Government Services Results within Large Defense Players
For those watching earnings season, one thing was apparent – government services divisions within large defense contractors had another challenging quarter and overall fiscal year.
General Dynamics, Lockheed Martin, Raytheon, Northrop Grumman, and L-3 Communications reported FY2011 average year-over-year (“YoY”) revenue declines of 1.6%. GD and Lockheed were the shining stars of the group with YoY growth of 0.6% and 1.8%, respectively.
This group of five companies averaged a 2.6% decline in the revenues of their government services divisions, and a 4.7% decline if technical services divisions are included. Of the group, Raytheon’s Intelligence and Information Systems division was the only government services business that grew YoY, but it also declined in Q4 sales. For the others, their government services divisions represented the largest or next largest declines across all business segments.
Commentary from earnings calls mentioned the following challenges:
- Uncertain budgetary environment and cautious spending by customers
- Program cancellations
- Loss of certain programs and increased competition
- Lower program volume, including reduced funding for existing programs and program completion
- System acquisition cycle taking much longer than normal
As for a more upbeat message, that may not come until 2013. The group anticipates flat or declines in FY2012 in their government services divisions.
Please click the image to view the Year-Over-Year Divisional Revenue Growth (FY2010 to FY2011).
Note: Government services divisions are denoted by the dark blue bars above.
Contributors: Marc Marlin and Laura Hockensmith