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Posted by Maggie (Guest) - Tuesday, October 24 2006, 22:22:33 (CEST)
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Lockheed, Northrop profits rise, shares mixed By Bill Rigby
Tue Oct 24, 11:49 AM ET

NEW YORK (Reuters) - Lockheed Martin Corp. (NYSE:LMT - news) and Northrop Grumman Corp. (NYSE:NOC - news), two of the world's largest defense contractors, on Tuesday reported higher third-quarter profit on strong sales of electronic and information systems for both military and civilian use.

The two companies, like other defense contractors, are benefiting from record levels in U.S. defense spending, extra funding for military interventions in Iraq and Afghanistan, and more outsourcing of government technology projects.

The Lockheed and Northrop earnings came after rival General Dynamics Corp. (NYSE:GD - news) reported rising profit last week. No. 2 defense contractor Boeing Co. (NYSE:BA - news) is set to report earnings on Wednesday.

"It's been an excellent quarter for all of them (defense contractors), including Honeywell International (NYSE:HON - news) and United Technologies (NYSE:UTX - news)," said Paul Nisbet at aerospace specialists JSA Research. "Over the next two years, I don't see much change."

Lockheed, the world's No. 1 defense contractor, also benefited from a one-time tax gain in the quarter. But Northrop, the No. 3 contractor, cut its full-year forecast due to a legal charge for a proposed settlement over microelectronics parts made by a company it acquired four years ago.

Lockheed shares rose slightly, briefly hitting an all-time high, while Northrop shares dipped.

Lockheed shares are up about 41 percent over the past 12 months, while Northrop shares are up about 28 percent, leading the Standard & Poor's Aerospace and Defense index (^GSPAERO - news) to a gain of about 27 percent.

That outperformed most large companies, with the S&P 500 index (^SPX - news) up about 16 percent over the past 12 months.

Even after such explosive growth, most analysts are expecting even better profits from defense companies in coming years.

The possibility of Democrats -- which generally oversee arms spending cuts -- taking control of U.S. Congress in November elections is not seen as a factor, at least in the short term.

"I don't think you can change what's going on very readily," said Nisbet. "There's still going to be a war on terror and there's still still going to be a Republican in the White House, and anything negative (on defense spending) would undoubtedly be vetoed."

LOCKHEED BEATS STREET, GETS TAX GAIN

Lockheed, best known for its F-16 fighter jets and Patriot missiles but focused increasingly on civilian technology, said third-quarter profit rose a greater-than-expected 47 percent and raised its full-year profit forecast above Wall Street estimates.

The Bethesda, Maryland-based company said profit increased to $629 million, or $1.46 per share, from $427 million, or 96 cents per share, in the year-ago quarter. Revenue rose 4 percent to $9.61 billion.

Profit easily beat Wall Street's expectation of $1.24 per share, according to Reuters Estimates. Revenue was below analysts' average estimate of $9.8 billion.

Lockheed posted higher sales at its systems and information technology unit and at its space systems unit. Sales at its aeronautics unit fell.

It benefited in the quarter from a one-time land sale, which increased profit by 5 cents per share, and a one-time tax gain related to export tax benefits claimed for previous years, which increased profit by 14 cents per share.

Citing operational improvements and the benefit of one-time gains, Lockheed raised its full-year profit forecast to a range of $5.45 to $5.60 per share. Analysts expected $5.29 per share, on average.

For 2007, Lockheed forecast profit in the range of $5.60 to $5.80 per share. Analysts expected $5.65 per share, on average.

NORTHROP TAKES BIG CHARGE

Northrop, which makes warships, nuclear submarines, unmanned surveillance planes and a range of military electronics, said third-quarter profit rose 3 percent on higher sales at most of its units, offset by a large legal charge.

The Los Angeles-based company cut its full-year profit forecast to account for the charge.

It reported net profit increased to $302 million, or 86 cents per share, from $293 million, or 81 cents per share, in the year-ago quarter. Revenue rose 2 percent to $7.4 billion.

Earnings from continuing operations were 87 cents per share, below Wall Street's average expectation of $1.07 per share, according to Reuters Estimates. Analysts expected revenue of $7.8 billion.

Northrop took a charge of $112.5 million before taxes to cover potential claims by the U.S. Justice Department and an unnamed customer over microelectronics parts produced by a unit of TRW Inc., a company that Northrop acquired in 2002.

Northrop has made a settlement offer to the customer, but no agreement has yet been reached. The company has not given any details on the content of the legal action.

It now sees profit of $4.20 to $4.25 per share for the full year, down from its previous forecast of $4.35 to $4.45. Analysts expected $4.47 per share, on average.

Lockheed shares were trading up 85 cents, or nearly 1 percent, to $89.04 by late morning on the New York Stock Exchange, after briefly setting an all-time high of $89.17 in early trade.

Northrop shares were trading down $1.41, or 2 percent, at $67.76 by late morning on the New York Stock Exchange.

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