NEW YORK (Reuters) - Raytheon, L-3, Rockwell Collins and Goodrich all beat Wall Street profit estimates on Thursday, as the long boom in the defense and aerospace sectors showed no signs of being affected by the U.S. economic downturn.
By Bill Rigby
NEW YORK (Reuters) - Raytheon, L-3, Rockwell Collins and Goodrich all beat Wall Street profit estimates on Thursday, as the long boom in the defense and aerospace sectors showed no signs of being affected by the U.S. economic downturn.
Northrop Grumman Corp <NOC.N>, one of the Pentagon's top three suppliers, reported a drop in first-quarter profit due to a one-time charge on a late warship, but still said it saw solid underlying trends in the defense business.
The results follow those of the top two U.S. defense contractors, Lockheed Martin Corp <LMT.N> and Boeing Co <BA.N>, which both beat Wall Street's profit estimates earlier this week, as did leading tank and business jet maker General Dynamics Corp <GD.N>.
!ADVERTISEMENT!"The defense market doesn't look like any softening," said analyst Richard Aboulafia of Teal Group defense research firm. "You'll see a plateau, but this is a great plateau to be on."
Despite a series of small airline bankruptcies and record oil prices, the civil aircraft market remains hot.
"Business jets, rotor craft, show absolutely no signs of weakening," said Aboulafia. "The only softness we can see is in the scheduled airline market."
The Standard & Poor's Aerospace and Defense index <.GSPAERO> rose more than 1 percent. Goodrich Corp <GR.N> was one of the leading gainers in the S&P 500, up nearly 10 percent, while Northrop shares rose more than 4 percent.
MILITARY SPENDING SPREE
The U.S. defense budget -- accounting for half the world's military spending -- has ramped up dramatically in the past decade and shows no signs of slowing down.
In February, President George W. Bush asked Congress for a record $515.4 billion Defense Department budget for next year, a 7.5 percent increase from this year. On top of that, he requested $70 billion to fund operations in Iraq and is expected to ask for another $100 billion in the next month or so.
"While there is a common perception that the huge costs of defense spending should begin tapering off, the fact is that baseline budgets are still on the rise," said a recent report by defense industry research firm Forecast International.
When all defense-related costs are considered, the budget for fiscal year 2009, which starts in October, is worth about 5 percent of gross domestic product, according to Forecast International. That would put it at the highest level since Ronald Reagan's presidency.
Demand for airliners and business jets has also jumped in the past three years, recovering from a slump caused by the attacks of September 11, 2001. Boeing and rival Airbus booked more than 6,000 plane orders over the past three years, equal to the previous eight years combined.
STRONG PROFIT GROWTH
Those strong growth trends are helping a range of military and aerospace companies.
Goodrich, which makes brakes and landing gear for military and commercial jets, was the biggest beneficiary, easily beating Wall Street's profit outlook and raising its full-year earnings forecast on strong sales across the board.
"We continue to believe that the aerospace industry, because of its global nature, offers some of the best growth prospects of any industry, even in the face of the current U.S. economic conditions," Goodrich Chief Executive Marshall Larsen said in a statement on Thursday.
Rockwell Collins Inc <COL.N>, which specializes in cockpit and cabin electronics, also beat Wall Street forecasts and raised its own profit estimate for the year.
CEO Clay Jones echoed Goodrich's faith in the sector, saying the market for commercial and military aerospace was solid, despite a weaker U.S. economy.
"This market can continue to grow for several more years," said Jones in a telephone interview. "We're not even close to the peak -- which would be 2011, 2012 -- given the backlog (of orders) and the fundamentals that I see today."
No. 5 U.S. defense contractor Raytheon Co <RTN.N>, which makes Patriot and Tomahawk missiles, beat profit forecasts, but kept its full-year target unchanged.
L-3 Communications Holdings Inc <LLL.N>, a fast-growing military electronics maker, beat analyst forecasts and raised its full-year profit estimate, largely due to retaining a key U.S. government language translation contract in Iraq and to a recent acquisition.
Northrop Grumman was the one exception, posting a decline in profit because of a charge on a delayed warship that it warned about earlier this month.
Despite reducing financial forecasts to account for the ship charge, Northrop CEO Ronald Sugar said "solid underlying business trends" would help it hit longer-term financial targets.
(Editing by Lisa Von Ahn)
(Additional reporting by Sweta Singh, Dinesh Nair, Esha Dey and Bhaswati Mukhopadhyay in Bangalore)
