BAE Systems sees U.S. defense spending on the turn

Thu Feb 19, 2015 6:38am EST
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By Sarah Young

LONDON (Reuters) - BAE Systems (BAES.L: Quote), the world's third-largest defense contractor by revenue, said it believed the worst was over for spending cuts in its key U.S. market as it forecast that earnings would return to growth in 2015.

Its profits have been hit in recent years by government spending cuts, particularly in the United States and Britain, which together account for almost two thirds of its sales.

However, it said U.S. spending was now stabilizing and set to improve "modestly" from next year, with Chief Executive Ian King saying he was encouraged by a recent higher order for F-35 combat jets, for which BAE is a key development partner.

He also suggested the company could benefit from heightened military activity, when asked about the battle against Islamic State in Iraq and rising tensions in Ukraine.

"Defense and security is high on governments' priorities at the moment," King told reporters on a conference call on Thursday.

"We have a lot of bidding activity going on at the moment, we also have a lot of support activity going on."

The company said that in 2015 earnings per share were expected to be "marginally higher", a forecast which included some reliance on anticipated new orders for naval equipment and aircraft, such as the Eurofighter Typhoon jet.

King noted that for the first time, Middle Eastern countries were deploying their assets against Islamic State.   Continued...

A union flag flies over the entrance to the naval dockyards, where BAE Systems are also located, in Portsmouth, southern England November 6, 2013.  REUTERS/Stefan Wermuth