There’s no business like America’s arms business — here’s how defense giants are doing

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Cpl. Chan Lathung, a native of Oakland, Calif., and a crew chief with Marine Heavy Helicopter Squadron 362, 3rd Marine Aircraft Wing (Forward), scans the surrounding area for insurgent activity during a general support flight over Helmand province, Afghanistan, July 27.
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US Marine Corps photo

Nobody spends money on arms like the US of A.

Starting with a base of $534 billion in discretionary funding, coupled with another $51 billion for Overseas Contingency Operations funding (aka the “war budget”), the Pentagon’s spending power comes to a grand total of $585 billion.

Defense industry giants, Boeing, General Dynamics, Northrop Grumman, and Raytheon posted second-quarter earnings on Wednesday (Lockheed Martin earnings released last week).

Here’s a look at how they did…


Boeing

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Boeing KC-46 Tanker program first test aircraft (EMD1) flies with an aerial refueling boom installed on its fifth flight.
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Boeing

Boeing, the world’s largest plane maker, reported a smaller-than-expected second Q2 loss on Wednesday. The company’s first quarterly net loss in nearly seven years amounted to $234 million.

Boeing’s KC-46 tanker program for the US Air Force is delayed from August 2017 until January 2018 due to test flight problems. Modifications to the aircraft are expected to cost Boeing an additional $393 million (after taxes).

What’s more, Boeing could end production of its most iconic aircraft.

“If we are unable to obtain sufficient orders and/or market, production and other risks cannot be mitigated, we could record additional losses that may be material, and it is reasonably possible that we could decide to end production of the 747,” Boeing said in its filing on Wednesday.

Earlier this year, Boeing won a US Air Force contract worth $25.8 million to start work on the next fleet of Air Force One aircraft.

The aging Air Force One and it’s twin decoy will be replaced with two Boeing 747-8 and are expected to be operational in 2020.

Up to Wednesday’s close of $135.96, the company’s shares had fallen about 6% since the start of the year.

Highlights from Boeing’s quarterly earnings report:

•Operating cash flow of $1.2 billion (with 28.6 million shares repurchased for $3.5 billion)

•Cash flow of $3.2 billion, (down 2% from 2015)

•Core earnings per share loss of $0.44

•Revenue rose 1% to $24.8 billion (from earlier estimate of $24.5 billion)

• Demand still high with more than 5,700 commercial plane orders still in the works

Reuters contributed to this report.


General Dynamics

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The littoral combat ship USS Independence operates off the Hawaiian Islands during exercise RIMPAC 2014.
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General Dynamics

General Dynamics began their earnings conference call on Wednesday highlighting their “very good second quarter.”

The Falls Church, Virginia-based company announced $7.6 billion in Q2 revenue and achieved $758 million in net earnings.

General Dynamics recognized their aerospace unit (with a revenue of $2.13 billion) and maritime division.

At the end of June 2016, the defense giants’ National Steel and Shipbuilding division won a $640 million Pentagon contract to construct a T-AO 205 Class Fleet Replenishment Oiler. The contract could be worth up to $3.16 billion if the Pentagon decides to buy an additional five ships.

In March, the US Navy announced that General Dynamics will be the prime contractor for development of 12 new submarines.

Shares rose less than 1% to $145.09 in the afternoon and since the beginning of this year, the company’s stock has climbed 5.2%.

Highlights from General Dynamics’ quarterly earnings report:

•Revenue fell to $7.67 billion (down by $217 million from the Q2 2015)

•Raised 2016’s full-year earnings forecast to $9.70 per share (from $9.20, analysts’ expect $9.52)

•Profit margins could be as high as 13.8% (up from January 2016 estimate of 13.3%)

Reuters contributed to this report.


Lockheed Martin

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Behold, the F-35.
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Lockheed Martin

While the F-35 Lightning II continues its turbulent march to combat readiness, the jet’s manufacturer posted better than expected quarterly revenue earnings last week.

