* Both defense companies warn of sales pressure
* Lockheed assumes no 'sequestration'
* Shares fall as analysts unimpressed
By Andrea Shalal-Esa
WASHINGTON, Jan 24 Lockheed Martin Corp
and Raytheon Co warned on Thursday that U.S. defense
budget cuts would eat into their sales this year, but they
forecast very different effects on their bottom lines.
Lockheed, the Pentagon's biggest supplier, said it could cut
enough costs that earnings would not only grow but also would
exceed expectations. Raytheon, on the other hand, said its
profit would shrink as the arms maker gets squeezed by the end
of high-margin programs and the start of new, low-margin ones.
Their divergent fortunes illustrate the tough year ahead for
defense contractors, which are uncertain about just how deeply
the U.S. government plans to cut military spending to help rein
in the soaring deficit.
Lockheed makes fighter jets, among other armaments, while
Raytheon makes the Patriot missiles and other defense equipment.
Lockheed's forecast assumes Congress will avert $500 billion
in additional Pentagon spending reductions known as
"sequestration" that are due to take effect over the next
decade, starting in March.
But Lockheed still expects sales to contract as much as 6
percent this year, an even steeper slide than the decline of as
much as 3 percent that Raytheon forecast.
As spending challenges mount at home, Lockheed is pushing
for growth in its international markets, and expects this to
make up at least 20 percent of revenue in the "next few years."
"Certainly there's continued strong demand for air and
missile defense in the Middle East and Asia-Pacific...," Chief
Executive Marillyn Hewson said on a conference call with
Hewson said international orders and revenue in 2013 are
expected to be in line with 2012 performance.
"Maybe a little bit higher in orders."
The business contributed about 17 percent to both orders and
revenue in 2012.
Shares of Lockheed closed down 3 percent at $93.25 on the
New York Stock Exchange. Raytheon shares also fell 3 percent to
close at $56.54.
Lockheed said earnings per share dropped 19 percent to $1.73
in the fourth quarter from $2.14 a year earlier, reflecting a
large non-cash pension adjustment, higher income tax expenses
and a charge for job cuts in its aeronautics division.
Excluding those one-time items, the company earned $1.91 per
share, beating the consensus view of analysts polled by Thomson
Reuters I/B/E/S by 9 cents.
The company said it expected earnings per share to rise to
between $8.80 and $9.10 in 2013, well above even the highest of
the 22 analysts' estimates that make up this year's forecast.
Chief Executive Officer Marillyn Hewson, who took over on
Jan. 1, told reporters that Lockheed remained focused on cutting
costs and ensuring performance on key contracts.
Barclays analyst Carter Copeland, in a note to clients, said
the size of Lockheed's backlog was "an encouraging sign given
investor concerns around potential incremental cuts to the
defense budget (including sequestration)."
Excluding one-time items such as early debt retirement and
accounting adjustments, Raytheon earned $1.47 per share, beating
the analysts' estimate of $1.31.
For this year, Raytheon forecast earnings of $5.65 to $5.80
a share before special items, down as much as 9 percent from
2012. Analysts had been expecting earnings to fall a more modest
2 percent or so this year.
"We see room for improvement over the course of the year
(typical for (Raytheon)), but at first blush the guide is
unimpressive," Citi analyst Jason Gursky said in a client note.
Raytheon Chief Financial Officer David Wajsgras told Reuters
the company was "very confident" about its ability to generate
strong earnings and cash flow over the next three years, despite
its forecast for a lower profit in 2013.
Wajsgras said some new developmental programs in the
classified arena were just kicking in, generating lower margins
initially. At the same time, some higher-margin business,
including a large international missile contract, will be
ramping down this year.