* Industry still uncertain over looming defense budget cuts
* Boeing shares up 1 pct, General Dynamics up 3.7 pct
* Seeking international sales to offset declining US demand
By Andrea Shalal-Esa
WASHINGTON, Oct 24 Three of the biggest U.S.
weapons makers beat third-quarter earnings forecasts on
Wednesday and raised their guidance for the full year, although
the specter of additional U.S. defense budget cuts continued to
cloud the industry's outlook for 2013.
Lockheed Martin Corp, Boeing Co's defense
division and Northrop Grumman Corp reported higher
earnings and strong margins despite weakening sales, driving
their shares higher on the New York Stock Exchange.
General Dynamics Corp missed Wall Street earnings
forecasts, mainly due to a $25 million charge to revalue its
inventory of ruggedized computers, or computers designed to
operate in harsh environments, but kept its guidance for
full-year earnings at roughly the same level, which appeared to
Its shares began lower but rebounded strongly after CEO Jay
Johnson made fairly upbeat remarks about future business
prospects in the company's defense and aerospace sectors.
Johnson is due to retire at the end of the year.
Each of the companies underscored its efforts to drive down
cost and improve affordability given continued pressure on
military budgets, while seeking international sales to help
offset declining U.S. demand. Cash generation and strong
dividends were another key theme.
Lockheed, which has led the industry's campaign to stave off
additional, across-the-board cuts in defense spending, said its
preliminary 2013 forecast assumed that Congress and the White
House would avert the $500 billion in further defense cuts that
are due to start taking effect in January.
Chief Executive Bob Stevens, who retires at the end of the
year, said the company had no secret information about a
possible compromise to stave off the sequestration cuts, but
said he fully expected Congress to address the issue when
lawmakers return after the November elections.
General Dynamics' CEO, Johnson, said there was "no one on
earth" who could predict what would happen, and said his company
was planning for how to deal with the budget cuts if they took
effect as planned.
He said uncertainty about future U.S. defense budgets was
depressing government orders in its shorter-cycle businesses,
especially in information systems and technology, and the trend
was likely to continue in the fourth quarter.
"We are also extremely concerned about the profound
disruption and paralysis that implementing these cuts will
likely have on our customer and thus our entire industry,"
Johnson, a former Navy Secretary, told analysts.
Marion Blakey, president of the Aerospace Industries
Association, on Tuesday called on President Barack Obama and
Congress to appoint a small committee to hammer out a compromise
even before lawmakers return to Washington.
Boeing posted stronger-than-expected results for the third
quarter as its defense business improved and commercial aircraft
deliveries surged, and the company raised its full-year forecast
for the third time this year.
Defense revenue fell slightly from a year earlier but
margins in that business improved. This showed Boeing's ability
to be "very aggressive" in cutting costs at a time when defense
spending is contracting in the United States and Europe, said
Ken Herbert, an analyst at Imperial Capital LLC.
Boeing shares were up 0.9 percent at $73.45 on Wednesday
Lockheed, the largest U.S. arms maker, boosted third-quarter
earnings by 11 percent, beating expectations by a wide margin,
and once again raised its full-year forecast. But
it said revenue would decline slightly in 2013.
Rob Stallard at RBC Capital Markets said the results
surpassed his already-upbeat expectations.
"The upside to revenues is particularly notable in this
tough defense environment, with continued progress on the
margins," he write in a note to clients.
"Given the company's track record, it looks like it should
be able to weather a tough defense market next year relatively
well, assuming that sequestration does not occur."
Lockheed shares were trading nearly 3 percent higher at
$94.67 in early afternoon.
Northrop Grumman also beat earnings forecasts on margin
strength, although quarterly profit fell below year-earlier
levels due to a $66 million fall in net pension income.
Northrop, which builds Global Hawk unmanned surveillance
planes, radars and electronic systems, said it now expects
full-year earnings of between $7.35 and $7.40 per share, up from
its prior view of between $7.05 and $7.25 per share.
Joe Nadol at JP Morgan said the results were good, but that
Northrop shares were not getting as much of a boost since they
have been the best performer in the industry so far this year.
"We still question the sustainability of the margin strength
that drove the quarter's beat," he wrote in a note to clients.
Northrop shares were up about 0.6 percent at $70.05 on
Wednesday afternoon on the New York Stock Exchange.
General Dynamics, which builds warships, ground combat
vehicles and business jets, said third-quarter earnings slid 8
percent as margins fell, but it still expected earnings of
between $7.00 and $7.05 for the full year, versus its previous
view of $7.00 to $7.10 per share.
It said demand in the quarter was particularly strong for
aerospace products, including orders for every type of
Gulfstream aircraft, and noted that recent orders for military
communications equipment were good news for its defense
Johnson said the company made "notable progress" on several
core programs, including certification of the Gulfstream G650
and G280 aircraft, but analysts were disappointed about
lower-than-expected margins in that business.
General Dynamics shares were up 3.7 percent at $68.67 in the
(Additional reporting by Alwyn Scott in New York, Bijoy Koyitty
and A. Ananthalakshmi in Bangalore; editing by Matthew Lewis)