Defense contractors report flat and declining sales

July 31, 2011

As they encounter uncertainty about future Pentagon spending, some of the largest local defense contractors are already seeing sales and profits flatten.

Lockheed Martin, the world’s biggest defense contractor, last week reported that profit declined 11 percent in the three-month period ended June 26, compared to the same period a year ago.

Still, quarterly revenue increased slightly, to $11.55 billion, and company officials attributed the earnings drop to the divestment of Pacific Architects and Engineers, which Lockheed sold in April.

Lockheed noted that it paid $97 million for severance charges related to layoffs in its aeronautics and space systems businesses. Lockheed also reported an unusual tax benefit of $89 million.

Bruce Tanner, the company’s chief financial officer, said in an interview that Lockheed is right-sizing the business for a more difficult budget environment.

“I think we’ve been ahead of the game or at least staying up with the game,” Tanner said.

Northrop Grumman, which is relocating to Falls Church, saw profit drop and sales decline.

Wes Bush, chairman, chief executive and president of Northrop Grumman, said Northrop’s customers moved slower to award contracts and spent more conservatively. Additionally, he said, troop drawdowns in Iraq and Afghanistan are beginning to take a toll on Northrop’s business.

At Falls Church-based General Dynamics, profit was essentially flat. Sales were down in three of the company’s four segments, with only combat systems posting a 10 percent gain over the same period a year ago.

Michael S. Lewis, director of equity research at Lazard Capital Markets, said defense contractors have been consistently reporting lackluster sales.

“Operationally, it’s a tighter environment,” said Lewis. “I expect that this trend will continue here in the near term.”

Lazard and its affiliates have business relationships with General Dynamics.

General Dynamics officials insisted last week that they are aligning their businesses with government priorities.

“General Dynamics is particularly well positioned to excel in this fast-changing, high-pressure environment,” said chairman and chief executive Jay L. Johnson during a call with investors.

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