U.S. arms makers post higher profit, decry budget cloudiness
By Andrea Shalal-Esa
WASHINGTON (Reuters) - Major U.S. weapons makers posted higher third-quarter profit on Wednesday despite budget cuts, their margins remained largely solid or rose in places, and revenue fell less than expected.
But executives at the top four weapons makers - Lockheed Martin Corp (LMT.N: Quote), Boeing Co (BA.N: Quote), General Dynamics Corp (GD.N: Quote) and Northrop Grumman Corp (NOC.N: Quote) - said the outlook remains hazy given lingering uncertainty over defense budgets in the United States and abroad. Raytheon Co (RTN.N: Quote) is due to report earnings on Thursday.
The companies say they are weathering the initial stages of the downturn in military spending thanks to aggressive cost-cutting, workforce reductions and facility closures, and a sharper focus on executing contracts on time and on budget.
All the major players expect lower revenue and mounting pressure on margins unless Congress reverses a law that would cut Pentagon spending by $500 billion on top of $487 billion in cuts already planned for the next decade.
Phebe Novakovic, chief executive of General Dynamics, which builds U.S. Navy warships, combat vehicles and Gulfstream business jets, told analysts that the political brinkmanship over the U.S. debt ceiling and the recent government shutdown were sobering reminders that companies need to be cautious and hold on to cash.
"The government took the nation to the edge on the debt ceiling extension. We were forced to gaze into the abyss where we saw the full faith and credit of our principal customer at risk," she told analysts on a conference call.
Novakovic said there was a chance that the entire showdown experience could be repeated in January when the debt ceiling is due to be breached again.
"It's entirely possible that we find ourselves in an extended period of time trapped in Dante's first circle of hell," she said. "All of that suggests that we need prudence and caution ... until we can get a more stable plan from the government with respect to both the debt ceiling and funding." Continued...