S. MAJORS BOOST EARNINGS WITH WEAKER REVENUES
On 24 April, Reuters reported that Lockheed Martin Corp expects across-the-board U.S. budget cuts to have a bigger impact on the company’s results in the second and third quarters of 2013, Chief Financial Officer Bruce Tanner told reporters on Tuesday. Tanner said Lockheed’s sales and earnings were higher than expected in the first quarter, despite the implementation on March 1 of mandatory budget cuts that will affect the Pentagon, Lockheed’s biggest customer, and the U.S. government. But those cuts are likely to have a bigger impact on Lockheed’s results in the coming two quarters, he said.
The FT reported that Northrop Grumman maintains outlook amid US budget constraints. The chief executive of Northrop Grumman, the US defence department’s third-biggest supplier by revenues, said the company was operating in an “uncertain and constrained” budget environment but left guidance for the year unchanged.
Wes Bush was speaking as Northrop, manufacturer of the B2 stealth bomber and other high-profile military hardware, announced first-quarter net earnings down 3.4 per cent to $489m compared to the same quarter last year, on sales down 1 per cent to $6.1bn.
General Dynamics, the Pentagon’s fourth-biggest supplier, also stood by its projections for the year as it announced first-quarter net income up 1 per cent to $571m. However, it took significant write-offs in January partly as a result of the expected effect of military spending cuts on its business’s value.
Both companies’ earnings highlighted how “sequestration” spending cuts – which came into effect from March 1 – are having only a gradual impact on the US’s biggest military contractors. Most of the biggest military procurement programmes are paid for over several years, from budgets allocated as much as five years before. Contractors are consequently expected to see the cuts’ results first in short-term contracts, such as those to supply information technology and other services, and to see the impact in items such as naval shipbuilding only in years to come.
Northrop said it still expected 2013 earnings in a range between $6.85 and $7.15 per share and full-year sales around $24bn.
Mr Bush said strong operating performance and effective cash deployment had driven first-quarter results.
He added: “Looking ahead, we recognise that we are operating in an uncertain and constrained budget environment. We are maintaining our focus on programme performance, effective cash deployment and portfolio alignment as we drive to best serve our shareholders, customers and employees.”
Segment operating income at Northrop’s information systems division showed the biggest falls against last year’s first quarter, declining 17 per cent to $171m, on sales down 9 per cent to $1.67bn. Segment operating income at technical services fell 7 per cent to $65m, on sales down 4 per cent to $717m.
Operating income in information systems fell 3 per cent to $296m, on flat sales of $1.72bn, while segment operating income in the core aerospace business fell 3 per cent to $270m, on sales up 4 per cent to $2.48bn. Aerospace volumes benefited from higher deliveries of the F35 joint strike fighter, to which Northrop Grumman contributes.
0n April 25th Reuters reported that Raytheon Co (RTN.N) Chief Executive William Swanson said he expected top Pentagon leaders to try to protect programs to develop new weapons despite additional budget cuts that took effect on March 1.
Swanson told defense analysts that he recently raised concerns that new program “starts” could suffer in the current budget climate with Deputy Defense Secretary Ashton Carter, but received assurances that Pentagon leaders understood the importance of continuing to develop new technologies.
Swanson said Raytheon was well-prepared to deal with the additional budget cuts that took effect March 1, which he described as “a speed bump .. that we think we forecast