Three big defense contractors beat Wall Street earnings expectations, aided by higher sales, and said cost-cutting would aid 2011.

Industry leader Lockheed Martin forecast 2011 profit above analysts' estimates, and L-3 Communications Holdings boosted its full-year outlook. Raytheon Co forecast higher earnings for the year.

Defense contractors have been overshadowed by concern that earnings growth will be hard to achieve as governments eye spending cuts in a bid to reduce deficits. The sector saw steady increases following the September 11, 2001, attacks as U.S. defense spending ramped up.

Earlier this month, the U.S. Defense Department said it would cut $78 billion in spending over five years.

To cope, defense companies have reduced staff, put non-core divisions up for sale and are looking to acquire companies with niche technologies that are in demand.

The companies are kind of between a rock and a hard place, said Morningstar analyst Anil Daka. The Department of Defense is almost certainly going to squeeze the contractors to get more out of less.


Raytheon, which is planning to buy cybersecurity company Applied Signal Technology Inc , said its focus on cost controls would continue into 2011, and L-3 told a conference call that it would continue to study acquisition candidates and expects to shed non-core businesses.

Lockheed's finance chief said in an interview that divestitures and big acquisitions were not likely in his company's plans for this year [ID:nN27111844]. Lockheed, which put two businesses up for sale last year, is working to fix problems with its F-35 Joint Strike Fighter, the Pentagon's costliest weapons program.

Shares of Lockheed were up 30 cents at $78.69, and L-3 gained 92 cents to $78.27. Raytheon was off 5 cents at $51.55. The S&P Aerospace index <.GSPAERO> was up 0.9 percent by afternoon.

Lockheed, the world's biggest defense contractor, said quarterly profit from continuing operations came to $2.30 a share. Analysts expected $2.11. Sales rose about 5 percent to $12.79 billion.

Missile maker Raytheon reported fourth-quarter earnings, adjusted for one-time items, of $1.47 a share, well above analysts' average forecast of $1.16, according to Thomson Reuters I/B/E/S. Sales rose 3 percent to $6.89 billion.

L-3, which makes explosive-detection devices and aviation products, posted an 18 percent jump in quarterly profit. Net sales increased 1 percent to $4.3 billion.

(Reporting by Karen Jacobs in Atlanta and Kyle Peterson in Chicago; Editing by Phil Berlowitz)