Thursday, October 24, 2013
What you call a Win-Win Situation
Life can be good when you have created a nice big tub of butter to settle your ass into and enjoy it. That is what the defense industry has created for itself, at our expense. And it is there for them come rain or shine.
The biggest U.S. defense contractors, led by Lockheed Martin Corp. (LMT) and Northrop (NOC) Grumman Corp., have endured federal budget cuts and a partial government shutdown with little harm so far to their profits.It takes a lot of work to lose money under a defense contract, no matter how badly they may fail.
Lockheed and Northrop were among the leading federal suppliers reporting third-quarter earnings that beat analysts’ estimates even as sales declined. The top five U.S. contractors’ shares have soared this year, with Northrop climbing 56 percent. Its shares rose 4 percent to $105.56 -- the biggest advance since September 2010 -- after the company raised its full-year profit forecast today.
The companies had been preparing for an era of declining defense spending with the end of the Iraq war and the continuing withdrawal of U.S. troops from Afghanistan. They have continued to reduce costs, make their operations more efficient and, in some cases, cut their workforces.
“When everything’s going up, there hasn’t been an incentive for the defense industry to work as a regular business,” said Brian Ruttenbur, an analyst with CRT Capital Group LLC in Stamford, Connecticut. “Now that things are flattening out and going down, there’s an incentive for them to become more efficient.”
No. 1 contractor Lockheed, which furloughed 2,400 employees during the 16-day government shutdown this month, said yesterday that it cut 600 workers last week from its Mission Systems and Training unit. The segment’s sales fell 8.8 percent to $1.7 billion in the third quarter from a year earlier, the company said yesterday.
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