Lockheed Martin, the Pentagon’s top weapons supplier, also lifted its 2016 revenue and profit forecasts for a second time – despite significant snags in developing America’s most expensive arms program.

Considered a bellwether for the US defense sector, Lockheed Martin’s stock also posted a record high of $261.37 in early trading on July 19. What’s more, the world’s largest defense contractor’s shares were already up approximately 18% this year.

“(The) consensus expectations are finally positive for the F-35 and for improvement in the defense budget, which has led to a higher valuation,” Bernstein analyst Douglas Harned wrote in a note, according to Reuters.

The now nearly $400 billion F-35 weapons program was developed in 2001 to replace the US military’s F-15, F-16, and F-18 aircraft.

Read more about the F-35 »

According to Lockheed Martin, sales in its aeronautics business, the company’s largest, rose 6% in the past three months due to delivery of 14 F-35s.

The company has said it plans to deliver 53 F-35 jets in 2016, up from 45 a year earlier.

Highlights from Lockheed Martin’s quarterly earnings report:

• Net sales rose to $12.91 billion (from $11.64 billion in Q2 2015)

•Net income rose to $1.02 billion (or $3.32 per share), which is up from $929 million (or $2.94 per share) in Q2 2015

•Generated $1.5 billion in cash from operations

•Raised 2016’s profit forecast to $12.15-$12.45 per share (from $11.50-$11.80)

•Raised 2016’s full-year sales of $50.0 billion-$51.5 billion (from earlier estimate of $49.6 billion-$51.1 billion)

Reuters contributed to this report.


Northrop Grumman

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Northrop Grumman/EADS Euro Hawk rollout on October 8, 2009 at Palmdale, CA, USA.
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Northrop Grumman

Northrop Grumman’s earnings report showed sales reaching $6 billion with the company’s aerospace unit seeing a 4% increase in sales due to higher demand for drones and manned aircraft.

“Autonomous Systems sales rose due to higher volume on the Global Hawk and Triton programs, partially offset by lower volume due to the ramp down on the NATO Alliance Ground Surveillance program,” the company said in a statement.

“Manned Aircraft sales rose due to higher restricted volume and higher F-35 deliveries, partially offset by fewer F/A-18 deliveries and lower volume on the B-2 program.”

It should be noted that Lockheed Martin, is the prime contractor for the F-35 Lightning II, however, Northrop Grumman develops the fifth-generation fighter jets’ center fuselage, radar and avionics suite.

Northrop is also a subcontractor to Boeing on the F/A-18 Hornet.

Highlights from Northrop Grumman’s quarterly earnings report:

•Sales increase by 2% to $6 billion (compared to $5.9 billion in Q2 of 2015)

•Earning per share increase by 4% to $2.85

•Earning per share guidance increase to $10.75 to $11.00

•Cash from operations of $604 million


Raytheon

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A Patriot Air and Missile Defense launcher fires an interceptor during a previous test at White Sands Missile Range in New Mexico. The latest configuration of the system, called PDB-8, has passed four flight tests and is now with the U.S. Army for a final evaluation.
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Raytheon

Raytheon, the world’s largest missile manufacturer, announced $6 billion in net sales for Q2 2016, which is up 3% compared to $5.8 billion in the second quarter 2015.

Earnings per share was $2.38 compared to $1.65, this time last year.

“We begin the second half of 2016 with continued confidence in our growth outlook, and we have increased our guidance for earnings and cash flow as a result of our strong year-to-date performance,” CEO and Chairman Thomas A. Kennedy said in a statement.

Highlights from Raytheon’s quarterly earnings report:

•Sales increase by 3% to $6 billion (compared to $5.8 billion in Q2 2015)

•Increase in operating cash flow to $746 million (compared to $376 million in Q2 2015)

•Backlog and funded backlog at the end of the Q2 2016 was $35.3 billion and $26.1 billion, respectively