Defense Contractors Have Strong Q1 Amid Trump's Pro-Defense Rhetoric

The saber rattlings from the White House during President Donald Trump’s first 97 days in office have coincided with a boom in defense stocks, a stretch that includes first-quarter earnings exceeding expectations for most of the big contractors.

The exception is Lockheed Martin Corporation LMT, which manufacturers the F-35 fighter jet Trump says costs too much.

But the company said F-35 sales were robust and blamed one-time charges in the first quarter as mere hiccups in some international orders.

Taken together, Trump’s bombing of Syria and Afghanistan and tough talk on North Korea coincided with the best showing in Fidelity® Select Defense & Aerospace Portfolio FSDAX, since roughly the first three months of former President George W. Bush’s inaugural term in 2000.

Shares in the defense index fund rose from $34.81 to $39.66 under Bush, dropped 20 cents from 79.46 under former President Barack Obama, and rose from 130.09 to $139.25 under Trump.

Northrop Grumman Corporation NOC, General Dynamics Corporation GD and United Technologies Corporation UTX all beat expectations in earnings reports issued on Wednesday.

A roundup of the reports:

Northrop Grumman

Northrop Grumman reported first-quarter 2017 sales increased 5 percent to $6.3 billion from $6.0 billion in Q1 2016. Q1 net earnings increased 15 percent to $640 million from $556 million in the year-ago period.

Q1 2017 diluted earnings per share increased 20 percent to $3.63 from $3.03 in the Q1 2016. Share prices held steady and were trading at 271.04, up 9.35 percent for the three-month period.

“First quarter results are a strong start to the year, with solid operational performance from all three of our businesses. We continue to position our company for long-term profitable growth," said Wes Bush, chairman, CEO and president.

General Dynamics

General Dynamics reported first-quarter 2017 earnings Wednesday from continuing operations of $763 million, a 16.7-percent increase over Q1 2016, on revenue of $7.4 billion. Diluted earnings per share from continuing operations were $2.48 compared to $2.08 in the year-ago quarter, a 19.2-percent increase.

Shares were up half a percent at $194.26, up 9.5 percent for the last three months.

"General Dynamics delivered very strong first-quarter operating performance, demonstrated by 13.9-percent operating margins and 10.3-oercent return on sales," said Phebe N. Novakovic, chairman and CEO.

United Technologies

United Technologies reported a 17.8-percent rise in first-quarter profit. Net earnings increased to $1.39 billion, or $1.73 a share, from $1.18 billion, or $1.42 a share, in the same period a year ago.

United Tech's net income attributable to common shareholders rose to $1.39 billion in the first quarter ended March 31, from $1.18 billion a year earlier. The company affirmed its earnings forecast for the full year.

United Technologies was up more than half a percent and trading at a three-month high of $117.56.

Boeing

Boeing reported Wednesday a 19-percent rise in Q1 profit despite declining revenue, and it notched up its forecast for full-year earnings. But shares fell 1.42 percent in early Wednesday trading, though the stock was still trading at about its three-month high at $180.86

The world's biggest plane maker said it had earned $1.45 billion, or $2.34 per share, compared with $1.22 billion, or $1.83 per share, a year earlier.

"With a sharp focus on performance and productivity, our team delivered another quarter of solid financial results, including year-over-year earnings growth and strong operating cash flow," said Boeing Chairman, President and CEO Dennis Muilenburg.

Boeing was awarded a $3.4 billion contract award for 268 Apache attack helicopters.

Lockheed Martin

Lockheed Martin on Tuesday posted weaker-than-expected sales and lower profitability in three of its four divisions, sending its stock down more than 2 percent before it rallied on Wednesday to 270.60, up 6.3 percent for the past three months.

The Pentagon's No. 1 weapons supplier cut its full-year earnings forecast by 10 cents to $12.15 to $12.45 per share, from $12.25 to $12.55. This was the first cut Lockheed has made to earnings per share estimates in seven years.

Operating margins fell and Lockheed executives cited a variety of reasons on Tuesday, including fewer deliveries and "performance matters" on certain international contracts. The company took a total of $114 million, or 39 cents a share, in one-time charges.

Revenue from its aeronautics business increased 8 percent to $4.11 billion, led by higher sales of the F-35 fighter jet. The business accounted for about 37 percent of the company's total revenue in the quarter.

Related link:

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