Defense Industry Braces for Tariff Barrage

War is usually a good thing for defense contractors. Trade wars not so much.

As three industry titans — Lockheed Martin, RTX, and Northrop Grumman — held earnings calls on Tuesday, one overarching theme became clear: The fresh crop of tariffs is probably going to be bad for their business. In other words: The defense industry is stuck playing defense.

On the Radar

It’s been a wild year for arms makers. A US foreign policy U-turn on the Russia-Ukraine war has had the industry in retreat, while Defense Secretary Pete Hegseth has announced plans to cut $580 million in “wasteful spending” at the Pentagon. (European defense players, on the other hand, are having a banner year; ditto US competitor SpaceX, which seems to have become a favored US government contractor.) 

Still, not every industry player is feeling the heat equally. Lockheed Martin posted net earnings of $1.7 billion on revenue of $18 billion, both of which bested Wall Street’s expectations. Crucially, the company noted a backlog worth $173 billion — a cushion equivalent to more than two years of sales.

The company also affirmed its outlook for the year… though noted its forecast did not include “the evolving impacts of tariffs or related recoveries.” That was enough to spare it from market pain; its share price rose around 0.9% on Tuesday. Northrop and RTX, on the other hand, were under siege:

• RTX was much more blunt, providing a full breakdown of the impact it expects tariffs to have on its operating profit this year. The company expects a $250 million hit from levies on Canadian and Mexican imports, another $250 million hit due to tariffs on and from China, a $300 million hit from other global reciprocal tariffs, and a $50 million hit from tariffs on steel and aluminum alone.
• The company’s share price plummeted over 9%. That was more than matched by Northrop’s decline of over 12% after the company reported a roughly 47% year-over-year decline in quarterly profits, blamed in large part on the rising costs to manufacture its B-21 Raider stealth bomber. 

Escape Velocity: In more big news for the defense and aerospace sector on Tuesday, Boeing announced that it would sell parts of its Digital Aviation Solutions business — which makes navigation software and other digital tools — to private equity firm Thoma Bravo in an all-cash deal worth $10.5 billion. Shares popped some 2% on the news, though analysts see the deal as a bit of a mixed bag. On the one hand, Boeing — which reported an $11.8 billion net loss last year — could use some spare cash. On the other hand, the software unit turned a steady profit. Suffice to say: The beleaguered aerospace giant could still use some reliable wind beneath its wings.