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SAIC falls as 3Q profit falls short of St. view

NEW YORK (AP) -- Shares of SAIC fell on Thursday after its fiscal third-quarter earnings fell short of Wall Street's expectations. The defense contractor, which is dealing with the prospect of steep cuts in government spending if lawmakers can't reach a budget deal, also plans to cut about 700 jobs in a cost-cutting drive.

THE SPARK: SAIC Inc. said on Thursday that it earned $110 million, or 33 cents per share, in the August-October quarter, compared with a loss of $89 million, or 27 cents per share, a year earlier. Revenue rose 3 percent to $2.87 billion.

Analysts polled by FactSet forecast earnings of 35 cents per share on revenue of $2.86 billion.

THE BIG PICTURE: Potential cuts to the government budget for defense have weighed on SAIC's shares, which are down 6 percent this year. More than 90 percent of SAIC's revenue comes from contracts with the U.S. government, and three-fourths of its revenue from the Department of Defense.

The White House and Republican lawmakers are battling over how to cut the deficit. Without a deal, the country will go over the "fiscal cliff" next year, resulting in a steep tax increase and deep cuts in defense spending as well as other government spending.

SAIC, which is based in McLean, Va., is also planning to split into two publicly traded companies partly so that it can bid on more contracts and eliminate potential conflicts of interest.

THE ANALYSIS: The company is running its business "quite well" in a difficult market, particularly with the uncertainty of the possible deep cuts to defense spending, said Jefferies analyst Jason Kupferberg.

The company raised its forecast for earnings in the year ending in January to $1.49 to $1.54 per share. Its prior outlook was for $1.26 to $1.36 per share. Wall Street had expected full-year profit of $1.35 per share. But Kupferberg said that excluding one-time items, the company's core outlook was unchanged.

SHARE ACTION: SAIC's stock declined 45 cents, or 3.9 percent, to $11.22 in afternoon trading.