July 23 (Bloomberg) -- Lockheed Martin Corp., the world’s largest defense contractor, raised its full-year profit forecast as U.S. budget cuts ended up hurting less than executives had predicted.
The across-the-board reductions known as sequestration probably won’t slice revenue by the $825 million anticipated in April, said Bruce Tanner, the company’s chief financial officer. Programs such as the F-35 jet, the Pentagon’s most expensive weapons system, so far have survived the cuts and helped Lockheed boost profit in the second quarter.
“It’s somewhat hard for us to imagine that the full impact will be realized relative to the $825 million number,” Tanner said today on a conference call with reporters after the company reported earnings. “It’s not affecting us as deeply as we thought it would at the start of the year, when sequestration was first implemented.”
Lockheed’s net income from continuing operations jumped 10 percent to $859 million, or $2.64 a share, in the second quarter from $781 million, or $2.38 a share, a year earlier, the company said in a statement. The average estimate of 20 analysts surveyed by Bloomberg was $2.20 a share.
Even amid defense cuts, investors have sent Lockheed’s shares up 28 percent this year. That compares with a 19 percent gain in the Standard & Poor’s 500 Index.
Lockheed rose 2 percent to close at $117.92 in New York, the highest price since Aug. 28, 2008.
The Bethesda, Maryland-based contractor said it anticipates profit this year of $9.20 to $9.50 a share, an increase from its April projection of $8.80 to $9.10 a share. It didn’t change its sales forecast for the year, though revenue in the quarter declined 4.3 percent to $11.4 billion from a year earlier.
“We had strong operational performance and program execution across all business areas this quarter, enabling us to increase 2013 financial guidance,” Marillyn Hewson, Lockheed’s chief executive officer, said in the statement.
Lockheed also has cut its workforce to 116,000, from 146,000 in 2008.
“We’ve been very proactive,” Hewson said today on a conference call with analysts. In the past several years the company has been “getting ahead of the budget cuts by reducing expenses and headcount,” she said.
Defense Department spending on contracts fell 9 percent to $361 billion in the year ended Sept. 30 from the 2008 peak of $397 billion, according to data compiled by Bloomberg.
Second-quarter profit rose at the Lockheed divisions that make missiles and provide training and logistics services, while it fell at the aeronautics unit.
“If one is looking for blemishes, we would note that backlog ticked down again, and the company took another sizable negative profit adjustment on the F-35 development contract,” Joseph Nadol, an analyst at JPMorgan Chase & Co. in New York, wrote today in a note to clients.
Lockheed’s backlog fell 8.7 percent to $75.1 billion, from $82.3 billion at the end of 2012. Tanner said today on the conference call with analysts that he expects the backlog to reach about $80 billion by the end of the year.
Profit from supplying the F-35 rose as production volume increased, according to the company’s statement.
“There still appears to be very strong support for the F-35, and of course that is our largest program,” Hewson said on the conference call with reporters.
The program made up 14 percent of the contractor’s revenue last year, according to a regulatory filing.
It “looks as if F-35 is getting its house in order as the program readies for volume production following a handful of heavy expense years,” Rick Whittington, a New York-based analyst with Drexel Hamilton LLC, said today in an e-mail.
Pentagon officials, calling the fighter a top priority, sought to shelter it from the budget cuts by locking in several contracts before the reductions took effect.
In an interview this month, Frank Kendall, the Defense Department’s undersecretary for acquisition, said he would do his best to protect the fighter jet from additional cuts next year.
“Could we protect it completely? I’m not sure,” Kendall said. “We have to look at all the trade-offs. We may address some of those decisions in the fall, but right now, we are committed to the program. That hasn’t changed.”
The automatic spending reductions were created by President Barack Obama and congressional Republicans as a penalty for failing to agree on a deficit-reduction strategy. They will strip $1.2 trillion from national security and domestic programs over nine years unless an alternative is enacted.
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