Harris Q3 Results for Broadcast Comms Division

Posted by Joe Zaller
Apr 28 2010

Earnings season continued today with Harris Corp. releasing their Q3 numbers.  The bulk of the company’s business is in the RF and defense industries, and this has been covered elsewhere.  This post looks only at the company’s broadcast communications division.

According to the company’s earnings press release, “operating performance for the (broadcast communications) segment is being impacted by a still relatively weak U.S. broadcaster market and continued investment to pursue opportunities in the international and new media markets.  Additional cost-reduction actions will be implemented in the fourth quarter, which are expected to improve operating performance and allow continued investment in opportunity rich international and new media markets… Orders in the second and third quarters suggest that the market is bottoming and showing some signs of improvement.”

The company’s broadcast communications division achieve the following result in Q3:

  • Orders of $130m, which is a 20% improvement versus the same quarter a year ago, but about 5% lower quarter over quarter

 

  • Revenue of $123m versus $132m last year (-7%), but higher than second quarter revenue of $117m (+5%)

 

  • An operating loss of $5m, which is the same as the previous quarter, but worse than the operating income of $2m a year ago

 

  • Several large orders, including $12m from Cox broadcasting, $4m from Abu Dhabi Media Company and $4m from the country of Rwanda

 

On the earnings conference call, Harris CEO Howard Lance provided further insight into the company’s broadcast communications division.  Among Lance’s comments were the following:

  • Revenues in the broadcast communications division continue to be impaired by lower US broadcaster capital spending

 

  • New media and international markets represent significant new business opportunities for the company in the future

 

  • Order momentum over the previous two quarters in the broadcast communications division suggests that the broadcast market is at the bottom and starting to show signs of improvement

 

  • There is strong interest in “new media” initiatives, such as the in-arena network built for the Orlando Magic combines IPTV and digital signage and merge broadcast technology with IT infrastructure to enhances the fan experience

 

  • The company’s efforts to create synergies by combining technology and expertise of its broadcast video and defense businesses through its FAME  (Full-Motion Video Asset Management Engine) are beginning to bear fruit

 

  • Responding to a question from an equity analyst, Lance said that to date, defense represents about 2-3% of the broadcast communications division’s revenues, but there is a strong opportunity pipeline, and this could grow to 5-10% of the broadcast division’s revenue over the next few years.  He called this a “pan-Harris opportunity” citing the importance of ISR activities (Intelligence, surveillance and reconnaissance), all of which require the processing, storage and management of large quantities of video material.

 

  • The broadcast communications division took a $1m restructuring charge for the quarter, bringing the year-to-date restructuring charges for the broadcast business to $3m

 

  • The company intends to take additional restructuring charges in Q4, which will take the total of broadcast division restructuring charges to $10m for the full fiscal year.  According the earnings press release, these additional actions are expected to improve operating performance and allow continued investment in opportunity rich international and new media markets

 

  • The company has reduced its expected revenue from the broadcast communications division to $480-$490m, and expects to post a $20m operating loss, including the $10m in restructuring charges

 

  • The reduction from previous estimates is due to: lower sales volume; higher investment in international and new media markets; and restructuring charges associated with additional cost reduction actions

 

  • For FY2011, the company expects the broadcast communications division to break even on revenues of $490m-$510m

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