Boeing Co. and Northrop Grumman Corp., the second- and third-biggest U.S. defense contractors, said third-quarter earnings rose as the military boosted spending on equipment to help soldiers communicate and track enemies.
Net income at Boeing, which gets more than half its sales from defense, increased 78 percent from the same quarter a year earlier, which included costs to halt production of a commercial airplane model. Northrop's net income climbed 51 percent.
In the South Bay, Boeing has its satellite division headquartered in El Segundo. Northrop has its Integrated Systems sector based there as well, and its Space Technology unit in Redondo Beach.
Boeing is benefiting from work to develop a $20 billion battlefield communications system. Northrop is winning contracts for space and missile programs, and to improve the technology of surveillance planes used in Iraq and Afghanistan. The top U.S. defense companies are profiting from the military's need for a new generation of ships, fighter jets and communications systems.
"What we don't have a problem with is getting bombs on target and boots on the ground, it's the ability to be able to look at the battle space more real time,'' said Richard Lofgren, a U.S. Navy reserve officer and money manager for Tulsa, Okla.-based Capital Advisors. "That type of stuff is where you are going to see the dollars allocated right now.''
U.S. defense spending in the year that began Oct. 1 will rise about 7 percent to $416 billion, including $25 billion for Iraq and Afghanistan, the seventh straight defense spending increase. Boeing CEO Harry Stonecipher and Northrop CEO Ron Sugar have said they don't expect either candidate for president to reduce total military spending.
"The threat that the nation is going to face in the next four years will confront the commander in chief no matter who he is, what party he is,'' Sugar said Wednesday. "I think you'll see some systems that get favored here and there but, in general, the defense budget is going to track the threat and, unfortunately, I don't see that threat diminishing anytime soon.''
Shares of Chicago-based Boeing rose 12 cents to $50.10 in New York Stock Exchange composite trading. They have climbed 19 percent this year, the second-best performance in the Dow Jones Industrial Average. Shares of Los Angeles-based Northrop rose $1.04 to $51.75, and have climbed 8.3 percent this year.
Boeing's net income rose to $456 million, or 56 cents a share, from $256 million, or 32 cents, a year earlier, the company said. The company raised its full-year forecast.
Profit from Boeing's defense business rose 45 percent to $816 million, as sales rose 13 percent to $8.26 billion. The company is benefiting from lower costs to produce military aircraft such as the F-18 Navy fighter and C-17 Air Force cargo plane, which is built in Long Beach.
The defense business had a 9.9 percent profit margin, compared with 7.7 percent a year earlier. Boeing also benefited from contracts to develop the biggest part of the U.S. missile-defense system.
Revenue from network systems, which includes the $20 billion Future Combat Systems project to create battlefield communications systems for Army vehicles, climbed 39 percent, and operating profit more than doubled.
"The military really needs to modernize and transform. Both (presidential) candidates understand that,'' said Troy Lahr, an analyst at Legg Mason. "It's supported in Congress that the military needs to change. We really think it's a good time to get into the defense industry.''
Boeing's commercial-aircraft sales fell 8 percent to $4.64 billion because of the delivery of less-expensive planes. Profit rose more than four times to $168 million because a year earlier, Boeing had an expense to halt production of its 757 model.
Profit excluding some gains and costs was 44 cents a share, beating the 40-cent average estimate of 20 analysts surveyed by Thomson Financial. Sales beat the $12.5 billion average estimate.
Net income included a 14-cent gain from a tax refund, a 2-cent gain on the sale of the company's commercial loan portfolio to General Electric Co. and an expense of 4 cents a share by the company's aircraft finance unit to repay $1 billion in debt early.
Because of the tax refund, Boeing increased its 2004 net income forecast to $2.40 to $2.60 a share, from $2.25 to $2.45. The analysts estimate profit of $2.43 in 2004 and $2.55 in 2005.
Northrop, the world's largest builder of warships, said net income climbed to $278 million, or 76 cents a share, from $184 million, or 50 cents, a year earlier. Revenue increased 11 percent to $7.41 billion, more than analysts had expected.
Operating profit at Northrop's integrated systems business, which makes the Prowler and other surveillance aircraft such as the E-2 Advanced Hawkeye and E-10A, increased 13 percent to $105 million in the quarter. Sales rose 18 percent to $1.16 billion.
Northrop's ships unit increased profit 16 percent to $96 million. Sales rose 2 percent to $1.56 billion, helped by design work on the Navy's new DD(X) destroyer.
The company narrowed its profit forecasts. It expects 2004 earnings of $2.95 to $3 a share, compared with an earlier forecast of $2.90 to $3. Sales will exceed $29 billion, compared with an earlier forecast of about $29 billion.
The change to this year's forecast reflects a reclassification of some previously discontinued operations back to continuing operations, the company said. Northrop has suspended efforts begun in October 2002 to sell a maker of printed circuit boards, an electronic connector business and a Europe-based marketing group, the statement said.