There is some significance (besides the obvious) in CAT deciding, literally within days, to have two rounds of layoffs to keep themselves afloat.  When I say keep afloat, I don't necessarily mean in an immediate sense (unlike Automobile manufacturers, for example), I'm talking in the long run, because I'm pretty sure that's probably what Cat is looking at right now. 

In the U.S. there are only two major tractor and heavy machinery manufacturers: Caterpillar (18.41B Market Cap.) and Deere & Co. (15.71B Market Cap.), the others with more than 10B in market capitalization in U.S. exchanges (according to MSN Money) are Hitachi (HIT) and Komatsu (KMTUY) in the form of ADR stock.  Being a component in the Dow Jones Industrial Average, Cat is supposed to be an indicator as to the health of the industrial sector (the 'economic backbone' if you will) of the U.S. economy. 

The real question here is: why does this matter?  Well, though Deere is Cat's primary American competitor, they also are somewhat different in what they build.  All heavy machinery isn't created the same... Deere makes equipment for logging, construction, farming, some recreational vehicles, though both companies will offer you financing for your purchases.  Cat mainly specialized in construction equipment, tractors, dump trucks, etc, the kind of stuff that you would need in an economy expanding and building infrastructure.  That hasn't  been the case recently, and also consider the fact that that type of machinery is designed to take a significant amount of punishment ... or it will last a very, very long time with good maintenance.  Most construction companies consider maintenance to be just part of the business, so it's basically a given.  When construction slows down, you don't have to buy as many replacement machines and/or new machines for various operations, which is the crux of Cat's problem. 

A quick look at stock prices reveals that Cat and Deere's stock move almost in sync, which is somewhat expected given their relationship in the U.S. (much like Lowes and Home Depot in the Home Improvment sector).  So it appears that no one has managed to escape the downturn in homebuilding and construction. 

I must admit though, I do have some respect for a company that essentially terminated their unions during the 1990's, now they are not concerned with things such as job banks or severance packages, though I could probably surmise their employee sentiment could be summed up with "if you could read minds, you'd be crying". 

One thing I may consider will be the technical relationship between Cat and Deere and other indices and indicators on the markets, and any trading possibilities therein.  .........................
Nemo liber est qui corpori servit. 
-- Seneca the Younger, Epistoloe Ad Lucilium (XCII)

Well, whether a company escapes the downturn or not isn't really the determinant for the stock price.  What really counts is whether or not investors think that the company is going to escape, because at the first hint of weakness, many macro-players will sell off shares long before the news comes around to support (or deny) the sentiment.


And you're right, there is some significance to the managemen at Catepillar (CAT) making a decree of two rounds of layoffs.  But in the midst of the economic downturn that will be the talk of the town for quite some time to come, I really take the layoffs as a rather standard means of unloading company expenses in light of a financially uncertain time.

2009 "expeced sales" are projected to fall 25%.  This actually sets the tone for Catepillar to actually pull off a surprise to the upside by the end of the year.  This, of course, is completely contingent on economic recovery...particularly in real estate (and not just residential). 

Keep in mind that Catepillar made a good bit of money on construction overseas in the last two years.  With the rest of the world still dealing with the threat of recession, the downgraded 2009 projections may be used to account for the deficit expected overseas. .........................

"A trader is a man who earns what he gets and does not give or take the undeserved. He does not treat men as masters or slaves, but as independent equals. He deals with men by means of a free, voluntary, unforced, uncoerced exchange—an exchange which benefits both parties by their own independent judgment. A trader does not expect to be paid for his defaults, only for his achievements. He does not switch to others the burden of his failures, and he does not mortgage his life into bondage to the failures of others." - Ayn Rand

By Scott Sacknoff for


2009 is shaping up as a year of both challenges and opportunities for the defense sector; although after the stock market downturn in late 2008 the same could probably be said about many sectors.

After narrowly outperforming the S&P500 on a price basis for the 9th consecutive year, the SPADE Defense Index finally diverged from the market in January, and although it ends January down 3%, it is 5.5% ahead of the S&P500.

Whereas the early part of the decade had a clear direction upward fueled by continued defense budget increases and a war in Iraq, the next few months and years present a number of opportunities which are tempered by a number of unknowns.

Budgetary and economic pressure will keep a lid on the base defense budget, which is anticipated to rise from $515 billion to $527 billion, an increase forecast in the FY-09 budget request but which excludes war costs for Iraq and Afghanistan.

What is expected to change is how and where the military spends its money. There is no doubt that there will be increased scrutiny on a number of large programs, with cuts going toward other areas, and that a new philosophy on procurement will take place.

Here is what we know along with some information gathered at last week’s Cowen & Company Aerospace & Defense Investors event in New York. (Kudos to analyst Cai von Rumohr and his team for another excellent event.)

The Budget

Although a top-level figure may come out in March, the Department of Defense and other government agencies will not be submitting budget details until April. This is a typical schedule in years when there is a changeover in presidential administration. Late last year, agency directors were informed to submit only a top-level figure and wait for the new administration before identifying line items.

The Core Budget

Expectation is that the FY10 core budget will arrive with the same top line budget as forecast in the FY09 budget – i.e. a rise from $515 billion to $527 billion. Future years will likely see only 1% to 2% in real growth. Congressional ranting of 10% across-the-board cuts is highly unlikely.

According to analyst Pierre Chao, talk of a proposed $50 billion cut relates to a $60 billion shift of certain items from supplementals to the core budget minus the $50 billion cut equals $10 billion growth. Overall, the opinion for the DoD budget is that the administration does not want to “do anything crazy.”

In looking at the DoD budget, keep in mind that the investment account budget is more important figure is than the top line as this relates to procurement and R&D.

Analysts doubt that Obama would close down weapons production lines in a recession.
The Pentagon now buys more services than hardware.

Supplemental Spending

By summer, the Pentagon plans to increase U.S. forces in Afghanistan by more than one-third in an effort to turn back the Taliban insurgency. This will add $5.5 billion in 2009 war costs.

Defense Secretary Gates informed Congress that the troops need another $69.7 billion in 2009 on top of the $65.9 billion already approved for the year. Secretary Gates reduced this request for 2009 emergency funding from $82 billion. Money would go toward armored vehicles, body armor, operational costs, and supporting allies. Items delayed to future requests include new Navy fighter jets, Army vehicles, and items needed to support a U.S. troop increase in Afghanistan. Of this amount, $53.5 billion is for operational costs (aircraft flying hours, logistics support, pay and benefits, training, etc.), $10.8 billion in force protection, and $3.6 billion for intelligence matters.

The supplemental blueprint eliminated:

    - $1.4 billion for one E/A-18G airplane
    - $1.2 billion Army trucks
    - $3.1 billion Stryker vehicles
    - $300 million Humvees
    - $11.5 billion – tasks associated with a U.S. buildup in Afghanistan.

Since supplemental spending doesn’t count toward the deficit it makes it attractive to include spending items here.

A Growing Intelligence Budget

Nondefense intelligence agency budgets grew 9% to $47.5 billion in FY08 according to the Office of the Director of National Intelligence.

