Aerospace & Defense Sector Demonstrates Continued Growth


Some of the leading corporations in the aerospace and defense market published their fourth quarter and annual reports for 2007, indicating continued growth and prosperity for this market segment, which is considered to be ‘inflation proof’. Lockheed Martin reported net earning of $3 billion for 2007, Northrop Grumman earned $1.8 billion, and General Dynamics reported over $2 billion profit. In contrast to the higher yields, declined profits were reported by two of United technologies’ aerospace and defense operations – engine maker P&W and Sikorsky.

Lockheed Martin

Lockheed Martin (NYSE:LMT) reported net earning of $3 billion for 2007, up 20% from 2006. In the fourth quarter the company earned $799 million, 9.6% over the fourth quarter of 2006. Lockheed Martin’s revenues totaled $41.9 billion for 2007, representing a 6% increase over 2006. The largest segment was aeronautics, contributing $12.3 billion to the annual revenues (flat growth, 12.0% operating margin) Electronic Systems contributed $11.14 billion to the sales, (up 6%) and 12.6% operating margin.

Sales of Lockheed Martin’s Aeronautics business declined by 11% in the fourth quarter, but overall increased by 1% for the entire year. Lower production volume of F-16 aircraft, and F-35s as well as C-130 was attributed for the Q4 drop. Throughout the year, lower production activities were compensated by an increase in sustainment services activities, dictated by continued higher operational tempo of U.S. Air Force aircraft. Overall, the volume increases on the F-22 program was sufficient to offset the decline on the F-16 and C-130 programs. profitability of this segment increased in 2007, primarily on combat aircraft, but decreased in C-130 support.

The Electronic Systems segment increased by 6% during 2007, particularly in fire control systems and air defense programs while sales of tactical missiles decreased, compared to 2006. Undersea and radar systems activities generated higher sales while surface systems dropped. Platform integration were also higher in 2007.

General Dynamics

General Dynamics (NYSE:GD) earned $2.1 Billion in 2007, up 23% from 2006. The company reported total revenues for the whole year was $27.2 Billion, up 12% from 2006. Fourth quarter earnings and revenues were roughly proportional to the full year’s results. By year’s end the company’s backlog stands at $46.8 Billion. “Given our strong performance in 2007, the record backlog and strong support for our programs, we expect 2008 earnings to be in the range of $5.55 to $5.65 per share, fully diluted,” said General Dynamics Chairman and Chief Executive Officer Nicholas D. Chabraja.

GD’s Combat Systems segment represented the biggest growth in earnings and profit in 2007, up 30% from 2006, sustaining about 11% operating margin. Aerospace segment trailed in second place, with 17% growth but higher operating margin (16.8%).

Northrop grumman

Northrop Grumman’s earnings for 2007 were $1.8 billion up from $1.6 billion in 2006 representing 12.5% growth in the 2006-2007 period. For 2007, sales increased 6% to $32 billion from $30.1 billion in 2006. The company’s backlog increased by $3 billion to $64 billion positioning Northrop Grumman in a good opening position for 2008.

All divisions demonstrated healthy growth. Information & Services segment increased sales by 11% through 2007 but profitability dropped compared to 2006, with operating margin dropping by 0.6% to 8.1% of sales, reflecting higher costs. Mission Systems operations increased 8% in 2007 while maintaining 2006 operating margin levels (9.5%). This growth reflected higher volume for C4 and missile defense programs, and the acquisition of the Essex Corporation. The report indicated that the operating margin in 2007 was attributed mainly to higher volumes.

Information Technology sales rose $524 million (13%) largely due to higher sales for commercial, defense and intelligence programs. The operating margin of this segment also declined from 8.3% in 2006 to 6.8%, ($13 million), primarily due to a business mix that included higher volume of lower-margin deals.

Aerospace sales for 2007 declined $223 million (3%) from 2006, due lower sales of the integrated systems operation, partly offset by higher sales of space technology. Declining sales were attributed to lower volumes related to programs transitioning to production including E-2D and EA-18G, and the F-35 program (which suffered delays since thMay 2007). Reduction was also experienced in the E-10A and related MP-RTIP systems. However, increased support for B-2, F/A-18 and the Global hawk helped balancing the picture.

revenues from black programs, sales of land forces equipment, electro-optical targeting pods and infrared countermeasures and ISR systems contributed to an increased of 6% in sales of the Electronics segment in 2007. Operating margin increased $32 million, and as a percent of sale was 11.8%, up 0.3% from 2006.

Sales of Northrop Grumman’s shipbuilding operations rose $467 million or 9% from 2006, the increase reflects new orders for landing assault ships (LPD, LHD and LHA) aircraft carrier construction and modernization and submarines programs. The profitability of the shipbuilding operations increased substantially from 2006, increasing operating margin to $145 million (37%) or 9.3% of sales (compared to 7.4% in 2006). Although this achievement reflects substantial performance improvements, it also accounts for insurance recovery related to Hurricane Katrina and pretax gains resulting from reorganization activities.

United technologies

United Technologies Corp. (NYSE:UTX) reported a powerful close top 2007, and its expectations for 2008 are also solid. Engine maker Pratt & Whitney increased revenues 9% reporting $12.129 billion in 2007. Sikorsky reported 47% growth in revenue, from $3.23 billion to $4.78 billion in 2007. However, both divisions reported lower consolidated profit margins in 2007 – PW’s consolidated profits were 22% below 2006’s, mostly attributed to the fourth quarter and Sikorsky reports a $3 million loss for 2007. the reports didn’t provide explanations for this data. In the 4th quarter of 2007 Sikorsky signed a five-year, $7.4 billion contract with the Pentagon, for the supply of 537 H-60 type helicopters for U.S. military services. The contract has options for 263 more helicopters, which could add $4.2 billion to Sikorsky’s cashflow.