By Andrea Shalal
WASHINGTON (Reuters) - Lockheed Martin Corp (LMT.N), the top supplier to the U.S. military, forecast a drop in 2015 sales and reported lower-than-expected quarterly revenue for the second time this year.
The company, whose stock fell as much as 5 percent on Tuesday, said it expected 2015 revenue to decline by a low single digit percentage compared with 2014.
The projected decline pointed to "further Department of Defense pain," RBC Capital Markets analyst Robert Stallard said in a client note.
Lockheed's revenue fell 2 percent to $11.1 billion in the third quarter ended Sept. 28, mainly due to a drop in sales from its aeronautics business, its largest.
Net earnings rose 5 percent to $888 million, or $2.76 per diluted share, driven by higher pension income.
Analysts on average had expected earnings of $2.71 per share on revenue of $11.31 billion, according to Thomson Reuters I/B/E/S.
However, Chief Financial Officer Bruce Tanner told Reuters that legislative changes would result in a "pension funding holiday" for the company from 2015 to 2017, allowing it to double projected share repurchases to about $2 billion in 2015.
Lockheed also refined its forecasts for 2014 toward the upper end of previous guidance ranges.
The company said it expected revenue to slip to $45 billion in 2014 from $45.4 billion in 2013, but forecast a rise in earnings per share to $11.15 from $9.58.
International sales continued to grow and could account for 25 percent or more of the total in the next few years, Chief Executive Marilyn Hewson said on a call with analysts.
The company announced on Tuesday a $1 billion contract from General Dynamics Corp (GD.N) to provide turrets for tanks ordered by Britain's armed forces.
Operating margins edged lower in each of the company's five divisions, with the trend most noticeable in the aeronautics sector, which builds the F-35 fighter jet.
Earnings in the division fell 12 percent to $362 million, while the operating margin fell to 10.2 percent from 11.3.
Lockheed said the drop in operating profit was largely due to a drop in deliveries of C-130 transport planes.
Tanner said the company had work ahead of it to deliver all 36 F-35s due to the U.S. government by year-end, but cited "really good progress" on deliveries given an engine issue that grounded the entire F-35 fleet for several weeks this summer.
He said 22 jets had already been delivered and most of the rest were well into the acceptance process.
F-35 sales will expand over the next five years to account for 20 to 25 percent of overall corporate revenue, and will likely remain in that range for a long time, he said.
Lockheed's shares were down 1.3 percent at $173.19 in afternoon trading.
(Reporting by Andrea Shalal and Sweta Singh; Editing by W Simon, Andrea Ricci and Ted Kerr)