By Doug Cameron
A senior Raytheon Co. executive on Thursday said a number of
countries are revisiting their defense budgets in the wake of the
crisis in Ukraine, part of a broader uptick in international
military sales.
The maker of the Patriot missile-defense system is the most
diversified of the large U.S. contractors and furthest advanced in
winning international business to counter domestic military-budget
pressures.
Dave Wajsgras, Raytheon's chief financial officer, said in an
interview with The Wall Street Journal that countries such as
Sweden, Latvia and Lithuania were re-examining their defense
budgets in the wake of tensions between Russia and Ukraine.
"It would appear that more resources are going to be allocated,"
said Mr. Wajsgras of the broader rise in expectations for
international military spending. "The expectations today are
somewhat higher than they were a year ago."
Raytheon derived 39% of its new business in the first quarter of
this year from overseas business, with overall new bookings of $23
billion expected this year. Mr. Wajsgras singled out air and
missile defense and cybersecurity as two high-growth areas.
Raytheon's cyber products unit delivered a 30% rise in sales during
the latest quarter compared with a year ago.
His comments came as Raytheon delivered a forecast-beating 21%
rise in first-quarter profit, though left its full-year guidance
unchanged as it wrapped a bullish set of reports from the largest
U.S. defense contractors.
A lower tax charge helped first-quarter profit beat expectations
and analysts viewed the absence of higher full year guidance as
disappointing.
Three of the industry's top five companies this week said they
had leveraged cost cuts to drive up margins and earnings.
Raytheon, the maker of the Patriot missile-defense system, is
the most diversified of the large U.S. contractors and furthest
advanced in winning international business to counter domestic
military-budget pressures.
The company reported net profit of $600 million for the quarter
to March 31 compared with $494 million a year earlier, with
per-share earnings rising to $1.89 from $1.49. Sales dropped at all
four of its divisions, slipping to $5.5 billion from $5.68 billion
a year earlier.
The company's operating margin rose to 14.3% from 12% a year
earlier, hitting the top end of the company's full-year guidance
provided in January. Market leader Lockheed Martin Corp. General
Dynamics Corp. and Northrop Grumman Corp. this week all reported
higher margins and raised their full-year profit guidance. Only
Boeing Co., the second-largest defense company, reported lower
margins for its military business.
First-quarter reports have revitalized the equity performance of
the big prime defense contractors. After a 60% surge last year,
stock prices sagged from record highs in the wake of the
uncertainty created by the Pentagon's near-term budget request in
March.
Congress is due to take up the request in the coming weeks, and
relative stability is expected for big-ticket items such as
aircraft and navy programs in the coming year, with General
Dynamics Chief Executive Phebe Novakovic on Wednesday calling this
year a "trough" for spending.
Lawmakers still face some tough choices as the Pentagon's
five-year plan calls for spending in later years that would bust
existing mandated budget caps, leading to concerns about cuts
spreading to priority programs such as Lockheed's F-35 fighter jet,
and a simmering debate over the affordability of the Navy's
aircraft carrier fleet.
While U.S. military spending this year is essentially flat
compared with 2013, international budgets continue to expand,
notably in the Middle East and Asia.
Raytheon scored big contract wins from some Persian Gulf nations
for its missile-defense systems, though even with $4.3 billion in
new bookings, its backlog declined 4.2% from the prior quarter to
$32.2 billion at the end of the March quarter.
The company's shares closed Wednesday at $100.23, with the stock
gaining 10.5% this year, second only to General Dynamics in the
sector as the latter secured improved earnings from its Gulfstream
business-jet unit and some large defense contract wins.
Write to Doug Cameron at doug.cameron@wsj.com
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