Defense contractors report sales boosts

By Marjorie Censer / January 25, 2018

Some of the largest defense contractors today said they saw sales increases in 2017.

Raytheon reported sales for the year of $25.3 billion, up about 5 percent from 2016. However, the company's profit in 2017 reached $2 billion, down from $2.2 billion the prior year.

Raytheon was bolstered by its missile systems business, which recorded 10 percent increases in both sales and profit in 2017. The contractor attributed the revenue boost to increased sales of its Paveway, Standard Missile-3 and SM-2 programs.

Tom Kennedy, Raytheon's chief executive, told analysts this morning the company continued to see increased international sales; international work made up 32 percent of sales for the year.

"We are encouraged by the broad-based demand we are seeing," he told analysts.

Forcepoint, Raytheon's cybersecurity business, reported an increase in sales in 2017. Revenue totaled $608 million, up 4 percent from 2016.

However, the unit's profit declined to $33 million, down from $90 million the previous year.

The contractor attributed the decline to increased sales and marketing costs.

Kennedy said today Raytheon has made changes to Forcepoint's back office and its sales force as the business seeks to move from selling to small- and medium-size organizations to working with large and very large enterprises.

"We really looked at 2017 as a rebuilding year for Forcepoint and essentially structuring it as the $600-million-a-year business that it is," he said.

Meanwhile, Northrop Grumman said today sales in 2017 reached $25.8 billion, up 5 percent from 2016. The contractor reported profit for the year of $2 billion, down from $2.2 billion the prior year.

Northrop's aerospace systems business saw the greatest sales boost in 2017. The unit reported sales for the year of nearly $12 billion, up 10 percent from the prior year. The business' profit rose 2 percent.

Wes Bush, Northrop's chief executive, said during a call with analysts today the company is making several changes in the wake of the new tax legislation.

First, he said, "it's important that our employees receive an economic benefit from this legislation."

This year, the company will make an additional contribution of up to $1,000 -- if the company performs well -- to each employee's retirement account, Bush said. Additionally, Northrop is increasing its spending on capital investments and is moving forward with an off-cycle dividend increase.

Also today, L3 Technologies reported sales in 2017 reached $9.6 billion, up 4 percent from the prior year. The contractor announced profit for the year of $677 million, down from $710 million in 2016.

Chris Kubasik, L3's chief executive since the start of the year, told analysts today the company is seeking continuous improvement.

"This is a company with a lot of potential and a lot of work to be done," he said. "I believe . . . we can be doing better across the board."

He particularly said he's "not happy with where we are" in the company's aerospace unit, which recorded a 6 percent decline in sales and an 18 percent decrease in profit in 2017.

Kubasik said the company is watching several key bids, including for P-8 depot work and the C-130 avionics modernization program. Of the C-130 effort, he said the program is "in our sweet spot."

"The proposal is in," Kubasik added. "We'll know more in the fourth quarter."

He noted the company has begun the process to sell Vertex and has seen significant interest. L3 remains "on schedule to sell Vertex by the middle of this year," Kubasik added.

He said he has another "couple hundred million [dollars] of revenue" that he's watching for potential divestiture.

"But my general goal is either to fix the businesses or increase the investments to try to align to where I think there's growth opportunities," Kubasik said. "Right now, I think it's all about Vertex."

Oshkosh said today sales in its defense segment during its most recent quarter reached nearly $494 million, up almost 68 percent from the same three-month period the prior year.

"The increase in sales was due to the ramp up of sales to the U.S. government under the Joint Light Tactical Vehicle (JLTV) program and international Mine Resistant Ambush Protected-All Terrain Vehicle (M-ATV) sales," the company said.

Quarterly profit reached $65 million, up about 174 percent from a year earlier.