Defense giants post lower sales, mixed profits in second quarter

Washington-area defense contractors saw revenue fall in the second quarter, but profits increased as companies cut costs to cope with a reduction in government spending.

Lockheed Martin, Northrop Grumman and General Dynamics all posted a decrease in sales compared with the same period last year. Lockheed and Northrop also reported higher profits, but General Dynamics posted a decline.

Sales at the information technology divisions of all three companies — which are largely based in the Washington region — continued a downward trend.

As the government’s priorities remain focused on the drawdown of overseas troops, some types of information technology work are put off, said Michael S. Lewis, managing director of the Silverline Group, a consulting firm. They include the modernization or maintenance of existing software systems.

“The trend will reverse eventually,” Lewis said.

Defense contractors have also been moving to international and commercial markets to boost revenues as defense budgets remain tight. In conference calls with investors, leaders at all three companies reiterated that point.

“I think we’re actually doing well in terms of performing on contracts and growing our international business,” said Bruce L. Tanner, Lockheed’s executive vice president and chief financial officer.

Northrop’s chief executive Wes Bush said the company expects international sales to reach 13 percent of total sales this year, up from 10 percent in 2013. That growth would come from unmanned aerial vehicles and cybersecurity work, he said.

General Dynamics’ aerospace division, which manufactures the commercial Gulfstream jet, saw sales decline by 2.8 percent. But the company’s chief executive officer Phebe N. Novakovic said she expected orders for the Gulfstream to remain strong through the year.

“We have a solid building block for the future with an increased defense backlog and robust order activity across the portfolio of Gulfstream business jets,” Novakovic said.

In the second quarter, Lockheed Martin’s sales declined 1 percent to $11.3 billion compared to the same period one year ago, while profits grew 3.5 percent, helped by gains in the company’s pension accounts. The information-systems segment saw sales decrease by $160 million, or 8 percent compared with the same period one year ago.

Profits at Northrop increased as the company cut costs and repurchased a large chunk of its shares. Northrop posted a profit of $511 million, or $2.37 per share, an increase of 4.7 percent from the same period last year, while sales declined by 4 percent to $6.04 billion.

In the information-systems unit, sales dropped by 8 percent. The company’s technical services unit was the only division that posted a sales increase in the quarter, due to higher international sales, Northrop said.

At General Dynamics, profits were hit by a $105 million charge related to the sale of a unit within its combat-systems division.

Sales declined 4.6 percent to $7.5 billion, and profit stood at $541 million or $1.58 per share, down from $640 million or $1.81 per share in the same period last year. The marine-systems division had higher sales due to a contract for Virginia-class submarines.

Staff writer Mohana Ravindranath contributed to this report. Capital Business is The Post’s weekly publication focusing on the region’s business community. For more Washington business news, go to www.capbiz.biz.

Amrita Jayakumar covers federal government contracting for Capital Business, The Post's local business publication.
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