Nov. 21 (Bloomberg) -- Lockheed Martin Corp. Chief Executive Officer Robert Stevens, who almost doubled profit margins in four years of running the world’s largest defense company, said rising international sales will provide more room for growth.

Margins should widen further as Lockheed wins orders from allies for products already developed for the U.S. military, such as the F-35 Lightning II fighter jet and C-130J transport plane, Stevens said in an interview yesterday at headquarters in Bethesda, Maryland. Norway just announced plans to buy 48 F-35 jets for about $2.5 billion.

Winning more sales abroad is one of three ways Lockheed can “go about extracting more value,” along with improving its performance on more than 3,000 programs and shifting systems such as the Littoral Combat Ship from development into production, Stevens said. Lockheed in October predicted its operating margin would rise to 11.7 percent this year, from 10.8 percent last year and 5.9 percent when Stevens took over in 2004.

“There is no aspect of the business that I don’t expect to have growth prospects in the international segment,” Stevens, 57, said. “I want to see continuous improvement across the board, continuous expansion of the international business, and as we do that I think it will lend itself to opportunities for margin expansion.” He didn’t specify a time frame or a target.

The CEO may be too optimistic, according to a prediction from Myles Walton, a Boston-based analyst with Oppenheimer & Co. Walton estimates Lockheed’s operating margin may fall to 11 percent in 2009 from about 11.5 percent this year, partly because of potentially higher pension expenses.

“I hope I’m on the more conservative end of spectrum,” Walton said. “I know they’d like to improve margins, but I’m not looking to presume that they can.”

Defense Industry

Stevens said he doesn’t see prospects for the industry dimming as Democrat Barack Obama becomes the U.S. president in January. Defense companies including Lockheed have prospered under George W. Bush’s administration, and the nation continues to fight two wars. U.S. defense spending rose 72 percent to $671.7 billion for fiscal 2008 from 2000 after adjusting for inflation and including funds for the wars.

Lockheed’s share price has more than doubled since Bush took office in 2001 for the second-best performance in the 11-member Standard & Poor’s 500 Aerospace & Defense Index, even after all members declined with the broader market this year. Its price-to- earnings ratio of 9.7 exceeds the index’s average of 8.4.

The defense contractor’s shares rose $4.71, or 6.9 percent, to $72.68 at 4:15 p.m. in New York Stock Exchange composite trading, the biggest percentage gain since Oct. 28. They have lost 31 percent this year.

Net income in this year’s first nine months rose 7.2 percent to $2.39 billion as sales gained 1.9 percent to $31.6 billion.

Export Markets

International contracts will help sustain the business, CEO Stevens and analysts said. Lockheed got $6.3 billion of sales overseas last year, or 15 percent of its $41.9 billion total.

There is “great interest” from allies in both the F-35 and the C-130J, while there is “significant discussion” about possible sales of the Littoral Combat Ship, Stevens said. Lockheed said Nov. 16 that allies including Saudi Arabia and Israel may buy 16 of the ships designed for coastal waters.

Export markets are a “very important” opportunity for Lockheed, said Heidi Wood, a New York-based analyst with Morgan Stanley. She rates Lockheed’s shares “overweight.”

“They have a lot of opportunities outside the U.S. in the next few years, and Littoral Combat Ship is part of that,” Wood said. “It’s a nice book of business opportunities.”

Obama Administration

Profit margins on international sales are generally higher than those to the Pentagon because development costs usually have already been paid and prices may be higher than to the U.S. military, Oppenheimer’s Walton said. Even so, continued margin expansion may not be easy because some of Lockheed’s mature aircraft programs like the F-16 and F-22 are winding down and may offset improvements from foreign sales, he said.

This month’s election of Obama, a senator from Illinois, as U.S. president and the expansion of the Democratic Party’s majority in Congress doesn’t put spending on the company’s weapon systems at any greater risk of being cut back, Stevens said. And while affected by the “great turbulence” in global financial markets, Lockheed is in part insulated because “the global security environment remains complicated,” the CEO said.

“There has been every indication and suggestion that there will be lots of support for issues revolving around national security,” Stevens said. “As we transition to a Democratic administration, we can take a look back two years at the Congress that has been led by Democrats and note they have had very strong support for national security programs. We’ve seen it in the funding and we’ve seen it in our programs.”

One decision the Obama administration will have to make is whether to buy more of Lockheed’s F-22 Raptor stealth fighters when the current planned purchase of 183 jets is complete, or let the production lines shut down.

Stevens said he is “hopeful the program will get full consideration” from the Obama administration.

To contact the reporter on this story: Edmond Lococo in Boston at elococo@bloomberg.net.

Last Updated: November 21, 2008 16:24 EST