Defense cutbacks crimp Lockheed, Raytheon results

Thu Jan 24, 2013 5:10pm EST
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By Andrea Shalal-Esa

WASHINGTON (Reuters) - Lockheed Martin Corp (LMT.N: Quote) and Raytheon Co (RTN.N: Quote) warned on Thursday that U.S. defense budget cuts would eat into their sales this year, but they forecast very different effects on their bottom lines.

Lockheed, the Pentagon's biggest supplier, said it could cut enough costs that earnings would not only grow but also would exceed expectations. Raytheon, on the other hand, said its profit would shrink as the arms maker gets squeezed by the end of high-margin programs and the start of new, low-margin ones.

Their divergent fortunes illustrate the tough year ahead for defense contractors, which are uncertain about just how deeply the U.S. government plans to cut military spending to help rein in the soaring deficit.

Lockheed makes fighter jets, among other armaments, while Raytheon makes the Patriot missiles and other defense equipment.

Lockheed's forecast assumes Congress will avert $500 billion in additional Pentagon spending reductions known as "sequestration" that are due to take effect over the next decade, starting in March.

But Lockheed still expects sales to contract as much as 6 percent this year, an even steeper slide than the decline of as much as 3 percent that Raytheon forecast.

As spending challenges mount at home, Lockheed is pushing for growth in its international markets, and expects this to make up at least 20 percent of revenue in the "next few years."

"Certainly there's continued strong demand for air and missile defense in the Middle East and Asia-Pacific...," Chief Executive Marillyn Hewson said on a conference call with analysts.   Continued...

One of Raytheon's Integrated Defense buildings is seen in San Diego, California January 20, 2011. REUTERS/Mike Blake