Defense firms thrive despite downturn

As an indication that large defense contractors are performing well despite the economic downturn, Raytheon Co. and L-3 Communications Holdings Inc. announced strong quarterly results this week, reports the Wall Street Journal.

The two companies provide the Defense Department with advanced military and networking technologies, as well as services such as training. For both companies, international contracts are increasingly important.

Raytheon reported a third-quarter net income of $427 million, or $1.01 a share, up from $299 million, or 68 cents a share, a year earlier. Revenue reached $5.86 billion, up 12 percent. The Waltham, Mass., company also raised its financial guidance for 2008 and it expects stronger profits and sales next year.

Raytheon Chief Executive and Chairman Bill Swanson told analysts during a conference call that he is optimistic that U.S. defense spending will hold up in the face of the current economic crisis.

"A lot of people want to predict doom and gloom. I don't see it from that standpoint," he said.

Demand for the company's surface-to-air missiles and radar systems is strong among overseas buyers, and the company's work on a border technology system for the United Kingdom is promising, Swanson said.

L-3's third-quarter net income rose to $212 million, or $1.73 a share, above the $199 million, or $1.56 a share, reported a year earlier. Revenue rose 6.2 percent to $3.66 billion. The New York company also raised its profit outlook for 2008.

L-3 Chairman and Chief Executive Michael Strianese said during a conference call that the company's technologies address growing military needs for features such as providing soldiers with streaming battlefield video images.

Executives said services work in Iraq and Afghanistan should remain steady. L-3 gets about $250 million a year from Afghanistan contracts, including significant work for the Afghan government there. In Iraq, L-3 expects about $1.4 billion in revenue this year, though that will decline next year because the company lost a lead position on a translator contract.

With stocks declining, both companies are planning for higher pension expenses.

Raytheon ranks No. 4; and L-3 ranks No. 8 on Washington Technology's 2008 Top 100 list of the largest federal government prime contractors.

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