U.S. MAJORS CONTINUE TO IMPRESS
By Julian Nettlefold, Editor, BATTLESPACE
24 Jul 07.The FT reported that US defence contractors continue to reap the benefit of rising Pentagon spending as the US military remains engaged in high-intensity operations in Iraq and Afghanistan.
Both Lockheed Martin, the world’s largest defence contractor, and Northrop
Grumman, the third largest supplier, reported second quarter profits which
easily beat Wall Street expectations.
However, the sharp rise in US military spending – currently running at more than
$600bn, including supplementals – in recent years is not expected to continue amid increasing doubts about the Iraq deployment as a growing number of US politicians look for an exit from the conflict.
Despite the better-than-expected performances of both companies, Bank of America analysts retained a neutral rating on the outlook for the industry, citing “the likely slowdown in defence spending as the US withdraws from Iraq, and uncertainty concerning the presidential elections next year.”
Defence companies are looking to deal with the uncertain future by raising profit margins, targeting more foreign deals and diversifying. Lockheed has made strides in this direction by becoming the biggest provider of IT services to the US government.
Boeing
25 Jul 07. Boeing Co. on Wednesday said it swung to a second-quarter profit on demand for its commercial airplanes, bumped up its full-year earnings forecast, and raised spending levels to ensure its next-generation 787 Dreamliner takes to the skies on schedule. Fast growth among foreign carriers and the financial recovery of the U.S. airline industry have propelled demand for the aerospace company’s passenger jets to record levels. Executives said they are considering stepping up production and could even see new appetite from U.S. and European legacy carriers over the next two years.
But Boeing still has a few milestones to pass before one hot new product — its lightweight, newly assembled 787 passenger jet — allows it to take full advantage of the industry’s growth turn. On Wednesday it raised its expected outlays for research and development to cover staff working longer on the 787’s first launch.
“It’s the scramble near the end of the program,” said Boeing CEO Jim McNerney in
a conference call. The company pushed back the 787’s inaugural flight by about a
month but kept its delivery target for May 2008.
Citing better-than-forecast demand for commercial airplanes, the Chicago company raised its full-year earnings forecast to $4.80 to $4.95 a share in 2007, compared with a prior forecast of $4.55 to $4.75 and the latest Wall Street estimate of $4.91 a share as compiled by Thomson Financial.
“Our product strategy is clearly yielding very strong results in the marketplace,” said McNerney.
Boeing maintained its 2008 profit outlook in a range of $5.55 a share to $5.75 a
share.
Second-quarter results
Boeing topped analysts’ forecasts for profit and revenue in the second quarter.
Net income swung to $1.1bn, or $1.35 a share, reversing a loss of $160m, or 21 cents, in the year-ago period. In the year-earlier quarter, Boeing booked more than $1b in charges after it paid $615m to settle Justice Department allegations over a Pentagon contract scandal and obtaining information on a rival’s rocket business. It also took nearly $500m in charges from delays outfitting surveillance aircraft. Revenue in the most recent quarter jumped 14% to $17.03bn. Analysts surveyed by Thomson Financial had forecast earnings of $1.16 a share and revenue of $16.2bn, on average. Commercial airplane revenue increased 22% to $8.7bn. Revenue from its defense systems’ business increased 3% to $8bn. Sales in this division were helped by deliveries of such military aircraft as F-15 fighters and Chinook helicopters and hurt by lower revenue from its Apache helicopter program.
Boeing delivered 114 aircraft to commercial