Bloomberg News

BAE Systems Sees U.S Budget Difficulties Disrupting Sales

October 12, 2011

(Updates with analyst comment in fourth paragraph.)

Oct. 12 (Bloomberg) -- BAE Systems Plc, Europe’s largest defense company, said uncertainty about U.S. budgets may disrupt sales in the short term.

There will be near-term delays to sales as the U.S. administration “again operates federal budgets under a Continuing Resolution,” the London-based company predicted in a statement today.

The company is reviewing operations globally as U.S. and European governments seek to reduce spending. BAE said Sept. 27 it would cut about 3,000 jobs across sites in the U.K. to trim costs and slow production of Eurofighter planes. Defense companies including Raytheon Co., the world’s largest missile maker, have seen defense programs put on hold this year because of U.S. budget delays.

“Delays to the tendering of contracts continue and we would expect further disruption in 2012 if the budget is not signed off before the U.S. election campaign kicks off,” John Middleton, an analyst at JPMorgan Cazenove, wrote in a note today. He has a “neutral” recommendation on the stock.

In the U.S., SAIC Inc. is protesting a $450 million contract for the technology development phase of the U.S. Army’s Ground Combat Vehicle program, which BAE won with Northrop Grumman Corp, according to the statement. BAE’s contract for about $850 million to manage the Radford Army Ammunition Plant is also under protest.

Trading from July 1 to Oct 11 was in line with forecasts and full-year underlying earnings per share will be “broadly similar” to 2010’s result, BAE reiterated in the statement.

BAE shares fell 0.3 percent to 280.4 pence at 10:26 a.m. in London trading, giving the company a market value of 9.3 billion pounds ($14.6 billion).

Hurricane damage to BAE’s Johnson City electronics facility may result in some sales being deferred to 2012, the company said. This isn’t expected to materially affect this year’s earnings, it added.

--Editors: Robert Valpuesta, Benedikt Kammel.

To contact the reporter on this story: Sabine Pirone in London at spirone@bloomberg.net.

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net


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