Gates Version 2.0

There has been a lot of commentary regarding what Gates’ leadership under an Obama administration will mean. Having dealt with stabilizing Iraq over the past few months, his new task has been directed toward fixing DoD procurement which is likely to be evident when the 2010 QDR is released. In particular:

    - Force expansion (30,000 Marines, 60,000 Army)
    - Force restructure & modernization (bringing U.S. troops and equipment home from Iraq is a huge task, as is moving troops into Afghanistan; and replacing spent equipment)
    - Interoperatibility (services and between countries)
    - Deployment of network centric communications (wideband, data rich environments)

Fixing the DoD Procurement System

  - The system develops items that are too complex and too expensive while more pressing and emerging demands are ignored.
  - The focus has been a perfect solution which takes years and billions of dollars. A shift to a 75% solution can produce systems that can be fielded in months and at lower cost.
  - Some major programs will be canceled and/or scaled back.
  - Focus on unit cost declines in order to increase production quantities.
  - Freezing requirements earlier for proposed systems as changes lead to churn, delays, and extra costs.
  - A need to write better contracts to incentivize industry. The era of cost plus awards is over. Shifting to fixed price or fixed price plus incentive.
  - Employing prototypes to learn about competing arms development proposals.
  - Better planning by services.
  - Balancing rapid and lengthy acquisition timelines.
  - Procurement will need to define success: cost? schedule? technology requirements?

Defense Sector Evolution

As stated in a January 2008 issue of Forbes, the DoD continues to shift plans from “blunt force to precision.” Most defense companies anticipate pressure on the defense budget due to the economic recovery and financial rescue packages. However, they have positioned themselves to compete in new administration priority areas as such as computerizing healthcare records, cyber security, and renewable energy projects.

Presentations at the Cowen & Co meeting indicated:

Defense Companies Positioning to Succeed in Uncertain Times

  - Sizing to market conditions
  - Investing for future growth
  - Benefiting from balance and diversity of portfolio
  -
Defining Security
  - Military dominance
  - Confront irregular challenges – terrorism and post-conflict stability
  - Secure the commons: critical infrastructure, lines of communication, environment

Administration View on
  - DefenseAdministration is committed to critical programs
  - Balance security needs with government budget constraints
  - Defense industry is a major employer
  - More insight when 2010 budget and QDR are delivered

High Growth Areas
  - Networked communications
  - Simulation and Training
  - Munitions Navigation
  - Advanced Sensors
  - Government Services
  - Open Systems Architecture
  -

Harris Corporation View on the Market
  - Tradeoffs will have to be made
  - No program is totally secure
  - Defense remains a high priority
  - Trends: reset / force expansion / modernization / investment
  - Production programs likely to continue
  - New program starts could see delays

International

Sales to international clients are becoming a more vital part of the industry for many firms. As an example, Raytheon (RTN) saw 20% of revenues from international sales in comparison to less than 5% exposure to supplementals associated with Iraq. Recent $3 billion contract to the UAE for the Patriot is anticipated to be followed (next 18 months) by upgrades or new systems to Greece, Turkey, Taiwan, Japan, Korea, Israel, and Saudi Arabia.

  - Although VP Joe Biden has been historically against foreign sales, as VP he is in a different position and has to consider diplomacy.
  - Oil prices could impact foreign military spending.

Major markets exist in the Mid-East, Africa, Central Asia, Eastern Europe, and Venezuela.

Investor Tea Leaves

Two items caught my attention:

  - The forthcoming IPO for the O’Gara Group is a test to the receptivity of investors for IPOs and for their willingness to invest in defense and security.
  - Pierre Chao mentioned that he reviewed data back to the beginning of the 20th century (I don’t know where he gets this data but I trust his research) and noticed that the defense sector is trading at cyclical lows. So, is all the bad news typically found in a defense sector downturn already priced into the market?

Major Programs

Defense Secretary Robert Gates told the Senate Armed Services Committee that, “with two major campaigns ongoing, the economic crisis and resulting budget pressures will force hard choices on this department.” Among the issues he is facing is:

  - A March 1 deadline on whether to order more of Lockheed Martin’s (LMT) F-22 fighter jets or shut down the line.
  - Whether to buy the more expensive DDG-1000 Zumwalt class destroyer or the less costly DDG-51.
  - A fleet of 23 presidential helicopters at a cost of $500 million each, could be vulnerable because of rising costs.
  - The $40 billion aerial refueling tanker.
  - Multi-billion contract for search and rescue helicopter
  - Whether to order more Boeing (BA) C-17 transport planes.

“Programs that are swimming funny are the first ones that’ll bring out the sharks,” said Bill Swanson, CEO, Raytheon.

F-22 Support

Support in Congress to continue the program is growing highlighting that the flyaway cost of the F-22 has dropped 35% to $153 million and the program continues to provide jobs and “over $12 billion of economic activity.” The F-22 employs about 95,000 people at 1,000 suppliers in 44 states. Lockheed has also been highlighting improved performance above and beyond Air Force requirements. The Administration has until March 1 to decide whether to order 20 additional planes at a cost of $523 million.

Refueling Tanker Contract

Defense Secretary Robert Gates informed Congress that the $35-$40 billion competition will likely heat up by spring. The weakening economy and rising U.S. unemployment is leading to increased posturing behind the scenes (including support from Northrop Grumman (NOC)/EADS) calling for a split contract with Boeing to be issued. Rep. John Murtha, chair of the House Appropriations Subcommittee on Defense supports the concept. The DoD was initially against it citing increased maintenance costs associated with maintaining two platforms however economic factors may trump this. In addition, an award to Boeing would invite a protest from Northrop Grumman and delay the program even further.

Cybersecurity

Federal IT and professional services firms, even in this economic downturn, are seeing a strong pipeline of opportunities and contracts. The U.S. government is expected to spend $7.4 billion securing its computer networks against cyber attacks. It is a market expected to grow to $11 billion by 2013. Boeing and Lockheed Martin have established new units for cyberdefense and Raytheon is looking to hire an additional 50% more certified security engineers. The National Cyber Initiative, a classified program expects new funding of $15 to $17B over the next five years.

TSAT Update

The Transformation Satellite Communications System will one-day revolutionize the military’s capabilities for transmitting and receiving data offering speeds and capabilities more than 10x that of today. The program in December 2008 was halted due to concerns about the readiness of its technology and scaled down. RFPs are planned for April with the winner of the $11 billion contract to take place within a year.

Air Force One Contract

Boeing is likely to the be sole bidder after Airbus said it would not bid on the contract for three new presidential jets and lawmakers blasted the idea of a U.S. president flying on a European jet.

Extending the Space Shuttle

ATK expects 1-2 additional Shuttle missions to be added to the manifest extending its life to 2012+. NASA has stated that keeping the Shuttle flying beyond 2010 would cost $3 billion annually.

A Troubled World

In a speech to the Reserve Officers Association, the Chairman of the Joint Chiefs of Staff warned that global instability due to the economic crisis could rise. Adm. Michael Mullen cited a wide range of threats from pirates in Africa to Pakistani radicals. Other comments from senior military officials and analysts regarding trouble spots around the world include:

  - The “Arc of instability” around the equator. How many economies are based on $150 oil?
  - Some issues to watch: a collapse of Pakistan, mid-East/Hamas issues, India/Pakistan/Kashmir, and a collapse of North Korea (a 66 year old leader with a stroke and no succession plan).
  - $6.4 billion was spent on identity theft in 2009.
  - C2C business sprouting: Criminal-to-criminal.

And lastly...

