* Pentagon budget cuts not as bad as feared
* CFO sees deal in third quarter for next F-35 orders
* Company uncertain about budget outlook for 2014
By Andrea Shalal-Esa
WASHINGTON, July 23 The Pentagon's top supplier,
Lockheed Martin Corp, on Tuesday boosted second-quarter
earnings by 10 percent and raised its full-year profit forecast,
saying that long-dreaded U.S. budget cuts failed to hurt its
sales as much as expected.
The news sent the shares of Lockheed, maker of F-35 fighter
jets and Aegis missiles, up 3.4 percent to a new year high of
$119.59, although the share price later fell to around $117.70.
Other big arms makers, including Boeing Co, Northrop
Grumman Corp and General Dynamics Corp, are
expected to report results on Wednesday.
"Overall, we had strong operational performance and program
execution across all business areas this quarter, enabling us to
increase 2013 financial guidance for operating profit, earnings
per share and cash from operations," Chief Executive Marillyn
Hewson said in a news release.
Hewson said the company had let go nearly 30,000 workers
since 2008 and consolidated facilities as it braced for up to
$500 billion in defense cuts over the next decade.
Chief Financial Officer Bruce Tanner told reporters that $37
billion in budget cuts imposed on the Pentagon earlier this year
were having less impact on the company than initially expected.
The cuts were part of across-the-board government spending
reductions mandated by Congress under "budget sequestration."
"Frankly, it's not affecting us as deeply as we thought it
would at the start of the year when sequestration was first
implemented," he said.
Tanner said Lockheed was seeing some effect on revenue, but
did not expect the impact to rise to his earlier view that
revenue could be reduced by $825 million.
He lauded what he called the Pentagon's "masterful"
management of the fiscal 2013 cuts and said the military was
"taking the lion's share of that hit" as funding declined for
operations, maintenance and keeping troops ready for conflict.
Todd Harrison with the Center for Strategic and Budgetary
Assessments, said Lockheed's results showed the effects of the
budget cuts would be cumulative, not instantaneous. The cuts
also gave companies the cover to cut jobs, close plants and make
management changes, he added.
"This is a snowballing effect," he said. "It will gradually
build with time, but by the time people see the impact on
industry and national security, it'll be too late to do anything
Lockheed is keeping a close eye on the 2014 budget
deliberations on Capitol Hill, but Tanner said the company still
was not sure whether - and to what extent - sequestration cuts
would be imposed again in fiscal 2014, which begins Oct. 1.
"We're back in the same situation where we're not certain
whether sequestration will take place or not," he said.
Loren Thompson, a defense analyst with the Lexington
Institute, said Lockheed faced more challenges ahead, given the
likelihood of further cuts in fiscal 2014, and there was a limit
to how much it could cut costs.
"It's inevitable that results will deteriorate over the next
year because of sequestration," Thompson said.
Hewson said the company's biggest program, the F-35 fighter
jet, enjoyed strong support from the Pentagon and international
buyers, despite mounting pressure on the budget.
Tanner told analysts that Lockheed expected to wrap up talks
with the Pentagon about the next two batches of F-35 fighter
jets in the third quarter that would add $4.5 billion to $5
billion to the company's order books. He said
the F-35 program accounted for about 15 percent of Lockheed's
revenues and that percentage would grow in coming years.
Lockheed is building three models of the F-35 for the U.S.
military and eight international partner countries: Britain,
Australia, Canada, Norway, Turkey, Italy, Denmark and the
Netherlands. Israel and Japan have also ordered the jet.
Lockheed said it now expects earnings per share of $9.20 to
$9.50 for the full year, up 4 percent from its April guidance.
It left its revenue forecast unchanged at $44.5 billion to $46
billion, although Tanner told analysts the full-year result
would likely be above the bottom end of the range.
Lockheed reported second-quarter net earnings of $859
million, up from $781 million a year earlier. Earnings per share
rose to $2.64 from $2.38.
Revenues fell 4 percent to $11.4 billion.
Analysts polled by Thomson Reuters I/B/E/S expected earnings
of $2.20 per share on revenue of $11.1 billion.
Revenue was down or flat in four of Lockheed's five
operating units. The exception was missiles and fire control,
where sales rose 11 percent.
Operating profit was lower in aeronautics, information
systems and space business units, but grew significantly in
missiles and fire control and mission systems.
Lockheed said its Missions Systems and Training division
lifted its operating profit by $80 million, or 41 percent.