Local defense contracting companies’ second-quarter earnings have far exceeded analyst expectations, fueled by war spending and a rebound in the commercial jet sector.
Falls Church-based General Dynamics posted quarterly earnings of $513 million, up 23 percent from the first three months of the year. Revenue also increased to $6.6 billion — an 11 percent increase over the first quarter. Both beat Wall Street expectations.
The company attributed its strong performance to sales increases in its aerospace, combat systems, and information systems and technology business units.
“Sales and operating earnings increased in all four business segments compared [with] the year-ago period, year-to-date cash generation continues to meet our expectations and total backlog grew by almost $1 billion quarter-over-quarter,” company chief executive officer Nicholas Chabraja said in a statement announcing the results.
General Dynamic’s announcement came one day after Bethesda-based Lockheed Martin reported a 34 percent increase in second-quarter income to $778 million, while sales increased nearly 7 percent to $10.7 billion. The company attributed the latter increase to work on the F-22 Raptor and F-35 Lightning fighters.
The results surprised industry experts.
Profits, revenue and sales “had been generally rising faster than the companies were guiding the analysts,” said Paul Nisbet, a defense industry analyst at JSA Research. “The analysts have generally been trying to catch up with the rate of growth of these firms.”
Nisbet expects the defense sector to continue to thrive, even if troops are pulled out of Iraq.
“It’s going to continue [to perform well] for atleast two years,” he said. “It’s widely expected that the administration is going to submit a supplemental for $142 billion for the war on terror” in 2008, Nisbet said. He added that once troops return from Iraq, the Defense Department will have to invest in new equipment to replace used materials, lengthening the defense boom.
A recovering commercial airline sector has also contributed to growth in the defense sector. According to Nisbet and the Spade Defense Index — an index tracking defense companies — orders for new commercial planes and business jets have increased, adding to already-robust profits.
