Large Contractors Report Steady Sales Despite Sequestration
Three large defense contractors reported steady first quarter sales on Wednesday and noted no major changes in their business strategy because of cuts to federal spending due to sequestration.
Unlike Lockheed Martin, which reported its quarterly earnings on Tuesday, Boeing, Northrop Grumman and General Dynamics did not adjust their annual outlooks based on changes to the the federal budget.
“In general, we do not see sequester as a significant threat to ’13. Most of our sales are in our backlog,” General Dynamics Chairman and Chief Executive Officer Phebe Novakovic said during a conference call. According to its latest earnings report, the company has a total backlog of $48.5 billion, along with $25.2 billion in potential contract value for unfunded contracts, and unexercised options.
Last year, some contractors warned government officials that sequestration cuts would force mass layoffs at manufacturing facilities. Executives from BAE Systems Inc. visited Capitol Hill Tuesday to convince lawmakers to restart a production line for the Bradley Fighting Vehicle after sequestration cuts forced the Army to shut it down, Reuters reported.
Lockheed Martin was the first and only large contractor to date to change its 2013 forecast to account for sequestration. In an earnings report released Tuesday, the company said a possible $825 million hit from sequestration could put its expected sales on the “lower end” of its $44.5 to $46 billion 2013 forecast.
Northrop Grumman was more sanguine about sequestration’s impact on its business. In its earnings forecast, the company cited the stopgap-funding bill and a possible fiscal 2014 funding measure as policy items that would “support and fund the company’s programs” in the short term. The company is also assuming no “disruption” from a possible debt ceiling fight this summer, and no contract cancellations.
Similarly, Boeing said the fiscal 2013 continuing resolution bill helped shore up funding for key programs managed by the company, including the V-22 Osprey and the Chinook helicopter.
“We remain cautious regarding the potential for further U.S defense budget reductions, and the mid-to-long term impact of continued sequestration,” Boeing Chairman, President and Chief Executive Officer Jim McNerney said during a conference call.