Lockheed Martin Cuts Outlook, Northrop Sees Charge

Lockheed Martin slashed its full-year profit forecast due to higher pension costs and rival Northrop Grumman announced a large goodwill write off Thursday, as the defense contractors counted the cost of plunging equity markets.

Many established companies such as Lockheed Martin are facing headaches this year from their big pension funds, which were decimated by losses in the financial markets in the second half of last year.

Northrop Grumman is also feeling the effect through the reduced value of acquisitions it made several years ago, leading to a writedown of up to $3.4 billion of the book value of its operations.

Lockheed , the world's No. 1 defense contractor, reported a better-than-expected 3 percent increase in quarterly profit to $2.05 per share, beating Wall Street's average forecast of $1.91 per share, according to Reuters Estimates.

But the company, which makes F-22 and F-35 fighter jets and a range of military electronic systems, said it would cost $470 million this year to adjust its pension accounting as it reduces its assumed discount rate, reflecting lower rates of return from investments in the dire financial markets. Its previous forecast was for only $60 million in such costs.

Both Lockheed and rival Boeing were hit hard by plunging investments last year, which reduced the value of their pension funds by 20 percent or more.

Because of the extra pension costs, Lockheed cut its full-year earnings forecast to a range of $7.05 to $7.25 per share from its last forecast in October of $7.65 to $7.90 per share. Analysts were expecting $7.85 per share, on average.

Lockheed's shares were up 0.8 percent at $80.65 on the New York Stock Exchange.

Northrop Takes Big Charge

Northrop Grumman , the U.S. No. 3 defense contractor, said it expects to take a charge of up to $3.4 billion against fourth-quarter results as it writes down the book value of acquisitions it made seven or more years ago.

AP Northrop Grumman

Northrop, which builds bombers, warships and a range of military electronics, said the expected noncash charge -- of between $3 billion and $3.4 billion -- will push the company into a net loss for the fourth quarter and full year 2008.

The charge is due to the results of its annual testing of goodwill, which indicated a big dip in the fair value of some businesses it bought in 2001 and 2002 which are now part of Northrop's shipbuilding and space units, due to dramatic plunges in equity markets last year.

Excluding the charges, the company said it expects to hit the upper end of its profit forecast of $5.10 per share to $5.20 per share for the full year. On that basis, Wall Street is expecting $5.20 per share, according to Reuters Estimates.

Northrop is scheduled to report quarterly earnings on Feb. 3. Its shares fell 2.2 percent to $46.92 on the NYSE.

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