Lobbying -- The Wall Street Journal on January 27th noted that the defense sector spent significantly higher amounts (though still nominal compared to overall marketing) in 2008 as budgets and programs come under increased pressure. Lockheed Martin and Boeing saw expenditures rise by 50% or more, Northrop nearly doubled its lobbying budget to $20.6 million.

President Obama’s Blackberry

There have been a number of stories about Obama being the first ‘digital’ president and wanting to use his Blackberry for communications. Due to a number of issues, namely security of both data and the fact that mobile phones identify your exact GPS location, this has been an issue for the Secret Service. According to CNET, there are a number of other options. The Pentagon’s SME-PED program is able to provide wireless email that meets government encryption standards. L-3 has a secure PDA in development and General Dynamics’ Sectera Edge product has been certified by the NSA. Cost: $3,350.
.........................
Nemo liber est qui corpori servit. 
-- Seneca the Younger, Epistoloe Ad Lucilium (XCII)

That's actually an understatement for the next few years.  That's also one of the reasons why many of the military R&D development meccas are still hiring while most sectors of the economy are killing off jobs left and right.

Nevertheless, among the many words of the article, I think it's a good idea to highlight the notable companies involved

1.  Lockheed Martin (LMT)
2.  Northrop Grumman (NOC)
3.  Raytheon (RTN)
4.  Alliance Tech Systems (ATK)
5.  L-3 Communications (LLL)
6.  The Boeing Company (BA)
.........................

"A trader is a man who earns what he gets and does not give or take the undeserved. He does not treat men as masters or slaves, but as independent equals. He deals with men by means of a free, voluntary, unforced, uncoerced exchange—an exchange which benefits both parties by their own independent judgment. A trader does not expect to be paid for his defaults, only for his achievements. He does not switch to others the burden of his failures, and he does not mortgage his life into bondage to the failures of others." - Ayn Rand

By Christopher Hinton, for
Last update: 4:20 p.m. EST Feb. 27, 2009

NEW YORK (MarketWatch) -- Economic bellwether General Electric Co. slashed its quarterly dividend by nearly 68% Friday in a move to save its investment-grade credit rating, reversing a 31-year trend of annual increases to its payout.

The Fairfield, Conn., conglomerate said reducing its dividend to 10 cents a share from 31 cents will save the company $9 billion annually. The company has been paying a regular dividend for more than 100 years. In recent months, however, it faced persistent speculation that it would have to slash its payout to preserve cash.

"We recognize the importance of the dividend to our shareholders and the significance of this decision, but we believe it is the right precautionary action at this time to further strengthen our company for the long term, while still providing an attractive dividend," GE Chairman and Chief Executive Jeff Immelt said.

General Electric (GE) , along with many of the other 30 members of the Dow Jones Industrial Average (INDU) , has been under pressure to raise capital to bulk up its balance sheets. The company has also been determined to maintain its coveted triple-A credit rating to help keep its financial costs down.

Since the recession took grip in mid-September, GE shares have plunged nearly 70% over concerns about its dividend, under-funding in its retirement program and deterioration at its financial arm. The company has been hit hard by the tighter restrictions on credit and declining asset values.

On Friday, the stock fell 6.5% to $8.51.

Analysts at one research firm said they suspected the cut isn't enough, noting the rapid decline of its assets and a need to refinance its expensive, short-term debt over the next 12 months.

"With the tsunami sweeping over the financial sector, it is unrealistic to expect that GE will not get wet," said credit-ratings company Egan-Jones in a research note.

Standard & Poor's said it would leave GE's credit rating unchanged for now at AAA with a negative outlook.

"We estimate that the reduction in the dividend payment will allow cash balances at GE to reach at least $5 billion by the end of 2009 and to grow further in 2010," the credit-rating agency said in a report. "We would view a portion of such balances as a partial offset to GE's now net under funded post-retirement obligations, which we view as a debt-like obligation."

Furthermore, the agency said it doesn't expect GE Capital to make its current 2009 net income guidance of $5 billion.

Moody's Investor Service said it is continuing its review for possible downgrade of GE and GE Capital's long-term ratings.

The decision to cut the dividend follows General Electric's bruising fourth-quarter results on Jan. 23, showing a 44% drop in its net earnings on declines in its financial and consumer-product businesses. That trend is expected to continue through 2009, and the company said it would bulk up its cash reserve to weather the challenge.

Christopher Hinton is a reporter for MarketWatch based in New York. .........................

"A trader is a man who earns what he gets and does not give or take the undeserved. He does not treat men as masters or slaves, but as independent equals. He deals with men by means of a free, voluntary, unforced, uncoerced exchange—an exchange which benefits both parties by their own independent judgment. A trader does not expect to be paid for his defaults, only for his achievements. He does not switch to others the burden of his failures, and he does not mortgage his life into bondage to the failures of others." - Ayn Rand

By: for
| 04 Mar 2009 | 02:20 PM ET

General Electric investors have one big worry these days: Is its hefty GE Capital finance arm—the main reason for a 2008 profit drop—poised to handle the worst economic downturn in decades?

Analysts and investors have pounded the U.S. conglomerate's shares to their lowest level since the early 1990s this week as they wrestle with the question of whether the finance operation— which a few years ago represented half of GE's profits—is adequately prepared for a surge in defaults by increasingly unemployed consumers and tottering mid-sized businesses.

The fear is that GE's [GE] planning for the unit, which anticipates a 42 percent fall in profit and rising defaults, may not be sufficiently bearish.

"It's not as if the world has confidence in any security, but this team has managed to just shatter investor confidence by continually being more upbeat than they deserve to be," said Charles Ortel, managing director of securities research firm Newport Value Partners in New York, which does not hold a position in GE shares.

Investors fear GE Capital's reserves for losses are too low in comparison with the top U.S. banks.

For its part, the Fairfield, Connecticut-based company, which is the world's largest maker of jet engines and electricity-producing turbines and is the parent of CNBC, argues that the comparison is not a fair one since GE Capital's business model is different from that of most banks.

"GE Capital is a secured lender and our loss rates have historically been below those of competitors with unsecured loan portfolios," said Russell Wilkerson, a GE spokesman, in an e-mail.

Having a secured position means that GE has the option of seizing the goods it finances in the event of default, allowing it to resell the merchandise and recoup some of its losses.

Wilkerson also noted that GE Capital's reserves are at historic highs in absolute dollar terms.

GE has taken several steps this year to protect GE Capital, including shifting $9.5 billion of equity into that unit and cutting its corporate dividend by 68 percent, which will save the parent company about $9 billion a year.

"We expect both the commercial and the consumer delinquencies to continue to get worse in 2009, but we are well reserved for that," Chief Financial Officer Keith Sherin told investors in January.

The weakest points in its credit portfolio are its exposure to U.S. consumer spending, primarily through private-label credit cards, and its U.K. mortgage business.

But the steps GE has taken have not stemmed the slide in GE shares.

"GE Capital is now confronting the prospect that a downward trend in fundamental performance, fueled by weakening end markets and magnified by severe liquidity constraints, could potentially lead to an extended period of steadily lower earnings," wrote Sterne Agee analysts Nicholas Heymann and Matthew Kelley in a note to clients.

Sterne Agee, which rates GE a "sell," said GE Capital has set aside less money to cover bad loans than its peers among the top U.S. banks, with GE Capital holding $5.3 billion of reserves at the end of 2008, representing 1.4 percent of its total receivables, compared with 2.5 percent for the top 10 U.S. banks by assets.

