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MIXED RESULTS SHOW EFFECTS OF DEFENSE SPENDING DOWNTURN

The Boeing Company
General Dynamics
Honeywell
Lockheed Martin
Northrop Grumman
Raytheon Company
Textron Systems
United Technologies

On January 24th the FT reported that two of the biggest suppliers to the US defence department – Lockheed Martin and Raytheon – issued forecasts for the coming year that assume no drastic, across-the-board spending cuts, in a sign of some contractors’ continuing optimism.

Lockheed, the main contractor for the F-35 joint strike fighter and C-130 transport aircraft, estimated that diluted earnings per share (EPS) from continuing operations would be between $8.80 and $9.10. The figure was sharply up from the $8.36 per share that the company reported on Thursday for 2012 and the $7.81 it achieved for 2011.

Raytheon, which specialises in missile and space systems, said it expected adjusted EPS – a measure that excludes some pension effects and debt retirement – down to a range of $5.65 to $5.80, compared with $6.21 for 2012. The company announced fourth quarter net income down 14 per cent to $469m, on revenue up 1 per cent to $1.89bn.

Both companies’ optimism reflects the conviction of many of the largest US-based defence contractors that they will feel relatively little of the effect of the US budget crisis, even though current legislation calls for sweeping automatic cuts in budgets. Both based their forecasts on the assumption that mandated, across-the-board cuts in all US defence budgets – known as sequestration – would not occur.

They announced their forecasts a day after General Dynamics, the US’s fourth-biggest military contractor by revenues, announced $2.3bn in impairment charges for the fourth quarter, mostly related to slowing US defence spending.

Bruce Tanner, Lockheed Martin’s chief financial officer, said it was unclear how sequestration cuts would be implemented if the measure were not averted. Current legislation calls for across-the-board cuts of about 10 per cent to all programmes equally – but politicians could agree to target the cuts on the most easily cancelled programmes.

The choices that Congress will face and the arguments for and against cutting different areas of the defence budget

“Under a sequestration where it is more targeted, we would fare better because the products we make are more closely aligned with the national security of this country,” Mr Tanner said. Lockheed Martin’s net income for the fourth quarter fell 17 per cent to $569m, on net sales down 1 per cent to $12.1bn. Net income for the year rose 3.4 per cent to $2.74bn, on sales up 1.5 per cent to $47.2bn.

Lockheed nevertheless sounded gloomy about the prospects for its information systems and global solutions business, which it said suffered a 14 per cent fall in net sales, to $2.2bn, and a 20 per cent fall in operating profits to $203m. The division operates in similar segments to General Dynamics’ Information Systems and Technology Group, whose acquired goodwill General Dynamics wrote down by $1.99bn in value.

The Boeing Company

30 Jan 13 The Boeing Company (BA) reported record fourth-quarter revenue of $22.3bn and core operating earnings (non-GAAP) that increased by 9 percent to $1.8bn, driven by strong performance across the company’s businesses and higher deliveries of commercial airplanes. Fourth-quarter 2012 core earnings per share (non-GAAP) of $1.46 increased 4 percent from the same period last year when excluding a $0.52 per share impact related to a favorable tax settlement recognized in the fourth-quarter 2011. The company reported fourth-quarter earnings from operations of $1.6bn and earnings per share of $1.28.

Core operating earnings (non-GAAP) rose 13 percent in the full-year to $7.2bn, compared to $6.4bn in 2011. 2012 core earnings per share
(non-GAAP) of $5.88 increased 12 percent from 2011 when excluding the impact of the 2011 favorable tax settlement ($0.53 per share for the year). Full-year 2012 revenue was a record $81.7bn, wi

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