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Space And Missiles Industry Profits Mixed In Second Quarter, Companies Show

By | July 31, 2006

      The space and missiles industry, including missile defense firms, reported muddied financial results during April through June, compared to those recorded in the three month last year.

      At Lockheed Martin Corp. [LMT], the largest defense contractor in dollars of Pentagon contract awards, net sales for the Space Systems unit soared 29.2 percent to $2.101 billion in the second quarter this year, shading the $1.626 billion showing in the period last year.

      As for operating profit, the Space Systems unit generated $189 million in the three months this year, versus $146 million in the second quarter last year, a 29.4 percent advance.

      For the first half of this year, Lockheed Space Systems recorded $4.070 billion of net sales against $3.188 billion during January through June last year, and operating profit of $382 million in the six months this year eclipsed the $299 million of profits for the unit last year.

      In both the second quarter and entire first half, sales growth for Lockheed Space Systems was due mainly to volume increases in the Satellites and Strategic & Defensive Missile Systems (S&DMS) segments.

      Increases in satellites were due to higher volume on both commercial and government programs, according to Lockheed.

      There were two commercial satellite deliveries in the second quarter of 2006 and three in the first six months of 2006 compared to no deliveries in the first six months of 2005.

      The increases in S&DMS were attributable to both the fleet ballistic missile and missile defense programs, the company reported.

      In launch services, sales remained relatively unchanged for the quarter and six months. Operating profit for the unit increased due to improved performance on the Atlas program in both the second quarter and entire first half, thanks to higher volume and risk reduction activities.

      That included a first quarter definitization of the Evolved Expendable Launch Vehicle launch capabilities contract. The increase in the satellites unit was primarily driven by the increase in commercial satellite deliveries.

      For the entire company, net sales increased to $9.961 billion during April through June this year, versus $9.295 billion a year earlier, a 7.2 percent change. Meanwhile, profits in the quarter this year totaled $580 million, against $461 million last year, a 25.8 percent increase.

      Boeing Space Results

      At The Boeing Co. [BA], the second largest defense contractor by Pentagon contract dollars, the Network & Space Systems unit attained several key milestones and executed six successful space launches, the company reported.

      But revenues in this area declined to $2.947 billion in the second quarter this year from $3.110 billion in the three months last year. That was traceable to divestiture of Rocketdyne and to lower volume in proprietary programs, according to the company.

      This weakening of revenues was offset partially by an increase in revenues from the Army Future Combat Systems, a gigantic program to provide new vehicles, aircraft, and communications networking to link it together. Boeing and Science Applications International Corp. [SAIC.PC] are the lead systems integrator on the program, parceling out contracts to other companies to provide the hardware.

      Correspondingly, the smaller unit, less Rocketdyne, generated $109 million of earnings from operations in the second quarter this year, versus $200 million for the larger unit in the period last year.

      Boeing also moved to put behind it a legal controversy that centered in part on its space programs, where the company was found to have possessed bid-sensitive documents belonging to Lockheed, papers that in part were brought to Boeing by people the company hired.

      The Chicago-based aerospace giant paid a total $615 million to settle issues with the Justice Department concerning the documents, a conflict of interest scandal by an Air Force procurement officer whom Boeing hired, and other matters.

      The Air Force acquisition officer, Darleen Druyun, negotiated taking the job at the same time she negotiated a $23.5 billion deal for the Air Force to lease/buy 100 Boeing KC- 767 aerial refueling tanker aircraft.

      Boeing, however, said it helped to bring the matter to light; fired Druyun and CFO Mike Sears (who had hired her); was unaware she thought the $23.5 billion price too high; and cooperated with authorities.

      Further, Boeing acted again to burnish its reputation when Jim McNerney, Boeing chairman and CEO, said the company wouldn’t take a tax break on the $615 million settlement payment, wishing to let the company put controversies behind it even though that move would cost Boeing money. “Boeing will not claim a tax deduction for this payment,” the company announced.

      For the entire company, Boeing reported a loss of $166 million in the second quarter this year, because of the settlement payment, versus a $566 million net income profit during April through June last year.

      But the overall health of the company was shown in revenues, which didn’t decline. Rather, revenues rose to $14.986 billion in the second quarter this year, from $14.684 billion in the period last year.

      Since McNerney took office a year ago, he has worked to resolve scandals, right the company and set it on a smooth course unmarred by ethics problems.

      Northrop Space Results

      At Northrop Grumman Corp. [NOC], the third largest defense contractor, Aerospace units reported flat results, with sales of $2.262 billion in the second quarter this year, versus $2.266 billion in the period last year.

      Broken down, the Space Technology unit pulled in $865 million of sales in April through June this year, down slightly from $875 million in the period last year.

      The Integrated Systems unit saw $1.397 billion of sales in the quarter this year, versus $1.391 billion in the three months last year.

      According to Northrop, second quarter 2006 Integrated Systems sales increased $6 million due to higher volume on the F/A-18 and F-35 programs, substantially offset by lower volume on the E-2D Advanced Hawkeye, E-2C Multi-year and Joint STARS programs.

      Space Technology sales decreased 1 percent due to lower volume for restricted programs, which was offset partially by higher sales in Satellite Communications programs.

      While sales performance showed no major growth, profitability looked better.

      For the overall aerospace sector, second quarter 2006 operating margin increased 17 percent from the second quarter of 2005, including higher operating margin at both Integrated Systems and Space Technology.

      Integrated Systems operating margin increased 21 percent over the prior year period due to improved program performance. Space Technology operating margin increased 9 percent primarily due to performance improvements in Software Defined Radios.

      Raytheon Space, Missile Results

      At Raytheon Co. [RTN], the fifth-largest contractor, net sales in the Missile Systems unit jumped 11 percent to $1.117 billion in the second quarter this year, from $1.007 billion in the quarter last year.

      Profits performed even better, scoring a 17 percent advance to $122 million in the second quarter this year from $104 million in the three months last year.

      The sales gain in Missile Systems was driven primarily by a ramp-up in the Standard Missile and several development programs. Operating income in 2006 included an award fee resulting from a successful Standard Missile-3 (SM-3) flight test.

      During the quarter, Missile Systems booked $208 million on a major classified contract, Raytheon announced. MS also booked $144 million on Small Diameter Bomb (SDB) II for the Air Force, $107 million for additional development on SM-3 for the Navy, and $101 million for additional development effort on the Exoatmospheric Kill Vehicle (EKV) program.

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