [Middle East] region needs the kinds of products and services that we as a company have in our portfolio,” said Swanson. “There hasn’t been any kind of turndown whatsoever in what we’re doing in the region. In fact, we find the opposite is true, that they’re counting on us to do more to help them as they worry about their own national security. I know what’s written in the papers, but to me, firsthand knowledge is really important and it’s why we go over there to [interact] with people we’ve been doing work with for a long, long time.”
For Thomas Kennedy, current COO and soon-to-be CEO of Raytheon, Oman presents one of the most exciting growth potential for the company at the moment. “Oman is a new country for us, and we see additional opportunities [there] over the next five years,” he said. Kennedy also mentioned Qatar as a growth opportunity with an expected contract for an air defense operating center toward the end of this year.
As U.S. dollars will continue to be hard to find and business remains strong in the Middle East for Raytheon, the company is in a good position to explore new markets. Swanson highlighted Europe and Australia as new candidates for business in the next two to three years, saying Europe is going to “upgrade what they have, and we’ll see that as an opportunity.”