US: Pentagon Shapes Three Firms' Profits

Publisher Name: 
Washington Post
Defense giants Lockheed Martin Corp. and Raytheon Co. both swung to a profit in the fourth quarter as the Pentagon's determination to transform the military boosted sales of their high-tech programs.

United Defense Industries Inc. reported that its earnings declined in the quarter as the Pentagon moved away from the company's Bradley Fighting Vehicle in favor of lighter, more agile vehicles.

The results yesterday were the latest illustration of the Pentagon's focus on developing information technology for use on the battlefield, maintaining air superiority and phasing out dependence on weapons programs that do not satisfy Defense Secretary Donald H. Rumsfeld's call for a flexible, high-tech force.

Bethesda-based Lockheed Martin reported net income of $344 million (77 cents a share) in the fourth quarter compared with a loss of $347 million (77 cents) in the same quarter in 2002 when it took a charge for money-losing telecommunications and commercial satellite investments. Revenue increased 15 percent to $8.98 billion from $7.78 billion.

For the year, Lockheed reported net income of $1 billion ($2.34), double the $500 million ($1.11) it reported in 2002. Revenue grew nearly 20 percent to $31.82 billion from $26.58 billion.

"We really are excited about things, [2003] was a really great year, the outlook is very positive," said Christopher E. Kubasik, Lockheed's chief financial officer.

The company forecast that revenue in 2004 would total $33.5 billion to $34.5 billion.

Lockheed's aeronautics unit, which includes fighter jets and cargo aircraft, fueled much of the growth, reporting a 58 percent increase in revenue during the quarter to $3.03 billion from $1.92 billion. About half of the increase was due to accelerated development of the F-35, known as the Joint Strike Fighter, which is expected to be deployed in 2008. Overseas sales of the F-16 -- 22 during the quarter, up from five -- also boosted results.

The company continued to deal with an underfunded pension plan. Lockheed made a cash contribution last year of $671 million to its pension account, including a $450 million pre-payment for what it expects to need for 2004.

Raytheon reported a profit of $205 million (49 cents) in the fourth quarter, compared with a loss of $68 million (17 cents) in the same period of 2002. Revenue increased more than 9 percent to $5.10 billion from $4.66 billion.

For the year, the company reported net income of $365 million (88 cents), compared with a $640 million loss ($1.57) in 2002. Revenue increased 8 percent to nearly $18.11 billion from $16.76 billion.

The growth was the result of several programs, including development of the national missile defense shield for which Raytheon is providing the "kill vehicle" that will ride on a rocket and destroy incoming enemy missiles, a company spokesman said. The company's work on the DDX, the Navy's newest family of battleships, and on modernizing the Tomahawk missile also boosted revenue, the spokesman said.

Raytheon also was weighed down by its pension accounts. The company's pension required a $59 million cash contribution in 2003, an infusion that is expected to increase to $318 million this year. The company expects to be able to recover most of the pension costs from the government, but still lowered its earnings forecast to between $1.25 and $1.35 a share for the full year to reflect the expenses. That is down from a previous forecast of $1.50 to $1.60.

Arlington-based United Defense reported net income of $28.8 million in the quarter (54 cents), down 33 percent from $43.2 million (82 cents), as demand slowed for one of its core products, the Bradley Fighting Vehicle. Revenue remained relatively flat at $524 million compared with $521 million.

Revenue in the Bradley vehicle unit fell 50 percent, to $35 million in the quarter from $70 million a year earlier. United Defense said the decline was expected and reflected a delay in expected orders.

"The trend is definitely away from the big heavy Army vehicles of the past," said Paul Nisbet, defense analyst for JSA Research.

For the year, United Defense reported net income of $140.6 million ($2.66), compared with $134.6 million ($2.55) in 2002. Revenue increased almost 19 percen t to $2.05 billion from $1.73 billion. United States Marine Repair, which United Defense acquired in July 2002, accounted for 89 percent of the 2003 increase, according to a company statement.

The stocks of all three defense contractors fell yesterday as Wall Street remains skeptical that defense spending can be sustained at current levels, given the soaring budget deficit. Lockheed fell $1.40, or 2.7 percent, to $50.20. Raytheon fell 61 cents, or 1.89 percent, to $31.61. United Defense fell $3.56, or 10.58 percent, to $30.10.
AMP Section Name:War & Disaster Profiteering