BAE Systems Holds on for Good 2011

by: Matthew Potter
February 16, 2012

Category: BAE Systems, Business Line, Companies, development program, IT, Lockheed Martin, logistics, production program | RSS 2.0

BAE Systems (BAE:LSE) the large British defense contractor reported its earnings for 2011. It like many of the U.S. defense contractors was able to report a fairly decent profit on falling revenues. Like Lockheed Martin (LMT) and others the company had focused on reducing costs in a time of reduced orders from the American and British defense establishment.

Sales fell 14 percent to only $30 billion but net profit actually increased to $1.95 billion up $298 million primarily due to the elimination of so many positions in the last year. For 2012 the company is confident that it will increase earnings especially if the Saudi Typhoon fighter deal negotiations is completed.

The company has been adjusting to the changing defense market by focusing less on big hardware sales of aircraft and vehicles and increasing its exposure in intelligence and cyber security. This area now accounts for about 7 percent of the company’s business line.

BAE Systems also has a large American component that will be affected by the U.S. defense plans. They may see work on their core vehicle programs slowed or cut back as the fighting in Iraq and Afghanistan ends and the U.S. plans to invest less in new systems. They are competing for the new Ground Combat Vehicle (GCV) contract and this may see major reductions in planned spending over the next five years. They do, though, make the M2 Bradley the GCV will replace so more money might be spent on that.

BAE Systems and the other large defense contractors will soon be facing a situation similar to the Nineties with U.S. defense spending. At that time the U.K. giant had little exposure to the U.S. but now it is a major contractor. The company is also going through a similar situation in the U.K. but that started last year. Expect little movement in its stock despite recent favorable financials.

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