* Net profit up 8 pct to $497 mln, EPS well above forecasts
* Full-year EPS seen at $8.00-$8.15
* Total backlog falls to $37.5 bln from $40.8 bln
By Andrea Shalal-Esa
WASHINGTON, Oct 23 (Reuters) - Northrop Grumman Corp, maker of Global Hawk unmanned planes, on Wednesdayreported sharply higher-than-expected third-quarter earnings andraised its forecast for full-year profit even as U.S. militaryspending cuts start to bite.
Northrop Chief Executive Wes Bush told analysts during anearnings call that while he expected to generate strong marginsin 2014, continuing uncertainty about U.S. budget levels wouldfurther depress sales next year.
"Today's budget environment creates uncertainty, but byfocusing on the things we can control - performance and capitaldeployment - we expect to deliver solid 2014 results," he said,noting strong interest in drone aircraft.
The company reported an 8 percent increase in net profit to$497 million, from $459 million a year earlier, while salesslipped to $6.1 billion from $6.27 billion a year earlier.
Quarterly earnings per share rose 18 percent to $2.14 from$1.82 a year earlier, while the number of outstanding sharesdecreased 8 percent.
The result came in well above the $1.82 that analystsexpected, according to a poll by Thomson Reuters I/B/E/S,sending its shares 4 percent higher to close at a new high of$105.56 on the New York Stock Exchange.
Northrop raised its forecast for full-year earnings pershare to a range of $8.00 to $8.15, from $7.60 to $7.80. Thatcompares to the company's 2012 earnings per share of $7.81.
It also forecast higher operating margins, after boostingmargins sharply in the quarter, and revised its forecast forfull-year revenues up slightly to $24.4 billion from $24.3billion.
Northrop, like most other weapons makers, has been cuttingcosts as it braces for a decline in U.S. military spending,which is slated to drop by about $1 trillion over the nextdecade.
"Although the company continues to execute well in adifficult environment, we are maintaining our 'hold' rating onthe shares, as we believe profit margins have peaked for thecompany this year and growth will be difficult to achieve overthe next few years (with) a declining budget," said WilliamLoomis, managing director at Stifel Nicolaus & Co.
The company reported lower revenues in its aerospace,information systems and technical service businesses. Revenuesin its electronic systems division however rose by 4 percent inthe quarter, lifted by higher volume for international andcombat avionics programs.
Revenues are down across the sector even though the declinehas not been as bad this year as companies had expected.However, backlogs reflect a slowdown in government orders.
Northrop said its total backlog was $37.5 billion at the endof the quarter, down from $40.8 billion at the end of December,mainly due to reduced and delayed customer awards resulting fromthe U.S. budget climate.
The decline also reflected a $1 billion adjustment in theunfunded backlog of the information systems division for expiredperiods of performance on active contracts, Northrop said.
Bush told analysts the company expected to continuegenerating strong cash flow in 2014 and was committed tocontinuing share buybacks. Northrop has said it plans to retire25 percent of its common stock, or 60 million shares by 2015,market conditions permitting.
He said Northrop was also increasing capital investment toensure long-term competitiveness, affordability and innovation.
Northrop Chief Financial Officer Jim Palmer saidinternational sales were expected to reach 10 percent of overallrevenues in 2013, up from 8 percent in 2012, and further gainswere possible in 2014.
Bush cited strong interest in unmanned planes andintelligence, surveillance and other electronic equipment. Hesaid Northrop would also benefit from international sales of theF-35 fighter jet built by Lockheed Martin Corp and theF/A-18 fighter built by Boeing Co.
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