Stock analysts, including Deutsche Bank's Nigel Coe, believe GE's $5 billion 2009 earnings target for the finance arm is overly optimistic.

He also estimates that GE Capital's reserves against bad loans are not adequate in light of the sharply deteriorating economy.

"The longer the recession goes on, the deeper unemployment goes, the more that what's left of the consumer portfolio is going to bleed out; there's no question about it," said Peter Sorrentino, senior vice president and portfolio manager at Huntington Asset Management, which owns GE shares.

Still, given the diversity of GE's financial operations—from managing credit cards for U.S. retailers to leasing aircraft to investing in commercial real estate—Sorrentino said he regarded it as unlikely that anything less than implosion of a major customer could knock GE Capital off the rails to the extent suggested by GE stock's 60 percent fall since the start of the year.

"There's got to be an awful lot of ant bites out there to accumulate to this kind of pain," Sorrentino said. "If all of a sudden some major airline went down and shoved all their planes back on GE aircraft, I would think, 'Boom, that's it."'

That is the essence of the dilemma facing GE investors: Do they believe there's a major land mine hidden in GE Capital that they do not yet know about?

The comparison that leaps to mind for some on Wall Street is with American International Group, a huge insurer that seemed rock-solid until it was stricken by bad investments last fall and had to turn to the U.S. government for billions of dollars of support.

"You could have what happened to AIG happen to this company in a moment," said Ortel, of Newport Value Partners.

Others are more confident.

"I don't believe that GE is anywhere near the type of predicaments that AIG or Citigroup or Bank of America are. They are in much worse straits than GE is. It's being thrown into that same basket," said Doug Ober, chairman and chief executive of Adams Express Co in Baltimore, which owns GE shares.

"We feel comfortable that GE Capital is under control and does not have potential huge losses buried." .........................

"A trader is a man who earns what he gets and does not give or take the undeserved. He does not treat men as masters or slaves, but as independent equals. He deals with men by means of a free, voluntary, unforced, uncoerced exchange—an exchange which benefits both parties by their own independent judgment. A trader does not expect to be paid for his defaults, only for his achievements. He does not switch to others the burden of his failures, and he does not mortgage his life into bondage to the failures of others." - Ayn Rand

Ha...owns GE shares?  I gotcha.  In fact, I'll tell ya "keep hope alive."

No, seriously...GE is not in the same boat as AIG, Citigroup, and BoA.  But that's only because those three clown companies are in a sinking submarine of financial malfeasance.  GE is just overloaded with debt, plain and simple.  And being the mega-cap multi-national conglomerate that it is, it's not surprising that even longstanding share holders have to assess the risk of holding on at this point.

I've never been a dividend chaser--just not my style and I don't have enough bread in the basket to make it count for much anyway--but I understand the dividend game, at least the end-game part.  And luckily for most shareholders that are still hanging in there, the slashing of the dividend by GE is typically what companies do at the bottom of the downtrend.  It's not going to get much worse at all.  And at 6.69/share, how could it get much worse?  Well, I guess that, too, all depends on how many share you're holding.

As for me, I've only shorted GE (via put options).  Had I known that we'd see $6.69/share in March 09, I might have exercised my $20 Sept 08 puts.  But, they worked out in the end just the same...and I'm sure GE will work out for someone who's patient enough.  But unless they can remove about 75% of their debt or fall to $1/share, I'll spend my anxious moments elsewhere. .........................

"A trader is a man who earns what he gets and does not give or take the undeserved. He does not treat men as masters or slaves, but as independent equals. He deals with men by means of a free, voluntary, unforced, uncoerced exchange—an exchange which benefits both parties by their own independent judgment. A trader does not expect to be paid for his defaults, only for his achievements. He does not switch to others the burden of his failures, and he does not mortgage his life into bondage to the failures of others." - Ayn Rand

By Anil Daka for
| 04-27-09 | 02:00 PM |

On April 6, Secretary of Defense Robert Gates announced his intention to reshape U.S. defense budget for 2010 and align defense procurement with the immediate needs of the armed forces. The baseline defense budget will increase 7% this year to $515 billion, but supplemental allocation for wars in Iraq and Afghanistan will decline sharply. We think this is just the start of a downward trend in defense spending. While this is likely a negative for the defense contractors in general, we still believe large firms such as  General Dynamics (GD),  Northrop Grumman (NOC), and  Lockheed Martin (LMT) will withstand budgetary disruptions due to their diverse platforms.

The Defense Budget

The defense budget of the United States is a part of the discretionary portion of the federal budget available for spending after allocation to mandatory federal expenses consisting of Social Security, Medicare, and Medicaid. Historically, immediate defense priorities dictated this allocation. Defense spending as a percentage of GDP has remained well above 5% from World War II through the 1980s as the Cold War with the Soviet Union intensified.



However, the reunification of Germany and dissolution of Soviet Russia ushered in a new era of military austerity in the 1990s that had been unseen for decades. In the later years of the Clinton administration, national defense spending dipped to around 3.77% of GDP. Of course, 9/11 changed everything as military campaigns in Iraq and Afghanistan pushed defense spending upward of 4.5% of GDP in the 2003-08 period.

Current Challenge

We think the biggest challenge to defense allocation in the coming years is changing demographics. Starting 2010, the first of the baby boom generation will start retiring, prompting greater mandatory spending from the government in programs such as social security and Medicare. Growth in tax receipts will not keep up with the growth in mandatory spending, so cuts to discretionary spending programs will have to be considered.



In addition to demographic worries, the deficit spending practice of the U.S. government will accelerate the need to restrain federal spending on discretionary activities. Since 2002, the federal government has been spending more than its revenues, incurring additional debt in the process. This debt-fueled spending will reach a crescendo this year when the current administration will spend an additional $787 billion to stimulate the listless economy. Interest payments that stood at 8% of federal revenues in 2008 will only increase with additional debt issuance, stressing discretionary spending even further.

Of the discretionary spending programs, Security (which includes department of defense, homeland security activities, and international affairs), comprised 23% of total budget outlays in 2008. As the largest recipient (73% of security allocation) of federal funding for security programs, the department of defense is highly susceptible to opportunistic budget cuts.



Gates Plan

The Gates plan attempts to achieve three vital tasks: 1) initiate a gradual reduction in defense spending of the United States; 2) enhance the military's capabilities to fight today's wars; 3) ensure funding for key defense programs and balance today's defense priorities with those of the future.

The baseline military budget, at $515 billion for 2009, is actually around 7% higher than the 2008 budget. However, the big difference is in additional funding requests for the Global War on Terror (GWOT). When GWOT is included in the military budget, the total spending in 2008 is actually $669 billion. In 2009, this appropriation will fall 13% to $581 billion, indicating a $88 billion decline on an all-in basis. Some of the key programs that will come under the knife include Lockheed's F-22 fighter and VH-71 presidential carrier, the future combat systems program (FCS) and CSAR-X rescue helicopter headed by  Boeing (BA), and the airborne laser program of Northrop Grumman.


