Sales drop, profits rise for defense contractors

General Dynamics alone sees Q2 earnings decline

Washington - Three large defense contractors saw revenue fall in the second quarter, but profits increased as companies cut costs to cope with a reduction in government spending.

Lockheed Martin, Northrop Grumman and General Dynamics all posted a decrease in sales compared with the same period last year. Lockheed and Northrop also reported higher profit, but General Dynamics posted a decline.

Sales at the information technology divisions of all three companies continued a downward trend.

As the government's priorities remain focused on the drawdown of overseas troops, some types of information technology work are put off, said Michael Lewis, managing director of the Silverline Group, a consulting firm. They include the modernization or maintenance of software systems.

"The trend will reverse eventually," Lewis said.

Defense contractors have also been moving to international and commercial markets to boost revenues as defense budgets remain tight. In conference calls with investors, leaders at all three companies reiterated that point.

"I think we're actually doing well in terms of performing on contracts and growing our international business," said Bruce Tanner, Lockheed's executive vice president and chief financial officer.

Northrop chief executive Wes Bush said the company expects international sales to reach 13 percent of total sales this year, up from 10 percent in 2013. That growth would come from unmanned aerial vehicles and cybersecurity work, he said.

General Dynamics' aerospace division, which manufactures the commercial Gulfstream jet, saw sales decline by 2.8 percent. But the company's chief executive, Phebe Novakovic, said she expected orders for the Gulfstream to remain strong through the year.

"We have a solid building block for the future with an increased defense backlog and robust order activity across the portfolio of Gulfstream business jets," Novakovic said.

In the second quarter, Lockheed Martin's sales totaled $11.3 billion, down 1 percent from the same period a year earlier, while profit grew 3.5 percent, helped by gains in the company's pension accounts. In the information-systems segment, sales decreased by $160 million, or 8 percent compared with the same period one year ago.

Profit at Northrop increased as the company cut costs and repurchased a large chunk of its shares. Northrop reported a profit of $511 million, or $2.37 per share, an increase of 4.7 percent from the same period last year, while sales declined 4 percent, to $6.04 billion.

In the information-systems unit, sales dropped 8 percent. The company's technical services unit was the only division that posted a sales increase in the quarter, because of higher international sales, Northrop said.

At General Dynamics, profit was hit by a $105 million charge related to the sale of a unit within its combat-systems division.

Sales declined 4.6 percent, to $7.5 billion, and profit fell to $541 million, or $1.58 per share, from $640 million, or $1.81 per share, in the same period last year. The marine-systems division had higher sales because of the contract for Virginia-class submarines for its Electric Boat division.

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