The U.S. defense industry is on track for one of its best years in recent memory.
The five largest U.S. defense contractors — Lockheed Martin, Boeing, Northrop Grumman, Raytheon and General Dynamics — reported healthy financial results for the third quarter, in a series of earnings reports over the past week.
They benefited from a defense budget that has grown significantly under a Republican-controlled Congress and White House, as well as a 2017 tax overhaul that slashed their corporate tax rates.
“We’re seeing more and more signs of sustained long-term stable defense budget in the U.S.,” Boeing chief executive Dennis Muilenburg said Wednesday.
They have also taken advantage of a more stable budget environment that has made it easier for them to prepare for the future. Last year, Congress lifted the “sequestration" budget caps that have limited defense spending since 2013. For the first time in years, lawmakers passed their most recent spending bill without a “continuing resolution,” giving defense firms a better blueprint for their future sales.
Raytheon saw its sales jump by 8.3 percent on the back of a stronger missiles business, which has benefited from new international orders.
Falls Church-based General Dynamics saw its annual revenue increase by 13.7 percent to $28.5 billion and beat analysts on earnings, growth that was fueled by lower tax rates and a $9.7 billion acquisition of a government IT contractor called CSRA.
Bethesda-based Lockheed Martin saw sales of $14.3 billion over the past quarter, a 16 percent jump over the same quarter a year ago. The company continued to reap the benefits from the manufacturer of the F-35 Joint Strike Fighter, its marquee program, with the Defense Department awarding it an $11.5 billion contract to build the next lot of jets. And it also won a pair of key footholds to develop hypersonic military technology, missiles that can punch through defense systems by flying faster than the speed of sound.
Northrop Grumman saw its quarterly sales increase 23 percent over a year ago, to $8.1 billion. The company began a succession plan that will replace long-time chief executive Wes Bush with Kathy Warden, who has been groomed for the position for years as chief operating officer.
Boeing reported third-quarter revenues of $25.1 billion driven by growth in its services and defense contracting work. It suffered from higher costs because of its KC-46 Tanker aerial refueling aircraft, something that investors worried might signal increased risk for the company. But a string of multibillion-dollar long-term wins on the Navy’s MQ-25 aerial refueling drone, the Air Force’s T-X Trainer and the Air Force’s UH-1N helicopter replacement offered spots of hope for future growth.
The good financial news was buffered by a broader stock market decline that has erased the Dow’s and Standard & Poor’s 500-stock index’s 2018 gains, however. Four of the top five defense contractors saw their stock prices slide compared to a week ago.
And new headwinds could be on the horizon for defense firms. Defense analysts are closely watching the upcoming congressional elections, as Democrats put up a fierce race to retake the House.
Adam Smith, the Democratic representative from Washington who would most likely become chair of the House Armed Services Committee should the Democrats retake the House, has said defense budgets will probably not stay at their current level.
“I think the number’s too high, and it’s certainly not going to be there in the future,” Smith said at a conference hosted by the trade publication Defense News.