Deloitte, the international consulting firm, said a revenue decline of 2.6 percent was mostly the result of the Budget Control Act of 2011, which led to decreased spending by the Department of Defense and others, and the drawdown of U.S. forces in the Middle East.
“Of the top 20 U.S. defense contractors, 17 had decreases in revenues -- an indication of how widespread the impact of budget reductions has been on the industry,” Deloitte said. “Companies producing ground equipment, including armored vehicles, and those that provided onsite services in conflict zones experienced the highest reductions in revenues due to the drawdown of troops. Generally, companies involved in military aircraft and naval ships experienced flat revenues."
Despite a dip in revenues, profitability for U.S. defense contractors increased 17.9 percent, the study said. About half of the increase was due to the absence of large one-time charges but profitability also reflects actions taken by companies in anticipation of sequestration-related budget tightening.
Those actions included workforce reductions and plant closings.
"With U.S. defense budgets being cut, defense contractors are likely to experience continued revenue declines," said Tom Captain, vice chairman, Deloitte LLP and U.S. and Global Aerospace and Defense leader. "We anticipate that U.S. defense contractors will aggressively address this revenue shortfall with foreign military sales, acquisitions, new product introductions and growth in adjacent markets."
For the study, Deloitte viewed the financial performance of 100 major global and U.S. aerospace and defense companies in 2013, analyzing sales revenue, operating earnings and operating margins.