WRAPUP 2-Defense firms profits beat, but growth a concern

* Northrop, Raytheon, Goodrich beat on Q2

* Northrop, Goodrich boost profit outlook

* Raytheon cuts outlook on UK program halt

* Northrop, Goodrich shares gain, Raytheon off (Adds stock upgrade, downgrade)

By Karen Jacobs

ATLANTA, July 29 (Reuters) - Aerospace and defense companies Northrop Grumman Corp (NOC.N), Raytheon Co (RTN.N) and Goodrich Corp (GR.N) posted better-than-expected second-quarter earnings on Thursday but offered differing outlooks for the full year.

Northrop and Goodrich raised their full-year profit forecasts. But missile maker Raytheon pared its 2010 outlook, citing a termination notice for a British border security contract. [ID:nN28204677]

Shares of Northrop and Goodrich rose while Raytheon's slid 2 percent in afternoon trading. Standard & Poor's aerospace and defense analyst Richard Tortoriello upgraded Goodrich to "buy" from "hold," citing improving aerospace trends, but he cut Raytheon to "hold" from "buy" due to defense budget pressure.

"We believe Goodrich will benefit strongly from an eventual rebound in the commercial aftermarket that has been slow to materialize, as well as from service entry of the 787 (Dreamliner) and planned production increases at Boeing (BA.N) and Airbus (EAD.PA)," Tortoriello said in a note.

The latest defense reports followed mixed forecasts earlier this week from industry leader Lockheed Martin Corp (LMT.N) and General Dynamics Corp (GD.N), which lifted 2010 profit projections, and L-3 Communications Holdings Inc (LLL.N), which cut its outlook after a contract loss.

Defense companies have moved to hold down their costs amid concerns that spending growth will slow in the United States and Europe. Lockheed plans to sell two units and has offered staff buyouts, while Northrop this month said it could spin off or sell its entire shipmaking division, which has been a drag on quarterly earnings in the past.

Defense companies "are doing the best they could under not-so-good circumstances," said Morningstar equity analyst Anil Daka.

Northrop's second-quarter net earnings rose 80 percent to $711 million, or $2.34 a share, helped by a tax benefit. Adjusted for items, profit came to $2.58 a share, compared with $2.19 a share expected by analysts, according to Thomson Reuters I/B/E/S [ID:nN28201247].

Northrop, which bowed out of a big U.S. aerial refueling tanker competition earlier this year, is concentrating on operating existing businesses well, Daka said. The company said on Thursday that its 2011 headquarters move to the Washington, D.C., area from Los Angeles would also help cut costs.

"There is that increased focus on profitability that was lacking in earlier years," Daka said. Northrop "is essentially running after projects where it can provide more value add," in areas such as electronics and cyber security.

Goodrich, a supplier of brakes and landing gear for planes, cited better operating margins for its improved outlook [ID:nN29179550].

"Within our businesses we continue to see some positive trends indicating that recovery in the aftermarket is under way and is sustainable," Goodrich Chairman Marshall Larsen told analysts on a conference call.

Still, Goodrich said full-year growth in the aftermarket, or sales tied to plane retrofits and upgrades, would likely be lower than its prior expectations, although such sales are still expected to rise each quarter of this year.

Raytheon said its underlying performance was strong despite the British work loss and would be aided by international demand.

"Our core expertise, our core technologies are in the priority areas of our customers," said Dave Wajsgras, Raytheon chief financial officer.

Still, the UK contract termination will affect results for the third and fourth quarters, as sales of $100 million to $140 million from the program had been projected for the second half. The company said it is in litigation on the termination and hopes to recover some costs.

Shares of Northrop were up 31 cents or 0.5 percent to $58.70 in afternoon trading, while Goodrich gained $1.50, or 2.1 percent, to $73.56. Raytheon was down $1.28, or 2.7 percent, to $46.99. (Reporting by Karen Jacobs, with added reporting by Kyle Peterson in Chicago, editing by Dave Zimmerman and Gerald E. McCormick)