|
 Defense majors Lockheed Martin Corp <LMT.N>, General Dynamics Corp <GD.N>,
and Northrop Grumman Corp <NOC.N> have all reported higher profits
this week and raised their full-year forecasts. In response, the Dow
Jones index that tracks the 10 biggest aerospace and defense
companies <.DJUSDN> rose 2.2 percent on Wednesday.
Weapons makers turned to workforce cuts and other efficiency efforts
as early as 2007 to shore up their profits, and have also
concentrated on stock buybacks and strong dividends, said defense
consultant Loren Thompson.
"The gradual decline in military spending has given the companies
fewer opportunities to invest in new programs, so they
are returning their cash flow to shareholders," said Thompson, who
runs the Virginia-based Lexington Institute.
He said the crisis in Ukraine and other emerging threats could
strengthen demand for military equipment in the United States and
overseas, and help stave off an expected decline in defense shares
as spending cuts further erode revenues.
Company executives say the budget environment remains tough,
since mandatory federal cuts are due to resume in 2016. Still, work
on big-ticket items like ships, planes and satellites would shore up
revenues since those orders are either already on the books or part
of multi-year agreements being negotiated now.
Lockheed shares were up 3.3 percent at $161.94 after Australia
announced plans to buy 58 more of the company's F-35 fighter jets in
coming years.
Lockheed, the Pentagon's No. 1 supplier, had on Tuesday reported a
23 percent jump in first-quarter net profit and raised its 2014
earnings-per-share outlook by 2.5 percent.
Lockheed, General Dynamics and Northrop all reported higher
operating margins in the latest quarter, and said they would
continue efforts to reduce costs and improve efficiency.
Northrop, which makes unmanned planes, the B-2 bomber and electronic
equipment, on Wednesday reported higher-than-expected quarterly
profit and raised its full-year outlook by about 2 percent, to a
range of $8.90 to $9.15 per share. Northrop shares rose 1.8 percent
to $121.96.
CEO Wes Bush attributed the rise in Northrop's EPS in part to share
repurchases; the company had about 9 percent fewer shares
outstanding during the latest quarter.
[to top of second column] |
"While the U.S. budget environment continues to be challenging,
particularly for our short-cycle businesses, we have a good
long-term set of opportunities that includes ... potential for
continued growth in international sales," Bush told analysts on an
earnings call.
He said the sale of Global Hawk unmanned planes now being negotiated
with South Korea could lead to additional foreign sales of unmanned
systems for the company.
General Dynamics, which makes Gulfstream business jets, tanks and
U.S. warships, raised its guidance for 2014 earnings per share by
nearly 4 percent after posting higher-than-expected earnings and
revenues in the first quarter. Its shares were up 3.6 percent at
$111.90 in late trading.
Chief Executive Phebe Novakovic told analysts that U.S. weapons
spending had "troughed," or hit a low point, and that a big rise in
backlog showed the company is well-positioned. She said the firm
planned to return "most, if not all" of its free cash flow to
investors via stock repurchases or dividends.
Novakovic described "blocking and tackling" to lower costs. "I don't
think you can ever get away from the absolute requirement to improve
your operating performance quarter over quarter," she said. "You are
never done."
General Dynamics' combat systems division, which posted a quarterly
operating loss, would show improved sales, earnings and margins over
the course of the year, Novakovic said.
The marine division also has "considerable upside" given that it
expects to get a multi-year contract for more Virginia-class attack
submarines from the U.S. Navy, and is working on a new submarine to
replace the current Ohio-class submarines that carry nuclear
weapons, she said.
(Reporting by Andrea Shalal; editing by Ros Krasny and Nick
Zieminski)
[© 2014 Thomson Reuters. All rights
reserved.] Copyright 2014 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed. |