The secretary's proposals represent a strategic shift toward enhancing the military's capabilities to fight today's wars (Iraq and Afghanistan)--and future ones like them--and a distinct move away from the department's previous emphasis on preparing the warfighter for large-scale conventional conflict. Unmanned Aerial Vehicles (UAV) and military robots continue to receive DoD's backing. We envision UAV manufacturer  AeroVironment (AVAV) and PackBot maker  iRobot (IRBT) increasing their defense business in the coming years. An uptick in demand for soldier gear such as night vision equipment and communication radios will benefit  ITT Industries (ITT). Information systems and cyber security providers will also benefit from Gates' proposal.

However, Gates' defense budget does not shut the door on conventional defense platforms altogether. Responding to a question from the press, he remarked that around 10% of the budget was allocated toward an asymmetric war situation, 40% would help both conventional and asymmetric war situations, and 50% of the budget facilitates conventional war platforms. This line of thinking is evident in continued support for Lockheed's Joint Strike Fighter (JSF) program and General Dynamics' DDG-1000 class of destroyer. The secretary plans to accelerate funding and procurement of F-35s and will purchase 513 aircraft over the next five years. The budget allows funding for three DDG-1000 Zumwalt class naval destroyers and calls for restarting the DD-51 Arleigh-Burke class destroyers.

Impact on Our Coverage

We think the budget is bittersweet for the defense firms and will likely have a mixed impact on our coverage universe. Gates' recommendations are not as troubling as they could have been, especially in light of the U.S. government's ballooning deficits.

Lockheed Martin (LMT)

Lockheed will suffer from cancellation of some key projects like the VH-71 presidential chopper, the F-22 Raptor, and the Transformational Satellite (TSAT) program. The much- maligned VH-71 presidential chopper called for a delivery of 28 helicopters for an estimated purchase value of $13 billion. Cost overruns and delays in meeting performance deadlines prompted the cancellation of this project. Though Lockheed is the prime contractor for this project, it sources technology from Agusta Westland and Bell helicopters. Lockheed stood to earn 40% of profits from this project, while the other partners shared the rest. The secretary also expectedly cut the F-22 program to 187 aircraft and instead will rely on an accelerated F-35 program to fill the purchase gap. Technology maturation issues forced Gates to cancel the $26 billion TSAT program.

We think the net result favorably affects Lockheed Martin, with the ramp-up in F-35 production, an increased order size for Littoral Combat Ships (LCS), and additional funding for theater missile systems like THAAD. To sustain U.S. air superiority, Gates recommended increasing the buy of F-35 from 14 in 2009 to 30 in 2010. The plan is to buy 513 F-35s over the next five years, and ultimately 2,443 aircraft that will provide Lockheed with revenues of $300 billion over the purchase period. In addition, Lockheed competes with General Dynamics for the $27 billion LCS order. The secretary also reiterated his commitment to theater missile systems like THAAD and approved an additional $700 million for this project.

Northrop Grumman (NOC)

Gates described the airborne laser (ABL) program as having significant affordability and technology problems and questioned the operational role of the laser-equipped aircraft. He called for a cancellation of this program, which Northrop is jointly developing with Boeing. On top of this, Northrop's exposure to the canceled FCS program is another area of hurt.

However, Northrop and General Dynamics reached an agreement to manufacture the DDG-1000 and the DDG-51 class of naval destroyers jointly (mentioned above). We think this agreement will better the firm's revenues over a very long time span. Northrop is also the principal subcontractor on the JSF project and supplies six of the eight sections on the F-35. Gates' renewed commitment to the F-35 program affects Northrop favorably.

General Dynamics (GD)

By the end of 2008, GD's outstanding orders with FCS reached $1.2 billion, and it is uncertain if the firm would realize this order backlog in the face of Gates' plans to review the program.

As with Northrop, General Dynamics stands to benefit from DDG-1000 and DDG-51 orders. Gates made no mention of altering the current order for 13 Virginia class submarines. General Dynamics stands to gain $19 billion over the purchase time span of these submarines. The secretary also mentioned that preliminary studies for the replacement of Ohio class ballistic missile submarine program would start in 2010. GD's Electric Boat division stands to gain from this interest. If the U.S. navy decides to replace the entire fleet of 18 submarines, the project will benefit GD's revenues to the tune of approximately $25 billion.

Associate director of training Brian Nelson contributed to this article.
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"A trader is a man who earns what he gets and does not give or take the undeserved. He does not treat men as masters or slaves, but as independent equals. He deals with men by means of a free, voluntary, unforced, uncoerced exchange—an exchange which benefits both parties by their own independent judgment. A trader does not expect to be paid for his defaults, only for his achievements. He does not switch to others the burden of his failures, and he does not mortgage his life into bondage to the failures of others." - Ayn Rand

By Sarah Turner for
Jul 17, 2009, 6:42 a.m. EST

LONDON (MarketWatch) -- General Electric (GE ) said that second-quarter net income attributable to the company fell to $2.67 billion, or 24 cents a share, from $5.07 billion, or 51 cents a share, in the same period last year. Earnings from continuing operations totaled 26 cents a share, down from 54 cents a year ago. Analysts had been expecting earnings of 24 cents and revenue of $41.66 billion, according to data compiled by FactSet. Revenue totaled $39.08 billion, down from $46.84 billion last year. GE Capital Services' revenue fell 29% to $13.4 billion, while industrial sales fell 7% to $26 billion. "We see a 2009 that is consistent with our original framework," said Chairman and CEO Jeff Immelt.

__________________________________________________________________________________________________________________________________


By Christopher Hinton for
Jul 17, 2009, 9:01 a.m. EST

NEW YORK (MarketWatch) -- General Electric Co. (GE ) expects to generate surplus cash in the second half of the year thanks to the reduction of its dividend, said Chairman and Chief Executive Jeff Immelt on Friday. "With the dividend reduced from $6.7 billion to $2.3 billion...we'll save $13 billion of cash in '09 and '10," he said on a post-earnings call with analysts. "I would say we're ahead of plan here with very solid prospects for the rest of the year." For the second quarter, GE generated some $4.3 billion in cash. Historically, the company generates about 40% of its cash in the first half of the year. "So at $7 billion, it puts us well on our way to the $14 billion to $16 billion goal for industrial," Immelt said. .........................

"A trader is a man who earns what he gets and does not give or take the undeserved. He does not treat men as masters or slaves, but as independent equals. He deals with men by means of a free, voluntary, unforced, uncoerced exchange—an exchange which benefits both parties by their own independent judgment. A trader does not expect to be paid for his defaults, only for his achievements. He does not switch to others the burden of his failures, and he does not mortgage his life into bondage to the failures of others." - Ayn Rand

By: Reuters for
Published: Tuesday, 20 Oct 2009 | 7:57 AM ET

U.S. machinery maker Caterpillar posted stronger-than-expected quarterly earnings Tuesday and raised its full-year forecast, saying it was seeing "encouraging signs that indicate a recovery may be under way."

The news sent Caterpillar [CAT ] shares up nearly 5 percent in premarket trading.

The world's largest maker of construction and mining equipment and a closely watched component of the Dow Jones industrial average reported a third-quarter net profit of $404 million, or 64 cents a share, compared with $868 million, or $1.39 a share, a year ago.

Revenue fell 44 percent to $7.29 billion.


Analysts, on average, had expected the Peoria, Illinois-based company to report a profit of 6 cents a share on sales of $7.47 billion, according to Thomson Reuters.

Caterpillar also provided its first forecast for 2010, saying it expects 2010 sales and revenue will be up 10 percent to 25 percent. .........................

