U. S. defence firms show Q3 gains
No. 1 Lockheed, no. 3 Northrop improve profits while sales suffer
BOSTON • Lockheed Martin Corp. and Northrop Grumman Corp. said third- quarter earnings rose after the defence contractors won more profitable orders for ships and aircraft programs. Lockheed raised its 2006 forecast and Northrop cut back, citing legal expenses.
Lockheed, the biggest U. S. defence company, said net income rose 47 per cent to $ 629 million U. S., or $ 1.46 a share, on contracts to manage weapons projects. Northrop, the thirdlargest, said net income gained 3.1 per cent to $ 302 million, or 86 cents a share, after its shipyards recovered from Hurricane Katrina.
Both relied on higher profit margins to sustain growth in the face of flagging sales.
Lockheed’s revenue gained 4.4 per cent, the slowest pace in four quarters, on lower sales of F- 16 jets. Northrop’s sales increased 1.9 per cent, the first rise in four quarters, after Katrina struck its shipyards in Louisiana and Mississippi in 2005.
“ The bigger you are, the harder it is to grow, particularly now that the funding for weaponry is slowing or shifting,” said Paul Nisbet, an ana- lyst at JSA Research Inc. in Newport, Rhode Island, who rates both stocks “ buy” and doesn’t own them. “ Everything is being well executed by both. They have found ways to keep earnings growth strong.”
Lockheed CEO Robert Stevens changed his focus to go after lucrative contracts to manage programs and design computer networks. The quarter marked the seventh straight period in which profit rose at least twice as much as revenue.
Sales rose to $ 9.61 billion, short of the average estimate of $ 9.83 billion of 14 analysts surveyed by Thomson Financial.
“ Lockheed beat handily in spite of a sales miss, underlining the firm’s ability to squeeze op- erating leverage,” Robert Stallard, a Banc of America Securities analyst who rates the shares “ neutral,” wrote in a note.
Excluding some items, profit was $ 1.30 a share. Lockheed raised its 2006 earnings forecast to $ 5.45 to $ 5.60 a share, from $ 5.10 to $ 5.30. It forecast sales of $ 39 billion to $ 39.5 billion, instead of $ 38.5 billion to $ 39.5 billion. Lockheed forecast 2007 earnings of $ 5.60 to $ 5.80 and sales of $ 41 billion to $ 42 billion. Estimates averaged $ 5.66 for profit and $ 41.3 billion for sales, according to Thomson.
Northrop, the world’s largest builder of warships, said legal costs cut third- quarter profit and full- year sales and profit forecasts. Northrop offered to settle all potential claims by the U. S. Department of Justice and an unnamed customer related to microelectronic parts produced by TRW Inc., which Northrop acquired in 2002.
Sales increased to $ 7.43 billion, missing the $ 7.73 billion average estimate in a Thomson Financial survey. Profit from continuing operations would have been $ 1.07 a share excluding the legal costs. Northrop cut its 2006 forecast for profit from continuing operations to $ 4.20 to $ 4.25 a share, from $ 4.35 to $ 4.45, on the settlement offer. Revenue will be $ 30.2 billion, instead of its earlier projection of $ 30.5 billion.