Quarterly Earning Reports Start

While the proposed changes and reforms to the next defense budget announced by Secretary Gates have obviously not been processed by Congress and actually reflected in a budget law, the major defense contractors are beginning to report on their quarterly earnings.  Some of the program reforms will have an effect on future revenue and earnings if they are included in the budget and this, not their current earnings, will have a long term effect on their stock.

Lockheed Martin reported on Tuesday and did see a decline over the previous quarter and last year’s performance.  Lockheed Martin is set to see the VH-71 Presidential Transport Helicopter program end as well as the F-22 fighter production.  Some of these losses will be made up with the accelerated production of the F-35 Joint Strike Fighter.

Northrop Grumman will also report soon.  They are looking at a restructuring of the Navy’s destroyer program with the ending of DDG-1000 production at three, but a restart of the DDG-51 program.  There might be an opportunity there to gain work.  The big contract that they had, but then lost due to protest, was the KC-X tanker deal with EADS.  There is still a good chance that they could win the re-compete adding tens of billions of work. The consensus among analysts is that Northrop will have a slight increase to its quarterly earnings per share.

Boeing will report today and took the biggest hits from the proposed plans. They lost an opportunity to win the CSAR-X helicopter contract again as Gates’ recommended canceling that program.  Boeing’s award was also lost to protest and the Air Force was in the process of re-competing it.  Boeing will lose major missile defense work as the Airborne Laser (ABL) production was terminated after just the first aircraft.  They are also the prime integrator for the Ground Based Mid-course system that DoD has decided to end installation of interceptors for.  These two contracts without Congressional action may reduce possible earnings over the next few years. Boeing is also having issues with the struggling airline industry reducing buys and grounding aircraft.

The FY10 budget won’t be set until the end of this year. There is still a good chance that many of the new administration’s ideas won’t be adopted by Congress. So the total effect on the big defense companies is not known yet.