"A trader is a man who earns what he gets and does not give or take the undeserved. He does not treat men as masters or slaves, but as independent equals. He deals with men by means of a free, voluntary, unforced, uncoerced exchange—an exchange which benefits both parties by their own independent judgment. A trader does not expect to be paid for his defaults, only for his achievements. He does not switch to others the burden of his failures, and he does not mortgage his life into bondage to the failures of others." - Ayn Rand

By: Reuters for
Published: Tuesday, 20 Oct 2009 | 9:00 AM ET

DuPont posted an 11 percent jump in third-quarter profit Tuesday, beating Wall Street estimates, but the chemical maker narrowed its earnings outlook for the year

The company, which feeds the automotive, electronic, agricultural and personal protection sectors, will likely be seen this quarter as a leading indicator of the chemical industry's health.

While the strong earnings appears at first blush to be a sign the economy is improving, much of the gain came from some $300 million in cost cuts and falling sales.

Wall Street typically prefers to see profits generated by sales rather than cost cuts, but that should not be a black eye for capital-intensive companies like DuPont, Sterne Agee analyst Mark Connelly told Reuters.

"The operating performance here is pretty credible," he said. "When a basic material company demonstrates substantial cost reductions, it deserves some credit."

Additionally, DuPont [DD  ] said it is seeing demand for products slowly improve.

"With a more streamlined organization, permanent fixed cost reductions, and increased productivity, DuPont is well-positioned to capitalize as markets improve," Chief Executive Ellen Kullman said in a statement.

Net income rose to $409 million, or 45 cents per share, from $367 million, or 40 cents per share, a year earlier. Analysts on average expected 33 cents per share, according to Thomson Reuters.

Revenue fell 18 percent to $5.96 billion from $7.29 billion. Analysts expected $6.14 billion.

Revenue fell across all five of the company's segments, including its safety & protection unit, which makes the Kevlar vest.

Across the globe, revenue also fell, though demand in the Asia/Pacific region rose from earlier this year, the company said.

For the full year, the company now expects earnings of $1.95 to $2.05 per share, compared with a previous estimate of $1.70 to $2.10.

The Wilmington, Delaware-based company's shares closed Monday at $34.62. The stock has traded between $16.05 and $36.17 in the past 52 weeks.
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"A trader is a man who earns what he gets and does not give or take the undeserved. He does not treat men as masters or slaves, but as independent equals. He deals with men by means of a free, voluntary, unforced, uncoerced exchange—an exchange which benefits both parties by their own independent judgment. A trader does not expect to be paid for his defaults, only for his achievements. He does not switch to others the burden of his failures, and he does not mortgage his life into bondage to the failures of others." - Ayn Rand

By Christopher Hinton, for

NEW YORK (MarketWatch) -- Government contractor and aerospace giant Lockheed Martin Corp. said Tuesday its quarterly profit edged up 2%, getting a modest lift from demand for its naval, tactical and radar systems.

For the third quarter, the Bethesda, Md., manufacturer  (LMT ) said it earned $797 million, or $2.07 a share, up from $782 million, or $1.92 a share, in the year-ago period. Latest results included a one-time pension adjustment and a tax benefit resulting in a net charge of 4 cents a share.

Lockheed, which builds the F-35 joint-strike fighter and the F-22 Raptor, said sales rose to $11.1 billion from $10.6 billion.

Analysts polled by FactSet Research had estimated earnings of $1.84 a share on sales of $11.4 billion.

Shares of Lockheed Martin fell 6% at last check to $72.22. For the year the stock is down about 17% in anticipation of the Pentagon's changing priorities, moving away from large-system purchases to free up cash for troop support in combat.

Lockheed forecast it would end this year with a profit of $7.40 to $7.60 a share, compared to the Wall Street's average estimate of $7.38 a share. For 2010, the company projects a profit of $7.05 to $7.25 a share, while analysts are looking for $7.93 a share.

The outlook for 2010 anticipates Lockheed will about $1.4 billion in additional pension contributions. Also, the outlook assumes a research and development tax credit of about 11 cents a share in 2009 will not be extended into next year.

For the third quarter, better-than-expected profit was achieved in part by a commercial satellite launch that many analysts hadn't added to their forecasts, Chief Financial Officer Bruce Tanner told MarketWatch.

Also helping was higher non-operating income from in the company's post-retirement benefits program thanks to gains in the stock market in the past six months, he said.

Canceled orders for the new VH-71 presidential helicopter and the combat search and rescue helicopter have "put the brakes" on growth in the conglomerate's electronic systems unit, said Tanner, the CFO. While the Pentagon's termination of the Transformational Communications Satellite program and the Multiple-Kill Vehicle has also pressured revenue growth.

Tanner expects 2010 and most of 2011 will see slower growth before the ramp-up of the F-35 Joint-Strike Fighter, which will help to sales grow by 5% annually afterwards.

Rivals Northrop Grumman Corp. (NOC) and Boeing Co.  (BA ) report quarterly results on Wednesday.

Weighing on profits for government contractors have been potential pension charges after a sharp drop in the U.S. equity markets early in 2009 wiped out the value of the company's retirement plan. Under the Pension Protection Act of 2006, companies are required to fully fund their pension plans by 2013.

Pension costs are expected to climb in 2010 due to a declining pension discount rate, though the bulk of such expenses are eventually covered by government reimbursements.

Christopher Hinton is a reporter for MarketWatch based in New York. .........................

"A trader is a man who earns what he gets and does not give or take the undeserved. He does not treat men as masters or slaves, but as independent equals. He deals with men by means of a free, voluntary, unforced, uncoerced exchange—an exchange which benefits both parties by their own independent judgment. A trader does not expect to be paid for his defaults, only for his achievements. He does not switch to others the burden of his failures, and he does not mortgage his life into bondage to the failures of others." - Ayn Rand

By: Reuters for
Published: Wednesday, 21 Oct 2009 | 9:48 AM ET

Boeing posted a larger-than-expect quarterly loss Wednesday on a cost reclassification related to its long-delayed 787 Dreamliner program, sending shares lower.

But Boeing said the plane was still on track to fly this year. The company blamed its loss also on an additional charge related to its delayed 747 program.

To reflect the 787 and 747 impacts, earnings guidance for 2009 has been changed to a range of $1.35 to $1.55 per share, from $4.70 to $5.00 previously.

Boeing shares [BA ] were down in early trade.

"The 787 cost reclassification and the 747 charge for increased costs and difficult market conditions clearly overshadowed what continues to be otherwise solid performance across our commercial production programs and defense business," said Boeing Chief Executive Jim McNerney in a statement.

"We look forward to getting the 787 and 747-8 in the air soon and moving forward with flight test and certification for these two important programs," he said in a statement.

The world's second-largest plane-maker, after EADS unit Airbus, said the net loss was $1.6 billion, or $2.23 per share, compared with a profit of $695 million, or 96 cents per share, a year earlier.

Excluding a loss from discontinuing operations, Boeing reported a loss of $2.22 per share, compared with analysts' estimates for a loss of $2.12 per share, according to Thomson Reuters I/B/E/S.

The latest results reflect the reclassification, to research and development, of costs incurred through July for the first three 787 flight-test airplanes, spending on those planes for August and September, and the 747 charge.

Revenue rose 9 percent to $16.7 billion. The year-ago period was impacted by a labor strike.

