Saab Says Margins to Fall Amid Shrinking Defense Markets

Saab AB, the Swedish maker of Gripen fighter jets, cut its profitability forecast for 2013 as shrinking defense markets prevent sales growth.

Revenue this year will about match the figure for 2012 while earnings before interest and taxes and excluding one-time items are projected to decline to about 6.6 percent of sales, Chief Executive Officer Hakan Buskhe said in an interview today. The company previously expected sales to grow “slightly,” with the margin about equal to last year’s 7.7 percent.

Sustained U.S. government disputes over military spending has held back sales growth for defense contractors such as Lockheed Martin Corp. and BAE Systems Plc, Europe’s largest, forcing companies to pursue cost cuts. Questions over the budget have also slowed decision making on new programs.

“We had anticipated that the budget uncertainty in the U.S. should be solved in the first four months,” Buskhe said. “Now we can see that it may go on for some more years.” In 2012, “we grew our U.S. business around 6 percent to 8 percent, and there is no reason over time that is not coming back.”

Saab fell as much as 9.2 percent to 125.7 kronor, the biggest intraday drop since February 2012, and was trading down 7.6 percent at 9:18 a.m. in Stockholm. That propelled the stock to a 5.3 percent decline this year.

Second-quarter sales totaled 5.89 billion kronor ($898 million), the company said today in a statement. Revenue missed the 6.26 billion-krona average of six analyst estimates compiled by Bloomberg. Ebit fell to 149 million kronor from 730 million kronor a year earlier, while net income plunged to 2 million kronor from 572 million kronor because of a charge this year and a gain in the 2012 period that inflated earnings.

Electronics Hurt

The defense-electronics and missile-making Dynamics units were particularly hurt by the slowdown, Buskhe said. Sales increased at the aeronautics unit that’s in charge of the Gripen fighter and makes parts for commercial planes such as Airbus SAS jets, he said.

Saab has implemented a range of restructuring measures to boost profitability, including ending the sale of some products, to adjust to the more austere sales environment. Those should deliver 500 million kronor in earnings improvements in coming years, it said.

The company also is turning to other countries to help offset the effects of a stagnant U.S. market with a presence in 32 markets worldwide, Buskhe said.

“We have been able to compensate for the problems we have had in U.S sales in South America, in the Nordic countries and also in Asia,” he said. Even so, in the second quarter those markets weren’t sufficient to counterbalance the North American dip.

Buskhe said the company is continuing in efforts to sell the Gripen fighter, used by air forces from Sweden to Thailand, to new customers. A further sale this year is “not unlikely,” he said.

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