UPDATE 4-Lockheed stands by year outlook, shares drop

* EPS $1.88; estimate $1.81

* Leaves full-year forecast unchanged

* Says services segment results disappointing

* Shares fall 8.5 pct (Adds Senate vote on F-22)

ATLANTA, July 21 (Reuters) - Defense contractor Lockheed Martin Corp (LMT.N) posted better-than-expected quarterly earnings but failed to raise its full-year forecast and said growth in its services segment disappointed, and its shares fell 8 percent.

"We didn't perform as well as we are capable of," Lockheed Chief Financial Officer Bruce Tanner said during a conference call.

Some analysts had expected the company to boost its forecast. Morgan Keegan analyst Brian Ruttenbur also cited weaker-than-expected margins in the services and space segments.

"I think it's just a knee-jerk reaction to not raising numbers," Ruttenbur said, referring to the stock's decline. "Overall, the company is doing well."

Investors are concerned that the defense sector, which saw spending ramp up in recent years, could stall as President Barack Obama looks to scale back traditional weapons programs and devote more funds to fighting insurgents in places like Iraq and Afghanistan.

On Tuesday, the U.S. Senate voted to stop production of Lockheed's F-22 warplane, giving Obama a victory in his bid to contain defense spending. Still, the Senate vote doesn't necessarily kill the program as the House of Representatives included funding for the plane in its bill.

Pentagon cancellations this year of programs including the VH-71 presidential helicopter and the Transformational Satellite communications initiative were evident in Lockheed's lower backlog for the quarter. Lockheed said those terminations reduced its backlog by $2.6 billion.

Still, analysts say Lockheed stands to gain as production of its F-35 Joint Strike Fighter ramps up in coming years. Current plans call for the Pentagon to buy more than 2,000 of those advanced fighters.

"You've seen the cancellation of programs but you haven't seen the flip side of the increase, the acceleration of the F-35," which could add $5 billion to $8 billion to Lockheed revenue a year, Ruttenbur said.

The F-35 ramp-up is one reason that analysts generally expect Lockheed to outperform rivals such as Northrop Grumman (NOC.N) and Boeing Co (BA.N), which will report earnings later this week.

TOPS ESTIMATES

The Bethesda, Maryland-based maker of fighter jets and other military equipment reported second-quarter net earnings of $734 million, or $1.88 a share, down 17 percent from $882 million, or $2.15 a share, a year earlier.

Analysts on average expected $1.81 a share for Lockheed, according to Reuters Estimates.

Net sales rose about 2 percent to $11.2 billion, in line with analysts' average estimate of $11.17 billion.

Across business segments, sales fell in the electronic systems and space segments but rose 7 percent in aeronautics as higher sales of the F-35 and F-16 planes offset F-22 weakness.

In the information systems and global services segment, sales rose 6 percent, less than the company expected, and operating profit declined. Lockheed said contract protests by competitors and other issues held back the segment's performance, and added it was looking to improve.

The second quarter "revealed further weakness in the services businesses, showing vulnerability to some industry-wide headwinds that we have seen affecting peers," J.P. Morgan analyst Joseph Nadol said in a research note.

The company said it expects third-quarter performance to resemble the second quarter, with "very strong growth" in the fourth quarter.

Lockheed stood by its April forecast calling for per-share profit of $7.15 to $7.35 on sales of $44.7 billion to $45.7 billion this year. Though it expects lower operating profit in information systems and global services, it expects a lower share count and lower tax rate to aid the bottom line.

The company said a pension accounting adjustment resulted in an expense of $115 million during the second quarter, which reduced net earnings by $75 million, or 19 cents a share. In the year-earlier period, this adjustment resulted in income of $32 million, and Lockheed also recorded a one-time gain of $85 million.

Lockheed shares closed down $6.98, or 8.5 percent, to $75.13 on the New York Stock Exchange, while Northrop Grumman shares lost 48 cents, or 1 percent, to $47.11. Boeing closed up 82 cents, or 1.9 percent, to $43.02. (Reporting by Karen Jacobs; editing by Carol Bishopric) (Additional reporting by Andy Sullivan; editing by John Wallace, Gunna Dickson and Carol Bishopric)