Revenue from its commercial airplane division increased 13 percent to $7.9 billion on higher deliveries. The division booked 96 gross orders during the quarter, while 17 orders were canceled. Contractual backlog was $254 billion.

Boeing's Integrated Defense Systems saw third-quarter revenue up 3 percent to $8.7 billion on increased military aircraft deliveries.

The company said the first flight of the long delayed 787 Dreamliner remains on track to occur by the end of 2009, with first delivery scheduled for the fourth quarter of 2010
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"A trader is a man who earns what he gets and does not give or take the undeserved. He does not treat men as masters or slaves, but as independent equals. He deals with men by means of a free, voluntary, unforced, uncoerced exchange—an exchange which benefits both parties by their own independent judgment. A trader does not expect to be paid for his defaults, only for his achievements. He does not switch to others the burden of his failures, and he does not mortgage his life into bondage to the failures of others." - Ayn Rand

By Christopher Hinton for
Dec. 9, 2009, 8:54 a.m. EST

NEW YORK (MarketWatch) -- Macquarie Research lowered its ratings for L-3 Communication  (LLL ) , Raytheon Co. (RTN ) and Lockheed Martin Corp. (LMT ) on Wednesday, citing slower U.S. defense-spending growth and increased strength in other industrial sectors. "We expect the U.S. defense budget, particularly the investment accounts, to remain under pressure in coming years," the equity research firm said in a note. Meanwhile, the global economy is improving, and investors are more likely to switch out of defense stocks to more promising sectors. Macquarie cut L-3 and Lockheed Martin to underperform, and Raytheon to neutral. Shares of L-3 closed Tuesday at $82.14, while Raytheon and Lockheed were each off 1% premarket to $51.90 and $76.90, respectively. (Update adds Raytheon and Lockheed). .........................

"A trader is a man who earns what he gets and does not give or take the undeserved. He does not treat men as masters or slaves, but as independent equals. He deals with men by means of a free, voluntary, unforced, uncoerced exchange—an exchange which benefits both parties by their own independent judgment. A trader does not expect to be paid for his defaults, only for his achievements. He does not switch to others the burden of his failures, and he does not mortgage his life into bondage to the failures of others." - Ayn Rand

By Simon Kennedy for
Jan. 27, 2010, 7:53 a.m. EST

LONDON (MarketWatch) -- Construction and mining equipment group Caterpillar Inc. (CAT ) said Wednesday that its fourth-quarter net profit fell 65% as it also forecast sales and earnings would rebound in 2010. Profit in the latest quarter fell to $232 million, or 36 cents a share, from $661 million, or $1.08 a share, a year earlier. Sales for the quarter declined 39% to $7.9 billion as the company said the environment in 2009 was the worst it had experienced since the great depression. Excluding redundancy costs, Caterpillar said it would have earned 41 cents a share in the fourth quarter. Analysts polled by FactSet had forecast earnings of 29 cents a share on revenue of $7.82 billion. The company said that for 2010 it expects sales to rise by between 10% and 25% compared to 2009 and that the mid-point of that range would correspond to earnings per share of around $2.50. The consensus forecast for 2010 currently stands at $2.66 a share. .........................

"A trader is a man who earns what he gets and does not give or take the undeserved. He does not treat men as masters or slaves, but as independent equals. He deals with men by means of a free, voluntary, unforced, uncoerced exchange—an exchange which benefits both parties by their own independent judgment. A trader does not expect to be paid for his defaults, only for his achievements. He does not switch to others the burden of his failures, and he does not mortgage his life into bondage to the failures of others." - Ayn Rand

By Wallace Witkowski for
March 8, 2010, 5:00 p.m. EST

SAN FRANCISCO (MarketWatch) -- Northrop Grumman Corp. (NOC ) said late Monday that it will not submit a bid for the U.S. Air Force's next generation of aerial refueling tankers. The decision comes after months of wrangling between Boeing Co. /quotes/comstock/13*!ba/quotes/nls/ba (BA 67.60, +0.36, +0.54%) and a joint venture between Northrop and European defense contractor EADS Co.  (EADS.Y ) for the contract. Initially, the Northrop-EADS joint venture was awarded the multibillion dollar contract but the Air Force was pressured to reconsider the bid. .........................

"A trader is a man who earns what he gets and does not give or take the undeserved. He does not treat men as masters or slaves, but as independent equals. He deals with men by means of a free, voluntary, unforced, uncoerced exchange—an exchange which benefits both parties by their own independent judgment. A trader does not expect to be paid for his defaults, only for his achievements. He does not switch to others the burden of his failures, and he does not mortgage his life into bondage to the failures of others." - Ayn Rand

By Steve Goldstein for
April 16, 2010, 6:36 a.m. EDT 

LONDON (MarketWatch) -- General Electric (GE ) said first-quarter profit attributable to shareholders dropped 32% to $1.87 billion, or 17 cents a share, as revenue fell 5% to $36.61 billion. Earnings drops at GE Capital, technology infrastructure and NBC Universal offset growing profits at energy infrastructure. From continuing operations, the industrial bellwether said it earned 21 cents a share, compared to FactSet-compiled estimates of earnings of 17 cents a share on revenue of $37.3 billion. GE said it may evaluate additional restructuring that will improve earnings power going forward.

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In light of all the optimism on Wall Street, I can't decide if a 32% drop in profit is a good thing or not.  I guess it is. 
.........................

"A trader is a man who earns what he gets and does not give or take the undeserved. He does not treat men as masters or slaves, but as independent equals. He deals with men by means of a free, voluntary, unforced, uncoerced exchange—an exchange which benefits both parties by their own independent judgment. A trader does not expect to be paid for his defaults, only for his achievements. He does not switch to others the burden of his failures, and he does not mortgage his life into bondage to the failures of others." - Ayn Rand

By Christopher Hinton for
April 21, 2010, 7:46 a.m. EDT

NEW YORK (MarketWatch) -- Boeing Co. (BA ) said Wednesday its first-quarter earnings fell to $519 million, or 70 cents a share, from $610 million, or 86 cents a share, in the year-ago period. Recent earnings include a 20 cents-a-share charge for the loss of a tax deduction related to changes in federal healthcare law. Sales fell to $15.2 billion from $16.5 billion. Analysts polled by FactSet Research were looking for earnings of 66 cents a share on sales of $15.4 billion. For the full year, the Chicago manufacturer lowered its earnings expectations to a range of $3.50 to $3.80 a share, from a prior range of $3.70 to $4 a share, due to the loss of the tax deduction. Shares of Boeing edged up a fraction premarket to $71.50
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"A trader is a man who earns what he gets and does not give or take the undeserved. He does not treat men as masters or slaves, but as independent equals. He deals with men by means of a free, voluntary, unforced, uncoerced exchange—an exchange which benefits both parties by their own independent judgment. A trader does not expect to be paid for his defaults, only for his achievements. He does not switch to others the burden of his failures, and he does not mortgage his life into bondage to the failures of others." - Ayn Rand

June 28, 2010, 10:00 AM EDT

(Adds that the trades were canceled in first paragraph.)

By Clyde Eltzroth and Whitney Kisling for

June 28 (Bloomberg) -- Boeing Co., one of thirty stocks in the Dow Jones Industrial Average, sank 44 percent because of orders NYSE Euronext and Nasdaq OMX Group Inc. later canceled.

