The Daily Item, Sunbury, PA

Fiscal Cliff

December 29, 2012

Defense Contractors' Shopping Lists on Hold Ahead of Budget Cuts



Small contractors such as Nash Locke, with less than $1 million in annual revenue, are also making preparations.

Two months ago, Jeanne Peck, president of the McLean, Va.-based technology firm, stopped hiring consultants to help find and evaluate contract opportunities and started doing the work herself, she said.

Peck is saving money in case the automatic cuts take effect and hurt her business, which relies on contracts from the Defense and Education departments, she said.

"I end up being exhausted," Peck said in a phone interview. "I end up working more and other people who would otherwise do that work for me do suffer a bit."

The $1 trillion in automatic cuts, known as sequestration, would be split between domestic and national security programs. Obama and congressional leaders planned to meet at the White House Friday to discuss how to avoid those reductions and expiring tax increases that together would total more than $600 billion in 2013.

Some of the biggest defense contractors are cutting jobs and preparing for lower sales.

SAIC Inc., a McLean, Va.-based technology and services vendor, is eliminating 700 positions in order to "emerge as a powerful competitor on the other side of this downturn," John Jumper, the company's chairman and chief executive officer, said during a Dec. 5 conference call with analysts.

Revenue at Lockheed Martin Corp., the world's largest defense contractor, is projected to fall 2.1 percent to $45.2 billion in fiscal 2013 from this year. Analysts predict Northrop Grumman Corp.'s revenue will decline 2.7 percent to $24.4 billion during the same period, and Raytheon Co.'s sales will fall 1.4 percent to $24.1 billion, according to the average estimates compiled by Bloomberg.

The possibility of sequestration hasn't deterred investors in defense stocks. Shares of the Pentagon's top 10 contractors have gained 1.9 percent since the Nov. 6 presidential election through yesterday, compared with a 0.7 percent drop in the Standard & Poor's 500 Index.

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