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Lockheed, GD sees profits slow

Defense contractors have been warning for months of a downturn in government spending — but this quarter was perhaps one of the first to actually show the results.

Both Falls Church-based General Dynamics and Bethesda-based Lockheed Martin reported faltering profits, despite posting relatively consistent earnings in recent years.

General Dynamics reported a loss of about $2.1 billion for the fourth quarter after devaluing its information technology business by $2 billion, while Lockheed reported its profit dropped nearly 17 percent, to $569 million in the three-month period ending Dec. 31.

It was a noticeable decline for the contractors, both of which also have new chief executives. Phebe Novakovic at General Dynamics and Marillyn A. Hewson at Lockheed took over the top jobs at the start of the year.

For her part, Novakovic was critical of General Dynamics’s past business decisions, particularly when it comes to acquisitions, and promised a fresh start.

“In some respects, we took our eye off the ball,” Novakovic said during a call with investors last week. “Some of our business units performed superbly, but that ... value hasn’t accrued to the benefit of our shareholders. And you can better believe that we are going be focused like a laser beam on that.”

Novakovic called the acquisition process at General Dynamics — which has picked up multiple companies, including Arlington-based Vangent, in recent years — “somewhat broken.”

The company will not be making any more acquisitions until “we have reestablished the discipline in this process,” she said.

Still, Novakovic was cautious about promising growth for the contractor. She said General Dynamics will focus on cutting its own costs and operating more efficiently.

“We are not going to chase revenue. We’re going to stick to our knitting and do what we know how to do,” she said. “It’s our job to right-size our businesses, drive costs out and perform for our customers and our shareholders and our people.”

At Lockheed, sales and profit in the company’s information systems unit dipped, which the company attributed to lower sales on several large programs.

Lockheed executives said the company is, like many others, trying to move out of “commodity IT,” such as providing help desk support, and into what it terms “mission IT,” or more critical technology work such as cybersecurity.

“That tends to be a higher margin part of the service activity in the IT world,” said Bruce L. Tanner, Lockheed’s chief financial officer, in a call with investors last week. “We have the confidence that we can continue to do that.”

Like General Dynamics, Hewson said Lockheed is still planning to cut costs. The defense contractor has already offered buyouts to employees — including senior executives — and slimmed its office space.

Hewson said the company has cut its facilities by nearly 2 million square feet in recent years and plans to cut another 2.9 million square feet before the end of 2014.

“There is more to go there,” she said. “We want to continue to do that to remain competitive and win more business.”



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