Top 100: Raytheon unfazed by downturn

Company controls costs, targets diversified opportunities

Most 90-year-olds would be well into retirement, but Raytheon Co., which celebrates nine decades as a contractor in July, is far from slowing down. Tightening government budgets failed to faze the company in 2011, a year that saw net income rise to $1.896 billion from $1.879 billion in 2010.

For example, at the end of last year, the Missile Defense Agency tapped Raytheon to provide two Army Navy/Transportable Radar Surveillance (AN/TPY-2) radars to the Army in a contract worth $363.9 million. The radars can distinguish between friend and foe to ensure a more accurate response.

The missile agency also awarded the company a $241 million contract for engineering design and development work on the Standard Missile-3 Block IIA, used on sea-based carriers to defend against ballistic missile threats.

With $5.7 billion in prime contracts in 2011, Raytheon earned the No. 5 spot on this year’s Top 100.

Besides winning contracts, Brian Seagrave, Raytheon’s vice president of homeland security, also credits the company’s success to its active stance on emerging technologies and needs, keeping customers happy through internal streamlining efforts, and a diverse portfolio.

He named cybersecurity, electronic warfare and big data analytics as growth areas for the company as threats move from physical targets to cyber ones.

Raytheon's acquisitions last year of cybersecurity firms Henggeler Computer Consultants Inc., of Columbia, Md., and Alabama-based Pikewerks Corp. illustrate that point. Raytheon’s electronic warfare business booked $50 million in new contract awards in December alone.

“That is where much of the threat is going globally,” Seagrave said. “We call it the advanced persistent threat, the threat of malware infiltrating past your firewall, … through insiders or accidents – employees that accidentally click on a link that they shouldn’t have clicked on when it was attached to a phishing e-mail.”

But providing ahead-of-the-curve technology is worth only so much in a tight economic environment. Rather than cut corners on its products, the company implemented two programs to keep internal costs down to pass savings to customers. One involves enterprise resource planning systems that integrate finances, supply-chain contracts, resources and process companywide. The other is a Six Sigma program that turns tiny operational improvements into big savings and quality boosts when added together.

“This is work that we have stuck with and are just constantly turning the screw for continuous improvement and finding where we are able to integrate the supply-chain work across quite diverse programs in order to get costs down for customers,” Seagrave said.

With more than 8,000 programs and 15,000 contracts, Raytheon’s sheer size helps it maintain an edge. “We have such a broad portfolio that we have capabilities that are matching what customers are buying,” Seagrave said. “Second, we are focused both domestically and internationally. We have quite a substantial portion of our sales that are international and growing, so that we’re diversity in our portfolio and in our customers.”

The 1.2 percent drop in revenue that Raytheon experienced this year is of little concern, said Patrick  McCarthy, managing director at FBR Capital Markets & Co.

“Earnings have been under pressure, but they’ve largely been under pressure because of the pension fund and the funding requirements related to the pension fund. But if you look at 2013, you start to see a pretty decent reversal of those pension obligations or the pension expense,” McCarthy said. “Our expectation is that Raytheon next year will have earnings that are better than this year.”

About the Author

Stephanie Kanowitz is a freelance writer based in northern Virginia.

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