Deloitte Report: Continued Decrease In Defense Sector Revenue And Earnings, Growth in Commercial
A new Deloitte report¬†that analyzes the U.S. aerospace and defense (A&D) sector’s financial performance found that defense revenues and earnings continued to decrease, while commercial aerospace continued double digit revenue growth in 2012. Defense firms revenue decreased 1.5 percent and earnings fell 7.4 percent, while commercial aerospace revenue increased 18.3 percent and earnings increased by 13.2 percent.
On March 1, 2013, an additional budget reduction associated with the automatic “sequester” took place, due to inaction on a new budget proposal, resulting in $46 billion in annual defense cuts. Assuming that these cuts will be proportional and that the entire amount remains in subsequent congressional actions, it is estimated that up to another 12 percent, or $25 billion, of defense and government contractor budgets are likely to be impacted for a combined total of approximately 24 percent in reductions.
“With U.S. defense budgets being cut, defense contractors are likely to experience continued revenue declines, and in some cases accelerated revenue declines. It’s expected that U.S. defense contractors will aggressively address this revenue shortfall with foreign military sales, acquisitions, new product introductions and growth in adjacent markets,” said Tom Captain, vice chairman, Deloitte LLP and aerospace and defense sector leader.
Overall, the top 20 U.S. A&D ¬†companies’ revenues increased 5.5 percent to $354.7 billion, primarily driven by record-setting commercial aircraft production, which offset the negative revenue decline within the defense subsector. Overall operating earnings decreased 2.2 percent to $36.0 billion due to the impact of slowing defense spending.
The report details the financial performance of the top 20 publically listed A&D companies headquartered in the U.S., based on sales revenue. The data to conduct the analysis was obtained from company filings as well as company press reports of fiscal year-end, unaudited financial performance.