2Q18 revenue up 6% to $1.5 billion; orders up 13%
2Q18 EPS from continuing operations down 12% to $1.15 GAAP; up 21% to $1.67 non-GAAP
2Q18 results impacted by $52 million one-time, non-cash write-down of deferred tax assets and $26 million lower tax rate benefit from enactment of Tax Cuts and Job Act of 2017
1H18 revenue up 3% to $2.9 billion; EPS from continuing operations up 3% to $2.52 GAAP and up 15% to $3.05 non-GAAP
1H18 operating cash flow up 26% to $373 million; free cash flow up 34% to $330 million
Solid operating performance plus tax reform resulting in increased EPS guidance for fiscal 2018
Harris Corporation (NYSE:HRS) reported fiscal 2018 second quarter revenue of $1.54 billion, up 6% compared with the prior year. Earnings per diluted share from continuing operations was $1.15 (GAAP) and $1.67 (non-GAAP1), compared with $1.30 (GAAP) and $1.38 (non-GAAP1) in the prior year. Operating cash flow was $278 million and free cash flow was $258 million compared with operating cash flow of $252 million and free cash flow of $224 million in the prior year.
We generated solid results in the second quarter driven by the strongest revenue growth we have achieved in more than seven years, including a 26% increase in tactical radio sales, said William M. Brown, chairman, president and chief executive officer. In the first half, revenue and orders were up in all segments, and company book-to-bill was a robust 1.3. As a result of our strong performance and improved revenue outlook despite a lengthened continuing resolution, as well as benefits from tax reform, we have increased EPS guidance for the fiscal year.
Summary Financial Results
Second quarter revenue increased 6%, with growth in Communication Systems and Electronic Systems partially offset by a slight decline in Space and Intelligence Systems. The decrease in GAAP EPS was primarily due to non-cash charges in the second quarter of fiscal 2018 from a $52 million one-time write-down of deferred tax assets and from an adjustment for deferred compensation, partially offset by the absence of Exelis acquisition-related charges incurred in the second quarter of fiscal 2017. Non-GAAP EPS increased by $.29, which includes $.21 of benefit from tax reform and $.08 from higher volume, operational excellence, higher pension income and a lower share count, partially offset by the absence of a $22 million favorable contract adjustment incurred in the second quarter of fiscal 2017. Non-GAAP operating margin remained strong at 18.5%. Orders increased 13% to $1.4 billion.
First half revenue increased 3%, with growth across all three segments. GAAP EPS was up 3% due to the absence of Exelis acquisition-related charges incurred in the first half of fiscal 2017, partially offset by the non-cash charges incurred in the second quarter of fiscal 2018. Non-GAAP EPS was up 15% on increased volume, benefit from tax reform, higher pension income, strong program execution and year-over-year integration synergy savings, partially offset by a $36 million unfavorable impact from the ADS-B program. Non-GAAP operating margin was strong at 18.9%. Orders grew 24%, resulting in a book-to-bill of 1.3.
Communication Systems
The 18% increase in second quarter segment revenue was primarily due to a 56% increase in DoD Tactical revenue driven by readiness demand across all the Services and a 9% increase in International Tactical revenue from strong growth in the Middle East. Operating income grew 19% on increased volume and operational efficiencies.
DoD Tactical momentum continued in the second quarter, with both ground tactical and airborne awards:
$765 million ceiling, 5-year, single-award IDIQ contract with the U.S. Navy to provide tactical radios and ancillary devices
$71 million contract modification from the U.S. Army for single-channel ground and airborne radio systems (SINCGARS)
$60 million order from the U.S. Air Force for Falcon III tactical radios
$42 million order from the U.S. Army for the Security Force Assistance Brigade for Falcon III tactical radios and waveforms
International Tactical received several key orders for modernization programs and ongoing counter-terrorism support:
$45 million from Iraq for security forces modernization
$18 million from Afghanistan to provide sustainment services to its security forces
$10 million from the Royal Danish Army for tactical vehicular radio systems
Electronic Systems
The 2% increase in second quarter segment revenue reflected higher volume in Avionics, with growth on the F-35 and several other platforms, and in C4ISR from the ramp of the UAE battle management system and U.K. robotics programs, partially offset by contract adjustments in Mission Networks, including the absence of the favorable prior-year adjustment on the ADS-B program. Operating income declined 25% as strong performance on Electronic Warfare (EW) programs and the benefit of higher volume in Avionics were more than offset by the contract adjustments in Mission Networks, higher R&D expenses and unfavorable mix.
New awards continued to strengthen the companys strategic position in Avionics on both domestic and international large platforms. Domestic awards included a $93 million contract for F-35 LRIP 11 release systems and a $48 million, 5-year block buy contract for LRIP 12-14 in support of the F-35 antenna production program. International awards included a $25 million contract for release systems to support Qatar F-15s and a development contract for release systems on the Korean Next Generation Indigenous Fighter with significant follow-on potential.
Space and Intelligence Systems
Second quarter segment revenue declined slightly as higher revenue from Classified programs was more than offset by lower revenue from environmental programs. Operating income increased 7% to $81 million on productivity and incremental pen
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2Q18 revenue up 6% to $1.5 billion; orders up 13% 
