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Defense Contractors Optimistic
Heavy Military Spending Expected to Boost Sales

By Martha McNeil Hamilton
Washington Post Staff Writer
Friday, July 25, 2003; Page E03


Lockheed Martin Corp. reported yesterday that its second-quarter profit fell 29 percent from a year
earlier, but the company raised its earnings forecast for the rest of the year as heavy military spending
boosted sales 23 percent.

Separately, Raytheon Co. said it moved into the black during the quarter, and United Defense Industries
Inc. reported a 32 percent increase in profit. The bottom lines at both companies were driven by strong
sales to the military.

"Basically the story is that things look good and seem to be getting better," said Eric Hugel, an analyst
who follows Lockheed Martin for Stephens Inc. "All the defense companies have a pretty strong wind at
their back," he said, noting that the defense budget is set to grow over the next few years much faster
than forecast growth in the economy.

Bethesda-based Lockheed Martin, the nation's largest military contractor, reported that second-quarter
profit declined to $242 million (54 cents per share), from $339 million (75 cents) a year earlier. The
report included a loss of 6 cents per share from the company's exit from the mail-sorting business. Sales
increased to $7.7 billion from $6.3 billion.

The company raised its annual-earnings forecast to $2.25 to $2.35 per share. The previous forecast was
$2.20 to $2.30 per share.

Missile maker Raytheon Co., based in Lexington, Mass., reported that profit in the second quarter was
$100 million (24 cents), compared with a loss of $136 million (33 cents) in the second quarter of 2002.
Income from continuing operations fell to $186 million (45 cents) from $223 million (54 cents). The
decline included a loss of 14 cents per share from pension expenses and a 3-cent gain resulting from the
sale of an investment.

Raytheon said government and defense sales were up 7 percent. Overall sales for the second quarter were
$4.4 billion, also up 7 percent. The company noted that its first-half government and defense bookings so
far were $3.2 billion higher than in the first half of 2002.

Arlington-based United Defense Industries Inc., which makes the Bradley Fighting Vehicle, reported profit
of $36.1 million (68 cents), up from $27.3 million (52 cents) in the second quarter last year. The
company reported revenue of $553 million, up from $318 million. The company said that the sales growth
was evenly split between its Defense Systems business and U.S. Marine Repair, which it acquired a year
ago.