Raytheon cuts forecast, fearing leaner times

Lower defense spending could set sales back 3% at one of state’s biggest employers

Federal government cutbacks are hitting one of the biggest employers in Massachusetts: defense contractor Raytheon Co.

The Waltham firm said Thursday that because of fewer sales to the US government, it expects revenues for 2013 to be down more than 3 percent, following a 1.5 percent decline in sales for 2012.

Raytheon did not say whether the business decline will lead to layoffs, but the company does have 3,000 fewer workers on its payroll than a year ago. Its worldwide headcount now stands at 68,000, from 71,000 a year ago.


Importantly, Raytheon’s forecast does not include the potential effects from Congressional-scheduled automatic budget cuts, called sequestration, that would go into place if Washington fails to reach a deal fixing the nation’s finances. If the automatic spending cuts do take effect, it could mean $500 billion in US military spending reductions over the next decade.

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“We need to get focused on getting sequestration fixed,” said William Swanson, chief executive officer of Raytheon, in a conference call Thursday. “It’s the elephant in the room. It sucks all the air out of every conversation.”

Shares of Raytheon fell 2.85 percent to close at $56.54 on Thursday.

Meanwhile, other major US defense contractors have already announced major cutbacks as they brace for falling military sales.

General Dynamics earlier this month announced layoffs at an Alabama facility. It also lowered the value of its Information Systems and Technology business, which includes a large plant in Taunton, by $2 billion due to slowed defense spending, the company said Wednesday.


The biggest drop in Raytheon sales was within its Network Centric Systems division that is based in McKinney, Texas, and makes military command systems. Sales in that unit fell 10 percent.

Raytheon is perhaps best known for making the Patriot missile and massive radar systems.

While the US military is among its largest clients, Raytheon has also steadily grown its sales to foreign governments, which are now helping to offset the drop in domestic military spending.

“Foreign military sales help us bridge the gap as we go through these headwinds,” Swanson said.

Overseas bookings make up about 40 percent of the company’s backlog of orders, and it expects about a 5 percent increase in international sales this year.


The company anticipates receiving several large orders for its missile systems to Middle Eastern countries in the coming months.

“Raytheon gets a bigger share from foreign sales than any of its competitors,” said Loren Thompson, a defense analyst at the Lexington Institute in Washington, D.C.

And that will help protect the company as the US defense industry contracts, he said.

“Raytheon is so broadly positioned across the defense marketplace that any downturn is likely to impact it, but only in a gradual way,” said Thompson. “Raytheon is more protected because it has a big, diverse portfolio.”

Michael B. Farrell
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