Russia’s 2022 invasion of Ukraine is starting to boost profits for defense contractors as clients like the U.S. government replenish weapons supplies to Ukraine and European countries arm themselves against Moscow’s aggression.
U.S. defense contractors such as Lockheed Martin, General Dynamics and others hope that existing orders for hundreds of thousands of artillery shells, hundreds of Patriot interceptor missiles and a surge in armored vehicle orders expected in the coming months will support their results in the next quarters.
Late last year, new contracts were signed to ship directly to Ukraine or to replenish US weapons shipped to Ukraine, and profits are now flowing to major defense contractors. Lockheed, General Dynamics and RTX reported better-than-expected results in recent days, and executives expect the conflict in Ukraine and Israel’s war with the Palestinian group Hamas to boost demand in the near term.
“We went from 14,000 (artillery) rounds a month to 20,000 very quickly. We are working ahead of schedule to increase that production capacity to 85,000, even 100,000 rounds a month,” Jason Aiken, General Dynamics’ chief financial officer, said in a statement. call with Wall Street analysts on Wednesday.
“And I think the situation in Israel will only increase the pressure on this lawsuit,” he added.
Revenue at General Dynamics Combat Systems, which produces armored vehicles, tanks and artillery for Ukraine, rose almost 25% compared to the same period last year.
RTX, which makes the AMRAAM missiles used in Ukraine, said in a call with Wall Street analysts on Tuesday that it has received $3 billion in orders since Russia’s invasion in February 2022 related to replenishing Ukraine’s military arsenal and United States, and that the company expects greater growth.
Northrop Grumman’s Defense Systems segment sales increased 6% in the third quarter, driven by strong demand for munitions and rocket motors used in Guided Multiple Launch Rocket Systems (GMLRS), which play a critical role in supporting Ukraine’s defense efforts against Russian forces.
This is part of a global trend. Sweden’s Saab raised its full-year sales forecast on Thursday amid strong defense demand, while Germany’s Rheinmetall said third-quarter profits rose due to strong demand for weapons and ammunition.
President Joe Biden said Oct. 20 that his latest request for $106 billion in new funding for Ukraine, Israel, the Indo-Pacific and the Border Patrol would go to companies that replace U.S. weapons production shipped abroad. Biden mentioned Patriot missiles made in Arizona and “artillery shells produced in 12 states across the country,” naming Pennsylvania, Ohio and Texas.
Executives from several defense companies warned at a recent trade show that skilled labor shortages and supply chain problems continue to hamper the companies’ ability to fulfill orders.
“To be completely frank, the supply chain problem persists,” General Dynamics’ Aiken said on an earnings conference call when the company said it was cutting its commercial aircraft delivery forecast for 2023. “I don’t think we’ll be back anytime soon.” to what we saw before the pandemic”.
Lockheed said Oct. 17 that supply and labor disruptions are affecting divisions such as aeronautics, which produces the advanced F-35 fighter jet, due to the need for processor suites, solid rocket motors, cast and forged parts.
