May 14, 2009 / 9:18 PM / 10 years ago

Defense firms eye benefits from Pentagon budget

*Northrop, General Dynamics, Goodrich stand by forecasts

*Northrop: no dramatic ‘09 impact if missile program ends

*Rockwell expects to recover any lost revenues

ATLANTA, May 14 (Reuters) - Defense contractors including Northrop Grumman Corp (NOC.N) and General Dynamics Corp (GD.N) backed their full-year forecasts on Thursday, saying they expected to benefit from the Pentagon’s 2010 budget even though it could halt some big weapons programs.

The Obama administration’s $663.8 billion defense budget request, detailed last week, must be approved by Congress.

The Pentagon, looking to shift more focus to irregular warfare and emerging security threats, has proposed to halt weapons programs such as Lockheed Martin’s (LMT.N) F-22 warplane. Also targeted for cutting is Northrop’s kinetic energy interceptor, a missile program.

Northrop, which backed its full-year earnings forecast of $4.65 to $4.90 a share, said the cancellation of the KEI would not have a dramatic effect on 2009 sales or operating income. Still, it added that halting the multibillion-dollar program would have a more pronounced impact on its backlog.

“If there really is a hard stop on KEI, we would expect that it would be terminated for convenience, which essentially means we get paid for all of our costs and a profit or fee on those costs,” Northrop Chief Financial Officer Jim Palmer said on Thursday during a presentation at the Macquarie Aerospace and Defense conference that was broadcast over the Internet.

Still, he said Northrop was poised to benefit as U.S. defense spending increases on intelligence initiatives and Lockheed’s F-35 Joint Strike Fighter plane.

“Based on what we saw in the just-released budget, we expect to come out in relatively good shape,” Palmer said.

Rockwell Collins Inc COL.N, which makes cockpit electronics, said it expected revenue losses from the proposed halts of the F-22 fighter plane and search and rescue helicopters should be easily made up for with increased Pentagon spending on the F-35 and upgrades of existing helicopter fleets.

“Almost in every case where we see programs that move away, we can move on to other programs because of the nature of our product and the number of services ... we can reach with our electronic content,” Rockwell Chief Executive Clay Jones said during the Macquarie conference.

General Dynamics reiterated its full-year profit forecast of $6 to $6.10 a share at the Macquarie meeting. The maker of ships, submarines and business jets said it expects to be “well resourced” as the Pentagon looks to bolster the Army and Marine Corps for wars in Afghanistan and Iraq.

Airplane parts maker Goodrich Corp GR.N stood by its April forecast calling for earnings of $4.50 to $4.75 a share.

Shares of Northrop closed up 45 cents to $48.83, while General Dynamics gained 54 cents to $55.84 on the New York Stock Exchange. Rockwell Collins was up 23 cents to $37.58 and Goodrich added 40 cents to $43.17. (Reporting by Karen Jacobs; Editing by Steve Orlofsky)

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