(Adds details from analyst call, closing share price)
WASHINGTON, April 23 (Reuters) - U.S. weapons maker Northrop Grumman Corp on Wednesday reported a higher-than-expected quarterly profit and raised its earnings forecast, despite a drop in sales and continued concerns about cuts in U.S. military spending.
Northrop, which makes unmanned planes, the B-2 bomber and a host of electronic equipment, said net income rose to $579 million, or $2.63 per share, in the first quarter from $489 million, or $2.03 a share, a year earlier.
First-quarter earnings included a tax benefit of $51 million or 32 cents per share, that stemmed from a partial resolution of a federal examination of Northrop's 2007 to 2009 tax returns.
Excluding the tax benefit, earnings per share would have risen 7 percent to $2.31, but that still topped the $2.15 per share expected by analysts polled by Thomson Reuters I/B/E/S.
The company's shares closed $1.87 or 1.6 percent higher at $121.66 on the New York Stock Exchange.
Chief Executive Officer Wes Bush said the remaining rise in earnings per share was due to the company's performance and stock repurchases. Northrop had about 9 percent fewer shares outstanding during the latest quarter.
Operating margins hit 14.4 percent, up 2 percentage points from the year-earlier period.
Bush told analysts on an earnings call that he remained concerned about mandatory U.S. budget cuts due to resume in fiscal year 2016. But he said the company had good opportunities to capture additional U.S. orders and new foreign orders.
Rob Stallard, analyst with RBC Capital Markets, said he expected further positive results this year, but saw bigger opportunities elsewhere in the defense sector given Northrop's small export business and limited commercial business.
Revenue dropped about 4 percent to $5.84 billion, in line with Wall Street expectations, and reflected cuts in U.S. military spending across the industry.
Revenue fell in all four of the company's divisions - aerospace, electronic systems, information systems and technical services. Operating income rose 20 percent in the aerospace sector due to a $48 million increase in net favorable adjustments, which more than offset lower sales.
The company raised its earnings-per-share outlook for the full year to a range of $8.90 to $9.15. Its previous forecast was $8.70 to $9.00.
It forecast a full-year operating margin of about 13 percent, compared with an earlier forecast of 12 percent.
Northrop affirmed its forecast that revenues would fall to $23.5 billion to $23.8 billion in the full year from $24.7 billion in 2013.
Bush said that about 80 percent of the company's revenues would flow from the existing backlog, which totaled $36.2 billion at the end of the quarter, a slight drop from $37 billion at the end of 2013.
The company repurchased 4.8 million shares in the first quarter and said it was more than a third of the way to its goal of retiring 60 million shares by the end of 2015, market conditions permitting.
(Reporting by Andrea Shalal; Editing by Lisa Von Ahn and Cynthia Osterman)