Defence companies post profits but concerns weigh

Business is brisk for the largest US arms makers and it looks to stay that way in 2009, but fears about future spending by the Obama Administration on multibillion-dollar weapons programs pressured some companies’ shares.
Defence contractors Raytheon Co and L-3 Communications Holdings topped analysts’ estimates and said full-year profit would be higher than estimated.
Goodrich Corp also boosted its full-year view, but its sales trailed estimates and the aircraft-parts maker lowered expectations for business jet production and services.
“On the commercial aerospace side, it’s a fundamental view that the airlines still aren’t making money,” said Wayne Plucker, aerospace and defence analyst with Frost & Sullivan.
“There’s no real big light at the end of the tunnel.”
Goodrich makes parts for plane maker Boeing Co and Airbus parent EADS.
Defence contractor Northrop Grumman posted a lower profit, weighed down by pension costs and weak shipbuilding results, but kept its full-year outlook unchanged.
Shares of L-3 and Raytheon moved up, but Goodrich was off about 6 % and Northrop slid 3 %.
Macquarie Research analyst Robert Stallard cited good margin performance at Raytheon, Goodrich and some divisions at L-3.
Investors are concerned that the defence sector, which saw spending ramp up in recent years, could stall as President Barack Obama seeks to scale back traditional weapons programs and devote more funds to fighting insurgents in places like Iraq and Afghanistan.
“There seems to be a perception that all the US spending on recovery is going to put a nail in the coffin of next year’s budget for defence,” Plucker said. “I’m not convinced that’s true.”
Announced Pentagon cancellations are already having some effect.
Raytheon said the Defence Department’s June cancellation of the Kinetic Energy Interceptor program, which was designed to shoot down missiles soon after their launch, reduced its backlog by $2.4 billion (R18 billion) at the end of the second quarter. Northrop, the prime contractor on the KEI program, said the termination reduced its backlog by $5.1 billion (R39 billion).
Additionally, top defence contractor Lockheed Martin said this week that the Defence Department’s scrapping of the VH-71 presidential helicopter and the Transformational Satellite communications initiative reduced its backlog by $2.6 billion (R20 billion).

Pic: A Lockheed Martin F22 Raptor in flight