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Raytheon boosts earnings forecast after strong quarter

By Andrea Shalal-Esa

(Reuters) - Raytheon Co raised its profit forecast for 2013 on Thursday after a stronger-than-expected jump in first-quarter earnings, the only major arms company to do so despite fresh U.S. defense budget cuts.

Raytheon, which makes the Patriot missile and a wide array of other military equipment, also raised its forecast for full-year cash flow, and its shares climbed 1 percent to $58.72 in morning trading.

Chief Financial Officer David Wajsgras said U.S. bookings will likely be trimmed by $400 million to $600 million this year due to mandatory U.S. budget cuts. He said that amount was in line with Raytheon's expectations and recent talks with the Pentagon had not resulted in any surprises.

"We have been talking about sequestration for well over a year. What we see today is not really different from what we had been expecting," Wajsgras told Reuters in an interview.

Chief Executive William Swanson told analysts that Raytheon was well prepared to deal with the budget cuts, describing them as "a speed bump .. that we think we forecasted correctly."

First-quarter earnings from continuing operations rose 8.9 percent to $490 million from $450 million a year earlier, and earnings per share increased to $1.49 from $1.33. Revenue slipped to $5.88 billion from $5.93 billion.

Analysts, on average, had expected $1.28 per share on revenue of $5.69 billion, according to Thomson Reuters I/B/E/S.

The company said it now expects full-year earnings of $5.26 to $5.41 per share from continuing operations, up from a previous forecast of $5.16 to $5.31.

It raised its forecast for full-year cash flow to a range of $2.1 billion to $2.3 billion, up from $2.0 billion to $2.2 billion.

Raytheon revised its revenue target for the full year downward slightly, to a range of $23.2 billion to $23.7 billion from $23.6 billion to $24.1 billion.

Swanson said he was confident the company would achieve its full-year revenue outlook despite U.S. budget cuts.

"If the international comes in stronger, that's even better," he said, referring to the company's current forecast for a book-to-bill ratio - orders received to orders shipped - of 1.0.

Wajsgras said Raytheon's first-quarter results exceeded its expectations, adding that its businesses remained well-aligned with the U.S. government's priorities in missile defense, electronic warfare, cyber and intelligence-gathering operations.

"We are confident in our ability to continue to perform well, even in a more difficult environment," he said.

Defense analyst Rob Stallard of RBC Capital Markets said the results were much better than expected. "The company continues to weather the storm in pretty good shape, helped in no small part by its significant exposure to defense exports," he said.

Bookings were sharply lower in the quarter, but Wajsgras said they would rise later in the year, when several large international orders come in.

Raytheon's results were in line with trends seen across the defense industry this week. The main impact of sequestration - mandatory across-the-board budget cuts - was expected to be felt later this year or early in 2014.

Wajsgras said Raytheon, which generates more revenue overseas than its rivals, continued to see strong international demand, and foreign bookings were expected to rise 20 percent in 2013, accounting for 36 percent of the company's backlog.

As a result, international sales would rise to about 27 percent to 29 percent of the company's total revenue in 2013.

As seen across the sector, Raytheon's adjusted operating margin rose 10 basis points to 13.2 percent in the first quarter.

Swanson said he recently raised concerns with Deputy Defense Secretary Ashton Carter that new program "starts" could suffer in the current budget climate, but said officials were "trying to protect those programs going forward, which I think bodes well for the kind of work we do."

Wajsgras told analysts he expected Raytheon to sustain high operating margins, noting that international orders often generate higher profit margins.

(Reporting By Andrea Shalal-Esa; Editing by Alden Bentley, Jeffrey Benkoe and John Wallace)

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