| WASHINGTON, April 23
WASHINGTON, April 23 The biggest U.S. weapons
makers posted higher profits this week and raised their
forecasts for 2014 earnings, sending shares higher despite cuts
in military spending that have weakened revenues.
The Dow Jones index that tracks the 10 biggest aerospace and
defense companies rose 1.75 percent, driven by gains
in shares of Lockheed Martin Corp, General Dynamics Corp
, and Northrop Grumman Corp, which all reported
higher profit and earnings per share this week.
Boeing Co saw a drop in its defense earnings and
revenues, but still beat expectations.
Weapons makers are benefitting from workforce reductions and
other cost-cutting measures that began around 2007, as well as
efforts to return cash to shareholders through stock buybacks
and strong dividends, said defense consultant Loren Thompson.
"The gradual decline in military spending has given the
companies fewer opportunities to invest in new programs, so they
are returning their cash flow to shareholders," said Thompson,
who runs the Virginia-based Lexington Institute.
He said the crisis in Ukraine and other emerging threats
could strengthen demand for military equipment in the United
States and overseas, and help stave off an expected decline in
defense shares as spending cuts further erode revenues.
Lockheed shares were trading up 3.1 percent at $161.52 after
Australia announced plans to buy 58 more of the company's F-35
fighter jets in coming years.
Lockheed, the Pentagon's No. 1 supplier, on Tuesday had
reported a 23 percent jump in first-quarter net profit and
raised its 2014 earnings-per-share outlook by 2.5 percent.
Lockheed, General Dynamics and Northrop all reported higher
Northrop, which makes unmanned planes, the B-2 bomber and
electronic equipment, on Wednesday reported higher-than-expected
quarterly profit and raised its full-year outlook by about 2
percent, to a range of $8.90 to $9.15 per share.
Operating margins hit 14.4 percent in the quarter, up two
percentage points from the year-earlier period.
Northrop Chief Executive Officer Wes Bush attributed the
rise in earnings per share to the company's performance and
share repurchases. Northrop had about 9 percent fewer shares
outstanding during the latest quarter.
General Dynamics, which makes Gulfstream business jets,
tanks and U.S. warships, raised its guidance for 2014 earnings
per share by nearly 4 percent after posting higher-than-expected
earnings and revenues in the first quarter.
The company forecast full-year profit of $7.05 to $7.10 a
share, up from its previous estimate of $6.80 to $6.85.
Chief Executive Phebe Novakovic told analysts during an
earnings call she believed U.S. weapons spending had "troughed,"
or hit a low point, and said a big rise in backlog showed the
company is well-positioned with key programs. She said the firm
planned to return "most, if not all," its free cash flow to
investors via stock repurchases or dividends.
Novakovic said the company's combat systems division, which
posted a quarterly operating loss, would show improved sales,
earnings and margins over the course of the year.
The marine division also has "considerable upside" for
revenues given that it expects to get a multi-year contract for
more Virginia-class attack submarines from the U.S. Navy, and is
working on a new submarine to replace the current Ohio-class
submarines that carry nuclear weapons, she said.
(Reporting by Andrea Shalal; Editing by Nick Zieminski)