Defense Earnings Start Coming In With Mixed Results

Last Updated Jan 28, 2010 6:03 AM EST

Boeing (BA), General Dynamics (GD) and United Technologies (UTC) reported their earnings this week. They represent three large, diverse defense contractors as well as in Boeing's case being heavily involved in the civil aerospace market. All three companies reported decent earnings with Boeing and United Technologies beating analysts estimates.

United Technologies saw a decline in profit in the fourth quarter but did come in at a penny over estimates. The company reconfirmed their confidence in their 2010 results something that they had done late last year which made them differ from a lot of defense contractors who were expecting poor 2009 and 2010 results. UTC has worked hard to reduce costs and expects earnings per share to increase over seven percent in 2010. This better performance will be helped by the acquisition of General Electric's (GE) Security business which will be rolled into UTC Fire & Security business unit.

Boeing reported earnings twenty-nine percent higher then analysts' estimates. The aerospace company said that earnings reached $1.75 a share with revenues of almost $18 billion. The issue facing Boeing is future earnings. With the restructuring of the defense budget which saw some major Boeing program's cut such as the F-22 and Future Combat Systems (FCS) as well as problems with the 787 airliner Boeing played in close to the vest and estimated 2010 earnings at $3.70 to $4.00 a share. This is quite below the analysts estimate of $4.26. If things break their way with the KC-X re-compete and some overseas contracts Boeing could easily recover and have higher earnings.

General Dynamics on the other hand saw fourth quarter earnings increase $2 million from the same quarter a year ago. Revenue was up $50 million for the same period. Strong gains in their marine and combat systems sector were offset by a twenty-two percent decline in aerospace division sales. The company continues to show weakness in sales of their Gulfstream executive jet. This market has been hard hit by the world wide depression and will take some time to recover. In 2010 the company expects earnings to be twenty to thirty cents higher per share then 2009's $6.20. This would place it below analysts' estimates.

The defense business is in some flux right now. The 2011 budget released next week is not supposed to be as bad as thought with some growth in certain parts. The Obama Administration has not been able to reduce commitments in Iraq and Afghanistan as fast as they had hoped also requiring more investment. If the budget stays up revenue and profit will as well. If it does start to fall there will be a winnowing out of the defense industry with more Mergers and Acquisitions (M&A) and some companies getting out of the market. These earnings report seem to indicate though that at least for the next twelve months performance will be flat to slightly higher.

  • Matthew Potter

    Matthew Potter is a resident of Huntsville, Ala., where he works supporting U.S. Army aviation programs. After serving in the U.S. Navy, he began work as a defense contractor in Washington D.C. specializing in program management and budget development and execution. In the last 15 years Matthew has worked for several companies, large and small, involved in all aspects of government contracting and procurement. He holds two degrees in history as well as studying at the Defense Acquisition University. He has written for Seeking Alpha and at his own website, DefenseProcurementNews.com.