- Four top defense manufacturers reported losses in divisions that produce equipment for the Department of Defense and foreign militaries, while profit was driven by commercial sales.
- Company executives blamed supply chain disruptions and ongoing labor shortages for the backlog in meeting heightened Pentagon demand.
- “Third quarter 2022 sales reflect strong demand and improving trends in labor availability, partially offset by supply chain delays,” Northrop Grumman said.
Top defense companies released their earnings for the third quarter of 2022 this week, reporting defense sector losses and sales downturns.
Raytheon Technologies, General Dynamics, Boeing and Northrop Grumman, four of the five major defense companiesthat do business with the U.S. Department of Defense (DOD), posted small gains offset by losses and lower sales in sectors that manufacture defense systems versus, according to the Q3 reports. Company officials attributed ongoing supply chain knots and worker shortages for the ongoing struggle to meet demand, while inflation cut into expected profits.
Raytheon posted sales up $17 billion, or 5%, compared to the same time period in 2021, while Northrop Grumman reported a 3% increase in sales from $8.7 in Q3 2021 to $9 billion in Q3 2022. General Dynamics also reported an increase in net earnings of 4.9%, and Boeing’s overall revenue was up 4%.
However, the war in Ukraine has severely depleted U.S. stocks of air defense systems and accompanying ammunition, while the Pentagon adjusts procurement requirements to meet the unexpected global demand. Raytheon-made Stinger missiles and other crucial equipment are in limited supply, and defense contractors have warned they may not be able to surge production to meet needs for Ukraine and Taiwan, Defense News reported.
Northrop’s sales were driven by an 18% spike in space systems, masking a 5% drop in defense sales. Third quarter net earnings for the company fell 14% compared to the same period in 2021.
“Third quarter 2022 sales reflect strong demand and improving trends in labor availability, partially offset by supply chain delays,” Northrop said.
Those supply chain backlogs could take up to two years to resolve, Dave Keffer, Northrop’s chief financial officer, told reporters on an earnings call.
Defense contractors struggled to keep up with Pentagon demand even prior to Russia’s invasion of Ukraine; a July Government Accountability Office report found that Pratt & Whitney, the division of Raytheon that manufactures engines, had run into supply setbacks preventing it from producing replacement engines for F-35 joint strike fighters.
Operating profit for Raytheon’s missiles and radars unit was down 15% over 2021, a result of falling sales in land warfare and air defense systems and efficiency loss “driven by continued supply-chain and labor constraints,” the company said.
General Dynamics saw demand for support equipment for U.S. navy vessels and submarines, various munitions and a $1.1 billion shipment of Abrams main battle tanks destined for Poland, slightly driving up marine and combat systems sales. However, most of its profit came from an uptick in private demand for Gulfstream aircraft, Reuters reported.
Supply chain disruptions, labor and inflation all hamstrung the company’s ability to fill orders over the previous months, General Dynamics CEO Phebe Novakovic told reporters, according to Reuters. “Supply chain remains a potential challenge going forward,” he added.
Boeing on Wednesday chronicled a nearly $3.3 billion loss in the third quarter of 2022, citing “technical challenges” with certain defense systems and “unfavorable performance” on others, Defense News reported.
Although Boeing’s overall revenues were up, the change was represented by a boost in commercial production offsetting losses on defense contracts that have a fixed price, according to the company.
The DOD is engaging with the largest defense companies to ameliorate the effects on small businesses as well, Kathy Warden, Northrop CEO, said on the earnings call. She applauded the government’s moves as “important for the health of the defense-industrial base.”
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