By Renae Merle
Washington Post Staff Writer
Wednesday, July 25, 2007

Lockheed Martin yesterday reported a 34 percent surge in profit during the second quarter, as large weapons makers continued to benefit from increased defense spending driven by the wars in Iraq and Afghanistan.

Lockheed, based in Bethesda, reported a profit of $778 million ($1.82 a share) during the quarter, compared with $580 million ($1.34) in the second quarter of 2006. Revenue rose 7 percent, to $10.65 billion, from $9.96 billion a year earlier. Lockheed, the world's largest weapons maker, also said that it expected to report up to $41.75 billion in revenue this year, up from its previous estimate of up to $41.35 billion.

"They were wild," Paul Nisbet, a defense industry analyst with JSA Research, said of the results. "They were way more than had been anticipated."

Lockheed shares rose $3.57, to $103.09.

The company's positive quarter came despite recent problems with some of its high-profile programs, including a $24 billion Coast Guard modernization project. Lockheed is also working to improve reliability of a long-range missile that was at risk of termination.

Christopher E. Kubasik, Lockheed's chief financial officer, said in a conference call with analysts that milestones and successes in other programs "serve to remind us of the imperative to redouble our efforts for flawless performance on all programs."

Lockheed has also struggled with a Navy ship program that has more than doubled in cost. The Navy canceled the second of two ships the company was working on, but Kubasik said there was still potential for the program, including overseas. "Once we get that deployed successfully, the international market should be more interesting and available to us," Kubasik said. The company's "number one priority is to get that vessel to the Navy."

Revenue for the company's information technology and services unit rose 17 percent during the quarter, the most of any unit, to $2.5 billion. Lockheed attributed the increase largely to recent acquisitions, including a company that provides such services to the government as building and maintaining embassies and training foreign firefighting and police forces.

Lockheed's largest business remains building fighter and cargo planes such as the F-16 and C-130J. The aeronautics unit reported sales of $3.13 billion, up from $3 billion a year earlier. Operating profit was $378 million, up from $272 million.