Oct. 24 (Bloomberg) -- Raytheon Co. said third-quarter profit fell 2.8 percent amid U.S. budget cuts, while the world’s largest missile maker raised its full-year earnings forecast on gains in international sales.
Overseas sales are a “major growth area,” Dave Wajsgras, Raytheon’s chief financial officer, said in an interview today. They make up about 30 percent of the contractor’s sales and an estimated 40 percent of its backlog, he said.
“Over time, we see our international business growing in a meaningful way,” Wajsgras said.
Raytheon, the federal government’s No. 4 contractor, today reported net income of $487 million, or $1.51 a share, in the quarter, compared with $501 million, also $1.51 a share, during the same period a year earlier. The earnings beat the $1.33-a-share average estimate of 16 analysts surveyed by Bloomberg.
The company fell less than 1 percent to close at $78.08 in New York and has increased 36 percent this year.
Raytheon raised its full-year profit outlook to $5.67 to $5.77 a share, up from $5.51 to $5.61 projected in July. It said the latest forecast incorporated the effects of automatic federal budget cuts called sequestration and of the 16-day partial government shutdown this month.
Raytheon also increased its sales projection to $23.6 billion to $23.8 billion from $23.5 billion to $23.7 billion.
Third-quarter sales declined 3.4 percent to $5.84 billion, the Waltham, Massachusetts-based company said in a statement. Raytheon’s backlog was $32.2 billion at the end of the quarter, down from $35 billion in the year-earlier period.
Raytheon has been cutting costs, in part by reducing its workforce by about 10 percent since 2010 and by consolidating six divisions into four.
“The environment is challenging across the board from a defense industry standpoint,” Wajsgras said in the interview. “With that being said, we have been preparing for this type of situation for a number of years.”
Two of the company’s major military awards are being protested by competitors.
Lockheed Martin Corp. filed a challenge to the U.S. Government Accountability Office, which arbitrates such disputes, over an air and missile defense radar award to Raytheon that may be valued at as much as $1.6 billion. BAE Systems Plc has protested the award of a radar-jamming system with a potential value of about $7 billion.
Such challenges seem “to be the new normal,” Bill Swanson, the company’s chairman and chief executive officer, said on a conference call with investors.
Raytheon was the last of the top five federal contractors to report third-quarter earnings this week. Some of the biggest U.S. defense contractors, led by Lockheed and Northrop Grumman Corp., reported little harm to their profits despite sequestration and the shutdown.
The companies had prepared for reduced defense spending with the end of the Iraq war and the continuing withdrawal of U.S. troops from Afghanistan, and they have continued to cut costs.
Lockheed, the No. 1 contractor, said it cut 600 workers last week from its Mission Systems and Training unit. The company raised its full-year forecast as its third-quarter profit rose 16 percent.
Commercial business has helped soften the effects of defense cuts.
Boeing Co., the second-biggest contractor, beat analysts’ profit estimates as airlines bought more fuel-efficient commercial planes. General Dynamics Corp., which ranks third among government suppliers, helped offset declines in military revenue by increased sales of its Gulfstream business jets.
No. 6 contractor United Technologies Corp. reduced its full-year sales forecast as it blamed Pentagon spending cuts for the decline.
Raytheon’s sales fell in all four of the company’s segments, with the biggest drop in the Space and Airborne Systems unit. The division’s revenue declined 7 percent to $1.56 billion in the quarter from the year-earlier period, with lower volumes of classified work and in intelligence, surveillance and reconnaissance systems programs.
‘Circle of Hell’
The Missile Systems unit’s sales decreased 3 percent to $1.64 billion, mostly driven by lower revenue in U.S. Army sensor programs. Operating income plunged 13 percent, which the company said was “primarily due to a change in contract mix.”
The Defense Department must cut about $50 billion from its planned spending in the year that began Oct. 1 under sequestration. The temporary spending bill enacted to reopen the U.S. government expires in January.
“It’s entirely possible that we find ourselves an extended period of time trapped in Dante’s first circle of hell,” Phebe Novakovic, chief executive officer of Falls Church, Virginia-based General Dynamics, said yesterday.
“So I think all of that suggests that we need prudence and caution as we move into the rest of the year and the beginning of next year until we can get a more stable plan from the government with respect to both the debt ceiling and funding,” she said on a conference call with investors.
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