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Updated from 8:18 a.m. EST

Struggling defense and aerospace giant

Raytheon

(RTN.B)

said Tuesday it expected problems with one international project at its

Raytheon Engineers & Constructors

unit to negatively impact first-quarter 2000 earnings, although it still expects to meet Wall Street's expectations.

The Lexington, Mass.-based company also said it was currently in talks regarding the potential sale, joint venture or spinoff of the RE&C unit.

"The engineering and construction business is not central to Raytheon's strategy," Daniel Burnham, Raytheon's chairman and chief executive, said in a statement. "A sale, joint venture or spinoff of RE&C is in the best interests of Raytheon shareholders and RE&C."

Raytheon's class B shares were off 1/4, or 1%, at 20 7/16 in morning trading, at the low end of a 52-week range of between 17 1/2 and 76 9/16. (Raytheon closed down 1/16, or 0.3%, at 20 5/8).

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As of first-quarter 2000, Raytheon will not report RE&C's results as part of continuing operations.

Raytheon said it expects to post a loss of 15 to 20 cents per diluted share stemming from RE&C's operations. The company added, however, that it expects earnings of 23 to 27 cents per diluted share for the first quarter.

Wall Street has estimated earnings per share of 24 cents a share, according to a survey of 12 brokers conducted by

First Call/Thomson Financial

.

Joseph Nadol, an analyst at

Donaldson Lufkin & Jenrette

, applauded Raytheon's decision to divest itself of its RE&C unit, but noted that this measure would not address all of the company's problems.

"This has been a consistently poor performer and a divestiture would allow management to focus on defense," said Nadol, who rates the company a market performance, the equivalent of a hold. "But RE&C is only 10% of the overall corporation and I think the biggest thing a divestiture would do is increase the reliability of earnings."

Nadol noted that Raytheon has been suffering from lower-than-expected margins for some time, adding that the company's announcement regarding RE&C failed to address the larger issues, including revenue shortfalls and production delays.

The company said it also expects net debt for the first quarter to increase approximately $500 million, a smaller increase than previously planned and better than analysts' expectations.