LONDON (Reuters) - BAE Systems BAES.L, the world's third-largest defence contractor, said its earnings would rise 5 to 10 percent this year, boosted by an increase in U.S. military spending and a ramp-up in programmes such as the F-35 combat aircraft.
The company, which is building Britain’s Dreadnaught-class submarine, also met expectations with a 7 percent rise in 2016 underlying earnings per share to 40.3 pence.
Sales rose by 1.1 billion pounds to 19 billion pounds, with the better-than-expected rise mainly coming from foreign exchange benefits, it said.
Chief Executive Ian King, who will retire at the end of June, said an improved outlook for defence budgets left the group well placed to generate returns for shareholders.
There were encouraging signs of a return to growth in U.S. budgets, he said, noting that President Donald Trump was “clearly committed” to having a strong American defence forces.
“We feel positive in terms of the atmospherics that are going on and there’s talk about supplementals (extra work) coming out in that process,” he told reporters on Thursday.
Just over a third of BAE Systems’ sale come from the United States, where it supplies electronics to the U.S. built F-35 and will provide new Armoured Multi-Purpose Vehicles for the army.
Shares in the company, which reached a record high of 631.5 pence the day after Trump’s election in November, were trading up 2 percent at 618 pence at 1117 GMT.
UBS noted that earnings per share guidance implied at the midpoint of 43.3 pence aligned with consensus of 43.5 pence.
Jefferies analyst Sandy Morris, who has a “hold” rating on BAE, said the group would benefit from higher U.S. spending on operational readiness once the new administration authorized the full-year 2017 defence budget.
“BAE’s position on F-35 is, of course, another of its strengths,” he said. “If these were supported by positive outlooks in the UK and Saudi Arabia, the investment case for BAE would be much more attractive.”
BAE has been slowing production of the Typhoon aircraft as deliveries to Saudi Arabia and European customers near completion. It is still waiting for another major contract from Saudi Arabia.
BAE Systems said on Wednesday that Charles Woodburn, a former oil industry boss who joined the company last year, would become chief executive on July 1 after King retires.
Reporting by Paul Sandle; editing by Kate Holton and Susan Thomas
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