Defense contractors post mixed results for first quarter

April 29, 2012

With mixed results for the quarter, the largest defense contractors said last week that they are continuing to cut costs in an increasingly competitive arena. In particular, companies reported more difficult times in their information technology departments.

Falls Church-based Northrop Grumman reported last week that its first-quarter profit fell 4.5 percent to $506 million ($1.96 a share), down from $530 million ($1.79 a share) a year earlier. Revenue dropped about 8 percent to $6.2 billion.

Northrop officials said they are carefully considering before bidding whether any given contract will return solid profits.

“We’ve been doing a lot of work on portfolio shaping across our portfolio and some of that has been ... more strategic in nature with respect to what actually fits and where there’s real synergy, but some of it has been around what businesses do we really want to be in if we’re not able to get the returns out of them that we expect of the investments we make,” said Wes Bush, chairman, chief executive and president, in a call with investors last week.

He noted that the government is favoring the lowest-priced proposals — as long as they meet the basic requirements — and Northrop is working to adjust.

“Whenever we go through a new contract negotiation, the cost we’ve taken out becomes a new baseline for new contracts,” he told investors.

Neighboring General Dynamics said last week that its returns also dropped, reporting profit of $564 million ($1.57 a share) in the three-month period, down from $618 million ($1.64) in the same period a year earlier. Quarterly revenue declined 2.8 percent to $7.6 billion.

Profit fell by more than 20 percent in the contractor’s combat systems and information systems and technology units, while its aerospace business saw income surge nearly 18 percent.

Jay L. Johnson, General Dynamics’ chairman and chief executive, attributed some of the decline to a $67 million adjustment related to accounting shortcomings at a European subsidiary.

Still, he said the information systems group struggled because of delays in awards and in moving programs into production.

“The competition you see in particularly the IT service business is as intense or more intense than it’s ever been,” Johnson said.

Bethesda-based Lockheed Martin had better news to share. The company said Thursday that its first-quarter profit reached $668 million ($2.03 a share), up from $530 million ($1.50) in the same period a year earlier. Sales jumped 6.3 percent to $11.3 billion.

Of its four business units, only the company’s information systems and global solutions sector saw its profit drop from the same quarter a year ago.

In a call with investors last week, Robert J. Stevens, Lockheed’s chairman and chief executive, said the contractor is still focused on bringing down its prices.

The company has already reduced its facility inventory by 1.5 million square feet and expects to cut another 2.9 million square feet through 2014, he said. Lockheed has also reduced its workforce by 18 percent, he said.

“Business conditions and competitive pressures require us to continue to evaluate staffing levels,” Stevens added.

Comments
Show Comments
Most Read Business