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Bush Spending Proposal Again Lifts Defense Stocks

Lockheed, the latest military supplier to post earnings, tops fourth-quarter estimates.
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Lockheed Martin's

(LMT) - Get Report

big loss in the latest quarter didn't stop investors from bidding up the defense contractor's shares in Friday trading, as continuing optimism about the Bush administration's plan to boost armed forces spending again buoyed the military equipment suppliers.

The company lost $1.5 billion, or $3.49 a share, in the fourth quarter, largely as a result of the decision to exit the telecommunications services business. Lockheed recorded a $1.36 billion charge for the move. In the year-ago period, the company had net income of $89 million, or 21 cents a share.

Excluding certain items and costs, Lockheed earned 49 cents a share, up from 38 cents a year earlier and a penny ahead of analysts' expectations.

"Lockheed's earnings came in pretty much as had been expected," said Paul Nisbet, an analyst at JSA Research, an independent aerospace research firm. "Their guidance had been pretty thorough." On Dec. 7, Lockheed Martin announced plans to discontinue its telecom services industry, which included the sale of certain businesses, and the realignment of other operations and investments.

Lockheed's shares were up 1% to $49.91.

Alliant Techsystems

(ATK)

,

General Dynamics

(GD) - Get Report

,

Northrop Grumman

(NOC) - Get Report

and

Raytheon

TST Recommends

(RTN) - Get Report

were also moving higher.

Defense stocks soared on Thursday after President Bush said he would ask Congress for a total of $48 billion in additional defense spending in 2003. If he gets it, the increase would be the largest since the Reagan administration.

"When the details of the budget come out on Feb. 4, I think you'll see those stocks rise again," Nisbet said. The president will send a complete 2003 budget proposal to Congress on that date.

Since Sept. 11, the day of the terrorist attacks on New York and Washington, Lockheed Martin is up 28.9%. For 2002, Lockheed expects earnings from continuing operations to grow about 10% to $2.45 to $2.50 a share. Revenue should increase by about 7% to between $25 billion and $25.8 billion.

"Our achievements in 2001 reflect an unrelenting focus on customer satisfaction, cash generation and debt reduction," said Vance Coffman, chief executive of Lockheed Martin, in a written statement. One of the company's priorities has been slashing its debt, which it reduced by $2.4 billion in 2001.

Nevertheless, Lockheed faces challenges in the year ahead, particularly in its space systems business. "The company is still having difficulty with a weak market for commercial space," Nisbet said, "which has cost them losses in their satellite and launch businesses."

Net sales in Lockheed's space systems made up $6.8 billion, or approximately 28%, of its total $24 billion in sales in 2001. But they were down 7% for the year. On Thursday,

The Wall Street Journal

reported that Lockheed Martin and

Boeing

(BA) - Get Report

have asked the government for additional funding for their rocket launcher programs.

Lockheed wasn't the only defense supplier reporting quarterly results this week. General Dynamics posted fourth-quarter earnings of $246 million, $1.21 a share, on sales of $3.5 billion. In the same period the prior year, the company earned $219 million, $1.09 a share, on sales of $2.7 billion. For 2002, the company forecast double-digit growth in earnings and revenue.

Elsewhere, Raytheon said its defense business was strong in the latest fourth quarter, with sales up 10% from the year-earlier period, but weakness in the company's commercial aircraft business contributed to a net loss for the three months ended Dec. 31.

The company, which projected solid growth for 2002, posted fourth-quarter sales of $4.6 billion, up from $4.4 billion in the same quarter of fiscal 2000. Earnings from continuing operations totaled $57 million, or 15 cents a share, down from $190 million or 55 cents a year earlier. The latest fourth quarter was hurt by a high tax rate resulting from a charge at the company's Raytheon Aircraft division. Excluding the charge, Raytheon earned 40 cents in the quarter, a penny shy of Wall Street's expecatations. Including all costs and items, the company lost $106 million, or 28 cents a share.

Alliant Techsystems topped estimates by a penny earlier this week, and Northrop Grumman is scheduled to report earnings at the end of the month.