Raytheon Falls Most Since 2010 as Sales Decline

Raytheon Co. (RTN) fell as much as 5.7 percent, the most since May 2010, after a slowdown in the federal marketplace sapped first-quarter sales.

Raytheon was the last of the top five U.S. government contractors to release quarterly earnings this week, and it had the biggest drop in revenue. Sales declined 6.3 percent to $5.51 billion in the period, with decreases across all four divisions, the company said today in a statement.

Its performance highlighted weakness in the defense industry. The Pentagon represents about two-thirds of federal awards, and it is curbing spending as it withdraws combat troops from Afghanistan and absorbs automatic U.S. budget cuts.

“Defense budgets are flattening,” said Brian Ruttenbur, an analyst with CRT Capital Group LLC in Stamford, Connecticut, which rates Raytheon as fairly valued. “Near-term earnings are going to be totally fine. Longer term, we’re not going to war again. We’re pulling out.”

Raytheon, the fourth-largest federal contractor and the world’s biggest missile maker, fell 4.9 percent to $95.31 at 11:44 a.m. in New York. It earlier declined 5.7 percent, the most since May 6, 2010.

Raytheon had risen 75 percent in trading in the past 12 months, compared with a 19 percent gain in the Standard & Poor’s 500 Index (SPX) during that time.

Overseas Sales

Net income from continuing operations rose 20 percent to $589 million, or $1.87 a share, in the quarter, which included more than $130 million in favorable adjustments led by a one-time tax benefit. That compared with net income of $490 million, or $1.49 a share, a year earlier. The average estimate of 20 analysts surveyed by Bloomberg was $1.77 a share.

The company, based in Waltham, Massachusetts, reaffirmed its profit forecast in January of $6.74 to $6.89 a share on sales of $22.5 billion to $23 billion.

Raytheon is seeking to boost international and cybersecurity sales, Chief Financial Officer Dave Wajsgras said in an interview today. Overseas business accounted for 39 percent of first-quarter bookings, which included a $655 million contract to provide fire units for a Patriot air- and missile-defense system in Kuwait, he said.

Wajsgras said he expected U.S. government business to increase in the second half of the year. “We feel good about the way we will finish out 2014,” he said.

Budget Cuts

Some of the automatic federal spending cuts planned under a process known as sequestration were reduced when President Barack Obama in January signed a $1.1 trillion spending bill to fund the government through Sept. 30.

Tom Kennedy, Raytheon’s chief executive officer, said on a conference call with investors that he was encouraged by the president’s budget request for fiscal 2015.

Earlier this week, Lockheed Martin Corp. (LMT), the largest federal contractor, No. 3 General Dynamics Corp. (GD) and No. 5 Northrop Grumman Corp. (NOC) reported higher profits even as sales declined due to U.S. budget cuts and a slowdown in war spending.

The top contractors have been buying back stock, and most have cut costs and increased dividends to satisfy investors.

In the first quarter, Raytheon spent $200 million to repurchase 2.1 million shares and boosted its dividend 10 percent to $2.42 a share.

“From a big company’s perspective, if you’re a shareholder you’re delighted with what is going on right now,” Linda Hudson, former chief executive officer for the U.S. division of London-based BAE Systems Plc (BA/), said yesterday at a Bloomberg Government event in Arlington, Virginia.

Hudson said the trend isn’t “sustainable over the long haul,” because businesses can only cut costs so much and repurchase so many shares.

Business Jets

Diverse portfolios helped both General Dynamics and Boeing Co. (BA), the second-largest U.S. vendor. Boeing’s profit in the quarter topped analysts’ estimates -- and the strength of its civilian airline business made it the only company among the top five to report an increase in sales.

General Dynamics’s sales dipped 1.1 percent in the quarter, less than the others that reported drops, as a sharper decline was averted due to a 20 percent gain in aerospace revenue driven by Gulfstream business jet deliveries.

To contact the reporter on this story: Jonathan D. Salant in Washington at jsalant@bloomberg.net

To contact the editors responsible for this story: Stephanie Stoughton at sstoughton@bloomberg.net Larry Liebert

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