Lockheed Martin and Northrop Grumman reported sharp increases in fourth-quarter profit on Thursday and raised full-year forecasts, as two of the world's largest defense contractors capitalized on the continuing boom in U.S. military spending.
Lockheed's profit easily beat Wall Street's forecast, helping its shares rise to almost hit a new all-time high. Northrop slightly missed analysts' average forecast due to a charge on a radar program, sending its shares down slightly after notching an all-time high earlier this week.
The companies, along with rivals Boeing, General Dynamics and Raytheon are taking advantage of record levels in U.S. defense spending, extra funding for operations in Iraq and more outsourcing of government technology projects.
The Standard & Poor's Aerospace and Defense index is up about 29% over the past 12 months, outperforming a 14% gain in the S&P 500 Index . Lockheed shares have led the sector, rising about 50% in that time, while Northrop shares are up around 19%.
Investors have historically put a lower valuation on Northrop, which is viewed as being tied to the slower-growing shipbuilding business, as opposed to more dynamic aerospace business, like Boeing and Lockheed, and the booming army vehicle business, like General Dynamics.
Lockheed shares are trading at about 16-17 times the company's own forecast for 2007 earnings, while Northrop is trading about 14-15 times.
LOCKHEED BEATS STREET
Lockheed, the world's largest defense contractor, reported a greater-than-expected 28% rise in quarterly profit, helped by strong sales for its fighter jet programs.
Profit increased to $729 million, or $1.68 a share, compared with $568 million, or $1.29 a share, in the year-ago quarter. That was well above the Thomson Financial consensus estimate of $1.46 a share.
Revenue rose 6% to $10.8 billion, higher than forecasts of $10.77 billion.
For 2007, the Bethesda, Maryland-based company raised its profit forecast based on strong expected performance from its aeronautics unit, which is producing the F-35 Lightning II. The aircraft, known as the Joint Strike Fighter, is set to be the costliest warplane project on record.
It now expects profit in the range of $5.80 to $6.00 a share for the full year, up 20 cents from its previous estimate in October. On average, analysts were predicting a full-year profit of $5.87 a share.
But revenues are expected to be between $40.25 billion to $41.25 billion, down from earlier guidance of $41 billion to $42 billion. That's also below analysts' forecasts for $41.6 billion.
The aerospace and defense giant, based in Bethesda, Md., will host a webcast at 3 pm New York time.
Northrop, the third largest Pentagon contractor behind Lockheed and Boeing, said fourth-quarter profit rose 37%, ahead of expectations, as better margins in its information, electronics and shipbuilding units were partly offset by a charge on a radar program.
The Los Angeles-based company, which makes warships, nuclear submarines, unmanned surveillance planes and a range of military electronics, reported net profit of $453 million, or $1.28 a share, compared with $331 million, or 92 cents a share, in the year-ago quarter.
Earnings from continuing operations were $1.29 a share, beating a Thomson Financial consensus estimate by three cents.
Profit was hit by a $61 million pretax loss provision for its Multi-role Electronically Scanned Array (MESA) radar system, which is a fixed-price development program, meaning that Northrop must cover the costs of unplanned delays itself. Federal and foreign income taxes also rose sharply, dragging back profit.
Revenue climbed 5% to $8.02 billion from $7.67 billion. Analysts, on average, were looking for sales of $8.05 billion, according to Thomson Financial.
Looking forward, Northrop forecast full-year 2007 earnings from continuing operations of $4.80 to $5.05 a share, up from its October forecast of $4.65 to $4.90 a share, helped by an expected gain from the company's pension plans based on a change in investment assumptions. Wall Street is expecting $4.85 a share, on average.
Northrop also renewed revenue guidance of $31 billion to $32 billion for 2007. Analysts were expecting $31.8 billion in revenues for this year.
Northrop shares fell after hitting an all-time high on Wednesday.
The company will host a webcastto discuss results at noon New York time.