Defense firms profit but sales challenged

ATLANTA (Reuters) - Defense contractors General Dynamics <GD.N> and Northrop Grumman <NOC.N> delivered better-than-expected quarterly results as profit in most of their businesses helped overcome a challenging sales environment.

Boeing Co <BA.N> also topped Wall Street profit estimates despite flat sales in its defense unit. The company is benefiting from a recovery in commercial aerospace.

Tighter global defense budgets are expected to challenge contractors, which are shedding nonstrategic operations and looking to buy higher-growth technologies.

Earlier this month, U.S. President Barack Obama called for shaving $400 billion from U.S. security-related spending from fiscal 2013 through 2023 as part of deficit-reduction moves.

General Dynamics, a maker of tanks, ships and Gulfstream jets, told analysts during a conference call that defense orders were "somewhat light" in the first quarter, partly reflecting the prolonged resolution of U.S. defense appropriations legislation.

"With its recent passage, we expect healthier order activity in the coming weeks and months," Chief Executive Jay Johnson said.

Northrop also said U.S. budget funding issues affected its first-quarter sales, which fell 3 percent to $6.73 billion. Northrop raised its full-year profit forecast.

Operating profit rose at General Dynamics' aerospace, combat systems and marine systems divisions but declined in information systems.

"We have concerns about how long the company can continue to post better-than-expected margins in its defense business as the (U.S. Department of Defense) contracting environment deteriorates," J.P. Morgan analyst Joseph Nadol said in a note to clients.

At Northrop Grumman, which last month spun off its ship business and now focuses on unmanned spy planes and ballistic missile defense work, net income came to $530 million, or $1.79 a share. On a continuing basis, profit was $1.67, topping analysts' average estimate of $1.56.

Shares of General Dynamics rose 58 cents, or 0.8 percent, to $73.22 in morning trading, while Northrop was up 99 cents, or 1.6 percent, to $63.48.

(Reporting by Karen Jacobs; editing by John Wallace)