Three Washington area government contractors posted double-digit revenue growth yesterday, although earnings were mixed.
The results are the latest in a string of reports from companies reaping the benefits of a sector that has expanded rapidly and is contributing to the health of the area's economy.
Anteon International Corp. of Fairfax yesterday reported solid results. Two other Fairfax companies, ManTech International Corp. and PEC Solutions Inc., reported that profit was down from a year ago, despite increased revenue.
Over the past week, Lockheed Martin Corp., CACI International Inc. and SI International Inc. all reported substantial profit increases.
Experts say the companies, which provide federal agencies with such services as network integration and payroll accounting technologies, are the beneficiaries of a government that is trying to modernize its processes, bolster its defenses against terrorism and conduct operations in Iraq and Afghanistan.
Several of the contractors increased their revenue projections for the coming quarters, although industry analysts cautioned that the growth rate in federal contracting is likely to slow over time.
Government contractors specializing in information technology -- many of them along the Dulles corridor and Interstate 66 in Northern Virginia -- have seen particularly large increases in contract revenue. Federal spending on information technology grew from $45.7 billion in 2001 to $59.3 billion in 2004.
"There is clearly a trend toward connecting everything up and being able to share information better, and the [Department of Defense] has to rely on its contracting base in order to make that work," said Patrick J. McCarthy, a defense analyst with Friedman, Billings, Ramsey & Co. McCarthy estimates that the hardware side of the government contracting industry is growing at a 10 to 12 percent annual rate, while the information technology sector is seeing 15 percent 20 percent growth rates.
The contracting sector's strength is particularly striking in comparison with other industries that have been hampered by cautious consumer and business spending. The nation's total spending on national defense, the biggest single source of contracting funds, rose 9 percent in 2003 and was rising at a 12.1 percent annual rate in the first quarter of 2004, though it grew more slowly in the second quarter, according to the Commerce Department.
By comparison the nation's total economic output rose 3 percent last year.
Anteon International said yesterday its revenue grew 17 percent in the third quarter while its profit jumped by 54 percent.
The Fairfax firm, which specializes in designing and integrating complex technology systems, earned $16.8 million (45 cents a share) in the three months ended Sept. 30, compared with a profit of $10.9 million (30 cents) in the same period of the previous year.
Revenue rose to $325.6 million from $279.1 million, an increase the company attributed to the strength of the homeland security, defense and intelligence markets.
"Those are the market segments that have been really well funded over the last couple of years, and this year is no exception," said Joseph M. Kampf, Anteon's president and chief executive. "We're seeing more tasks, more, larger opportunities to bid on, and it's a pretty frenetic pace."
The company also increased its financial guidance, saying it now expects to record revenue of $1.25 billion to $1.27 billion for the year, up from the $1.22 billion to $1.25 billion previously projected. Investors reacted positively, sending Anteon's stock up $3.05, or 8 percent, to close yesterday at $41.36.
PEC Solutions, another Fairfax firm that provides technology services to the government, said yesterday its third-quarter revenue rose to $55.2 million from $43.3 million in the year-earlier quarter. The company's profit fell slightly to $4.3 million (15 cents a share) from $4.4 million (15 cents).
In September, PEC acquired AC Technologies Inc. of Fairfax for $46.7 million in cash plus $3 million in employee bonuses and payouts. Yesterday PEC said it expects revenue this year of between $204 million and $206 million and predicted annual revenue would grow 33 percent to 37 percent next year. Its stock rose 33 cents, to $13.17 yesterday.
Earlier this week, Lockheed Martin of Bethesda posted a 41 percent increase in profit, and SI International Inc., of Reston, said its third-quarter earnings grew 46 percent. Last week Arlington-based CACI International reported a 52 percent rise in third-quarter profit.
Economists say the contracting industry has driven the Washington area's job growth, contributing to relatively low unemployment rates throughout the region. Earlier this week Labor Department data showed that several area counties, including Prince William and Loudoun, were adding jobs at some of the fastest rates in the nation.
Anteon International alone added 200 employees in the third quarter and 900 new employees in the first nine months of 2004.
"Mathematically if you look at what drives this economy the big kahuna is the federal government," said Stephen S. Fuller, a professor at George Mason University who tracks the local economy. "It's 10 times as important as the hospitality industry."
Not all government contractors have experienced smooth growth. ManTech said yesterday its third quarter earnings fell to $7.8 million (24 cents a share) from $9.2 million (29 cents) in the year-ago period. The firm has been plagued by losses from a subsidiary it acquired in March 2003. The unit, which conducted security clearance investigations, faced delays in a contract that is now being closed out. The unit lost $4 million in the third quarter.
ManTech's revenue for the three months ended Sept. 30 rose 16 percent, to $211.3 million from $181.6 million.
The pace of growth in the government contracting industry is likely to slow in future years, most industry watchers warn.
Payton Smith, an analyst with Input Inc., a Reston market research firm, said he expects the growth rate for government information technology spending to be about 6 percent between 2004 and 2009, down from the 11 percent average increase seen between 1999 and 2003.
"When a crisis comes up, these companies are in a position to support the government," Smith said, adding that the Y2K scare and the homeland security buildup produced back-to-back surges in growth for the contracting industry. But, he said. "We think we're getting past the crisis phase now."