Oct. 23 (Bloomberg) -- Raytheon Co., the world's largest missile maker, said third-quarter profit rose 12 percent on higher international sales of border-security equipment and Patriot air-defense systems. The company said 2008 profit will be higher than it previously forecast and that earnings next year may exceed analysts' estimates.

Profit from continuing operations beat the estimates, rising to $427 million, or $1.01 a share, from $380 million, or 86 cents, a year earlier, Waltham, Massachusetts-based Raytheon said in a statement today. Sales gained 12 percent to $5.86 billion.

Raytheon is benefiting from higher domestic defense spending and U.S. arms exports that rose 45 percent in the fiscal year ended Sept. 30 to the highest since 1993. Revenue gained at all six Raytheon units in the quarter, led by an 18 percent surge at the intelligence and information group that's installing U.K. border-security equipment.

``Across the numerous divisions of Raytheon, revenues and operating profits beat our expectations,'' Rob Stallard, an analyst with Macquarie Research Equities in New York, wrote in a report today. He rates the shares ``outperform'' and doesn't own any. ``We view Raytheon as a high quality, core defense play, now with an attractive valuation.''

The average of 15 analysts' estimates compiled by Bloomberg was for earnings of 96 cents a share. Analysts projected sales would increase to $5.68 billion, from $5.22 billion.

Stock Buyback

Raytheon today also announced plans to spend as much as $2 billion to buy back company stock. At yesterday's closing share price, that could cover as many as 45 million shares, or about 11 percent of the 421.6 million diluted average shares outstanding in the third quarter.

Raytheon rose $2.69, or 6.1 percent, to $46.84 at 4:15 p.m. in New York Stock Exchange composite trading. The shares have declined 23 percent this year.

Raytheon now forecasts 2008 earnings per share from continuing operations will rise to $3.95 to $4, higher than the previous prediction of $3.80 to $3.95. The revenue projection was increased to a range of $22.9 billion to $23.2 billion, from $22.6 billion to $23.1 billion previously.

The company's 2008 per-share profit is now estimated at $4 on sales of $23.2 billion, according to the Bloomberg survey.

Raytheon also supplied its first detailed forecast for 2009, projecting per-share profit will climb to a range of $4.45 to $4.60. Sales will increase to $24.3 billion to $24.8 billion. The ranges mean Raytheon may exceed analysts' estimates for both sales and profit next year.

The company is now predicted to report per-share profit next year of $4.46 on sales of $24.7 billion, according to the average estimates in the Bloomberg survey.

Pension Gain

The 2009 forecast includes an assumption that Raytheon will have a $77 million gain on its pension plan next year, compared with a $125 million expense this year, the earnings statement said. The pension prediction is based on an expected 15 decline on pension asset investments this year.

That 2009 projection is opposite in direction from forecasts and models from other defense companies released this week that show expenses may rise next year. The Dow Jones Industrial Average has dropped 35 percent this year, and falling stocks mean negative returns for many invested pension plan assets.

Lockheed Martin Corp., the world's largest defense company, on Oct. 21 said it may face a $65 million pension expense next year, compared with a projected $125 million gain this year. Northrop Grumman Corp., the world's largest warship builder, yesterday released a model that suggests it may have an expense of $165 million next year, after a $250 million gain this year.

Pension Models

For all of the companies, next year's pension expense will be determined by the actual return on pension assets this year, and a discount rate. The final performance and discount rates for each company won't be determined until year-end. The discount rate is the estimated interest rate that is used the compute the present value of benefit obligations.

About 20 percent of the company's quarterly sales came from customers outside the U.S. in the quarter, Chief Financial Officer David Wajsgras said in an interview today.

``International continues to be a strong contributor to our top-line growth with respect to air-defense programs in particular,'' Wajsgras said. ``We're continuing to see strong demand globally, and our missiles group continues to perform well.''

Raytheon's overseas orders in the quarter included a $156 contract in July to provide Kuwait with Patriot Configuration-3 radar upgrade kits, and an August order for as much as $412 million to supply Advanced Medium-Range Air-to-Air Missiles, or AMRAAM, to the U.S. and allies that weren't identified.

Raytheon in November sold its Flight Options unit, which had offered partial ownership in private jets, for an undisclosed sum. The business is reported as a discontinued operation for the year-earlier period.

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

Last Updated: October 23, 2008 16:35 EDT