While regulators are trying to prevent swings in the price of individual companies from causing another crash like the May 6 rout, a program being tested through December only applies after 9:45 a.m. New York time. Boeing, which ended at $68.77 on June 25, tumbled to $38.77 at 7:14 a.m. today. Nasdaq handled 200 shares at that price, and NYSE Arca processed 800, according to Bloomberg data. The stock traded for $67.43 at 9:56 a.m.

Companies such as Accenture Plc, which now fetches $40.55, traded for 1 cent on May 6 as U.S. stocks lost $862 billion in value in less than 20 minutes. The Securities and Exchange Commission pilot program pauses trading for Standard & Poor’s 500 Index companies, including Chicago-based Boeing, when their stock rises or falls 10 percent or more in less than 5 minutes following 9:45 a.m.

U.S. exchanges, building on the circuit-breaker test, offered rules this month that would standardize the process for breaking erroneous stock trades. The proposal, also for S&P 500 companies, would void orders when they occur more than 5 percent above or below the level that would trigger a halt.

A voicemail message left with Boeing’s media office before regular business hours in Chicago wasn’t immediately returned. Nasdaq OMX spokesman Robert Madden didn’t immediately respond to phone calls or e-mails requesting comment.

NYSE Comment

“We’ve been discussing the subject of circuit breakers with the SEC, and those discussions are ongoing,” NYSE Euronext spokesman Ray Pellecchia said in an interview. “The clearly erroneous rules have been revised, so that’s the next thing the SEC is considering.”

Three equity orders that pushed Washington Post Co. shares up 99 percent in less than one second on June 16 showed why the SEC began the program this month to halt stocks during times of volatility. Trades totaling 766 shares at $919.18 or $929.18 crossed on NYSE Euronext’s NYSE Arca platform at 3:07:30 p.m. in New York that day, data compiled by Bloomberg show. The stock changed hands for $462.84 prior to the jump. The orders, later canceled, triggered a five-minute halt under rules adopted after the May 6 crash.

The Dow Jones Industrial Average plunged almost 1,000 points on May 6. A May 18 report from the SEC and Commodity Futures Trading Commission gave six potential causes of the crash, including trading curbs that applied only at the New York Stock Exchange. Halts “will help reduce the likelihood of this type of unusual trading activity from recurring,” SEC Chairman Mary Schapiro said on June 2.

--With assistance from Mary Schlangenstein in Dallas, Nina Mehta and Kelly Bit in New York and Jesse Westbrook in Washington. Editors: Nick Baker, Michael P. Regan .........................

"A trader is a man who earns what he gets and does not give or take the undeserved. He does not treat men as masters or slaves, but as independent equals. He deals with men by means of a free, voluntary, unforced, uncoerced exchange—an exchange which benefits both parties by their own independent judgment. A trader does not expect to be paid for his defaults, only for his achievements. He does not switch to others the burden of his failures, and he does not mortgage his life into bondage to the failures of others." - Ayn Rand

By Catherine M. Carlock for
July 26, 2010, 5:27 p.m. EDT

SAN FRANCISCO (MarketWatch) -- Crane Co. (CR ) said late Monday that its second-quarter profit rose to $40 million, or 67 cents a share, up from $27.8 million, or 47 cents a share, in the year-ago period. Revenue rose to $552.8 million from $545.5 million a year ago. Analysts surveyed by FactSet Research estimated a quarterly profit of 59 cents a share on revenue of $543.1 million. The industrial manufacturer hiked its 2010 earnings outlook to $2.35 to $2.50 a share. The company also increased its quarterly dividend by 15%, or 3 cents a share, to 23 cents a share.
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"A trader is a man who earns what he gets and does not give or take the undeserved. He does not treat men as masters or slaves, but as independent equals. He deals with men by means of a free, voluntary, unforced, uncoerced exchange—an exchange which benefits both parties by their own independent judgment. A trader does not expect to be paid for his defaults, only for his achievements. He does not switch to others the burden of his failures, and he does not mortgage his life into bondage to the failures of others." - Ayn Rand

By Christopher Hinton, for
July 28, 2010, 9:54 a.m. EDT

NEW YORK (MarketWatch) -- Boeing Co. said Wednesday its second-quarter profit fell 21% from a year ago, hurt by fewer commercial aircraft deliveries.

Chicago-based Boeing (BA ) also affirmed its profit outlook for 2010, which was below Wall Street expectations, putting pressure on company stock in early trading.

For the three months ended June 30, the aerospace company said it earned $787 million, or $1.06 a share, down from $998 million, or $1.41 a share, in the year-ago second quarter.

Revenue fell 9% to $15.57 billion from the prior year's $17.15 billion.

Analysts polled by FactSet Research had been looking for earnings of $1.04 a share, on average, with sales of $16.4 billion.

Boeing has been driving efficiencies into its commercial production to help lower costs, said Peter Arment, an analyst with Gleacher & Co. So despite the decline in aircraft deliveries and revenue, profit margins for the quarter dipped only modestly.

Revenue generated in Boeing's commercial airplanes division declined 12% to $7.4 billion on 9% fewer aircraft deliveries, driven by seat-supplier challenges and lower-than-expected deliveries for twin-aisle jetliner models.

Operating margins declined to 9.2% from 9.7%.

"It was a solid quarter," Arment told MarketWatch, brushing away concerns that the company failed to raise its full-year outlook to match that of Wall Street.

"They are being conservative on their guidance given they sill have some risk on two major developments," he said, referring to the 787 jetliner and the 747-8 freighter.

Boeing stood by its 2010 profit forecast of $3.50 to $3.80 a share, versus analysts' consensus of $3.88 a share.

Shares of Boeing, part of the Dow Jones Industrial Average /quotes/comstock/10w!i:dji/delayed (DJIA 10,513, -24.59, -0.23%) , slipped 1.6% in morning trading to $67.53.

The stock is up nearly 59% in the past year as the global economy recovered from recession and airlines reported more passengers and fuller cabins. In the last three months, however, Boeing's shares have dipped 5% on concerns that the pace of growth could decelerate.

Boeing nonetheless presented an upbeat outlook in its quarterly report, noting its commercial airplanes unit booked 68 net orders during the three months through June -- up from just five in the year-ago period.

"With our commercial markets recovering, and the priorities of our government customers gaining clarity, we remain well positioned for growth in 2011 and beyond," said Chairman and Chief Executive Jim McNerney in a statement.

By the end of the year, Boeing hopes to deliver its first 787 jetliner, the next-generation twin-aisle aircraft that's already more than two years behind schedule. The company had stated recently there was a risk that delivery could be pushed out even further, to sometime into the first few weeks of 2011.

Total firm orders for the popular aircraft at the end of the June quarter were 863 with 56 customers.

Meanwhile the 747-8 program is also continuing its flight tests, with first delivery targeted for the fourth quarter, although there is also the growing possibility that it may not be ready until early 2011.

Christopher Hinton is a reporter for MarketWatch based in New York. .........................

"A trader is a man who earns what he gets and does not give or take the undeserved. He does not treat men as masters or slaves, but as independent equals. He deals with men by means of a free, voluntary, unforced, uncoerced exchange—an exchange which benefits both parties by their own independent judgment. A trader does not expect to be paid for his defaults, only for his achievements. He does not switch to others the burden of his failures, and he does not mortgage his life into bondage to the failures of others." - Ayn Rand