Sales at Northrop Grumman, General Dynamics and Boeing climbed in the three months through June as the defense contractors benefited from higher military spending in the U.S. and avoided fallout from President Trump’s trade war.
Revenue at planemaker Boeing’s defense business rose 9 percent to $5.59 billion in the second quarter, the Chicago-based company said Wednesday.
Sales climbed 10 percent to $7.1 billion at Northrop Grumman, the weapons-systems maker that recently purchased Orbital ATK, and widened almost 20 percent to $9.2 billion at shipbuilder General Dynamics. Both firms are based in Falls Church, Va.
General Dynamics, which made itself one of the government’s largest information technology contractors with the $9.6 billion takeover of cybersecurity specialist CSRA this year, “accomplished a number of key strategic objectives,” Chief Executive Officer Phebe N. Novakovic said in a statement. “Our combat and marine segments continue to have reliable growth with strong operating performance.”
Boeing’s defense unit, meanwhile, “finalized the production contract for 28 F/A-18 Super Hornets for Kuwait,” completed production of the 100th P-8 Poseidon anti-submarine aircraft, and conducted two successful tests for the U.S. Air Force’s Minuteman III missile, CEO Dennis Muilenburg said in a statement.
The revenue gains at three of the largest U.S. defense contractors mirror expansion of 6.6 percent at Lockheed Martin, maker of the F-35 Joint Strike Fighter, which reported sales of $13.3 billion a day earlier.
The Defense Department’s investments in new equipment climbed 16 percent from a year earlier in the three months through June, while operational spending rose 5 percent, said Roman Schweizer, an analyst with Cowen Washington Research Group, which tracks federal policy. The growth may continue into next year, he said, as higher congressional appropriations buoy military budgets.
A two-year agreement ratified by Congress in March raised the cap for defense spending to $700 billion for fiscal 2018, which ends Sept. 30, and to $716 billion for 2019.
Lawmakers are still determining actual appropriations for the coming year and lower limits will return in 2020, unless Congress suspends them. The industry has also warned that Trump’s escalating tariffs, some of them on U.S. allies like Canada, Europe and Mexico, may hurt equipment sales overseas, but that hasn’t happened yet.
Since the federal budget year began in October, the Defense Security Cooperation Agency, which oversees sales of Defense Department equipment as well as products from major contractors to U.S. partners, has notified Congress of $62 billion in possible sales to countries from Bahrain to Germany and Canada.
Some $47 billion in deals have been completed, according to Cowen’s Schweizer, up from $42 billion in the same period of the 2017 budget year.
“We remain concerned that trade/tariffs could impact U.S. foreign sales and industrial partnerships in the future, although we admit there has not been any obvious retaliation yet,” he said in a report. “We see Canada and Germany, both with large potential U.S. purchases possible, as near-term test cases.”
General Dynamics rose 1.8 percent to $200.26 in New York trading on Wednesday. Boeing, whose operating margin in defense shrank amid higher costs for the KC-46 air tanker, tumbled 2.8 percent to $348.11 and Northrop Grumman slid 5.1 percent to $299.97.
