BAE Systems Bullish on Trump Impact on Military Spending--Update

By Robert Wall 

LONDON--The chief executive of BAE Systems, the Pentagon's most important foreign defense contractor, said the Trump administration's push for higher western military spending is contributing to the bullish outlook for the sector which could see the British company's pretax earnings rise by as much as 10% this year.

In contrast with the tone of recent comments from CEOs of other European multinational corporations, worried about the impact of changes in U.S. trade policy, BAE's Ian King said President Donald Trump "is clearly committed to having a strong American defense forces and effective capabilities, which is why we feel positive about the atmospherics which are going on."

The U.S. is the largest market for BAE--a maker of combat jets, warships, and submarines--representing around 36% of sales, with the British company otherwise reliant on the U.K., the rest of Europe, and Saudi Arabia for much of its business.

Mr. Trump signaled the U.S. could curtail its military support to Europe unless its allies in the North Atlantic Treaty Organization in the region contributed more military spending.

Mr. King, who is set leave the top job at Europe's largest arms maker later this year after almost nine years on the job, said he saw no harm in Mr. Trump calling on other NATO leaders to share more of the financial burden to maintain the alliance.

"That is good and right and proper," he told reporters after the company announced latest full-year results.

Shares in BAE were 2.6% higher in early London trading.

The company on Thursday said underlying earnings before interest, taxes and amortization rose 7% to GBP1.91 billion ($.2.37 billion) from GBP1.68 billion.

Net profit fell slightly to GBP913 million pounds from GBP918 million the year before when the company benefited from a tax gain.

Revenue rose 6.2% to GBP19.02 billion largely because favorable currency movements, notably the drop in value of sterling after last June's vote in the U.K. to leave the European Union which has made BAE's foreign contracts more valuable in pounds.

The company, which said underlying earnings a share should advance 5% to 10% in this from last year's 40.3 pence, said it hasn't built a boost in U.S. military spending into its outlook. BAE has a big U.S. operation, from supporting intelligence agencies and repairing equipment from large warships to armored vehicles across the country.

BAE Wednesday said Mr. King would step down to be replaced by Chief Operating Officer Charles Woodburn on July 1. Mr. Woodburn joined Europe's largest arms maker by sales a year ago from a career in the oil-and-gas industry. BAE Chairman Roger Carr said changes under the company's new CEO would be ones of "evolution rather than revolution."

Mr. Woodburn inherits a company poised to benefit from rising military spending, but also some challenges. Deliveries of Eurofighter Typhoon jets to European customers and Saudi Arabia are largely done, which should lead sales for its U.K. platform business to fall around 5%. The U.K. is reviewing whether licenses to sell weapons to Saudi Arabia were granted properly amid political tension in Britain over the Middle East country's military operations in Yemen.

Mr. King said talks with Saudi Arabia for more Typhoons were continuing, though he wouldn't put a date on when a contract might be signed. BAE's Typhoon production line is at risk of shutting down in late 2018 absent extra orders.

BAE Systems said it would pay a final dividend of 12.7 pence a share, making for a full-year dividend of 21.3 pence a share 2016, a 2% increase over 2015.

Write to Robert Wall at [e-mail]

(END) Dow Jones Newswires

February 23, 2017 04:51 ET (09:51 GMT)

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