There’s no business like the arms business — here’s how defense giants are doing
SUMMARY
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
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
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
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
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.
