The company’s revenues from commercial aircraft sales jumped 54% to $10.94 billion and sales of military aircraft rose 27% to $4.3 billion. It’s interesting to contrast Boeing’s military business with other military contractors like General Dynamics Corp. (NYSE: GD) and Northrop Grumman Corp. (NYSE: NOC), both of which also reported earnings today. Lockheed Martin Corp. (NYSE: LMT) and Raytheon Corp. (NYSE: RTN) are scheduled to report earnings tomorrow.

Boeing’s defense and space business posted an operating margin of 9% in the first quarter, about 10% lower than its operating margin in the company’s commercial aircraft business. But the margin growth was only 0.2% year-over-year in defense, compared with margin growth of 2.7% in the commercial business.

Boeing also lifted its full-year EPS forecast from $4.05-$4.25 to a new range of $4.15-$4.35.

General Dynamics, which makes tanks and combat vehicles, reported that sales in its combat systems group fell -2.3%. Northrop reported that sales in its aerospace group, which manufactures drones, fell -8% and profits fell -2.7%. Northrop’s electronics group posted a gain in profits even as sales fell.

The proposed cut of $490 billion in US defense spending over the next 10 years will certainly have a larger impact on General Dynamics and Northrop than it will on Boeing. Still today’s report from the US Census Bureau on durable goods orders is not too encouraging for Boeing either. Of a decline of $7.7 billion in new orders for aircraft and parts, some $7.1 billion of the drop came in non-defense orders (our coverage here).

The backlog of orders for non-defense aircraft is up 15.6% compared with March 2011 and the defense backlog is up 5.6%. But those backlogs are likely to shrink as new orders, especially for non-commercial aircraft, are filled.

Lockheed is expected to post EPS of $1.70 on revenue of $10.56 billion tomorrow. Raytheon, also scheduled to report earnings tomorrow, is slated to post EPS of $1.16 on revenue of $5.77 billion. For both the EPS estimate is lower than year-ago actuals, while the revenue estimates are higher.

Boeing’s shares are up 4.3% in the first half-hour of trading this morning at $76.36 in a 52-week range of $56.01-$80.65.

General Dynamics’ shares are down -1.3% at $69.12 in a 52-week range of $53.95-$75.93.

Northrop’s shares are up 2.3% at $64.18 in a 52-week range of $49.20-$70.61.
Shares of Lockheed are up 0.5% at $91.60 after posting a new 52-week high of $91.79, and shares of Raytheon are up 0.9% at $53.47 after another new 52-week high of $53.56.

Paul Ausick

Read The Ten Companies Profiting Most from War

The institute recently published its annual report on the leading arms producing companies in the world — SIPRI Top 100. The report identifies the largest companies in the sector and provides each company’s arms sales as a percentage of its total sales. Based on the report, 24/7 Wall St. identified the 10 companies with the highest revenue from arms sales. These companies alone account for $230 billion — over half of all arms sales that year.

While many industries continued to suffer in 2010 as a result of the financial crisis, leaders in the arms and military services were largely unaffected. According to SIPRI arms industry expert Dr. Susan Jackson, when sales dropped, it was not because of the financial crisis. Instead, Dr. Jackson notes that loss in sales was due to “the withdrawal of foreign troops from Iraq and the subsequent expected decrease in related equipment sales.”

The composition of the 10 largest manufacturers reflects the state of modern warfare. More and more, battles are fought remotely through air surveillance and strikes rather than on-the-ground combat. As a consequence, seven of the 10 largest companies are among the leading aerospace companies. Surveillance and battlefield communications also are increasingly important in modern warfare. All of the companies in the top 10 have significant electronics divisions.

Of the 100 companies on the list, 44 are based in the U.S., including Boeing, Northrop Grumman and Lockheed Martin. The American companies account for more than 60% of arms sales revenue of the 100 manufacturers. Seven of SIPRI’s top 10 are American, one is British, one is Italian and one is a multinational EU conglomerate. The U.S. federal government has contract deals with all seven American companies. These seven are among the top 10 U.S. federal contractors by amount procured, according to the government’s Federal Procurement Data System.

24/7 Wall St.’s analysis of the SIPRI 100 includes revenue for arms sales for 2007, 2009 and 2010, as well as percentage of company revenue from arms sales, employees, industry and applicable military division. 24/7 Wall St. also included history of each company and notable weapons systems manufactured.

These are the 10 companies profiting most from war.

The unofficial closing bells put the DJIA up more than 83 points to 12,716.31 (0.66%), the NASDAQ rose more than 34 points (1.22%) to 2,848.27, and the S&P 500 rose 0.89% or nearly 12 points to 1,324.08.

There were several analyst upgrades and downgrades today, including Citigroup Inc. (NYSE: C) raised to ‘outperform’ at Wells Fargo; Newmont Mining Corp. (NYSE: NEM) cut to ‘hold’ at Stifel Nicolaus; Seagate Technology PLC (NASDAQ: STX) raised to ‘buy’ at Stifel Nicolaus; Exxon Mobil Corp. (NYSE: XOM) cut to ‘hold’ at Argus (see our coverage here); and Monster Worldwide Inc. (NYSE: MWW) cut to ‘perform at Oppenheimer. Amazon.com (NASDAQ: AMZN) had three ratings changes today: maintained as ‘neutral’ with target price cut to $190 at Credit Suisse; maintained ‘outperform’ but estimates cut at Baird; and target price lowered to $225 at Jefferies.

Earnings reports since markets closed last night have led to some price changes as of the last half hour of trading today: Amazon.com is down -8.2% at $178.51; Broadcom Corp. (NASDAQ: BRCM) is up 8.24% at $37.18; Aetna Inc. (NYSE: AET) is up 3.3% at $45.13; Corinthian Colleges Inc. (NASDAQ: COCO) is up nearly 34% at $4.05; Enterprise Products Partners L.P. (NYSE: EPD) is up 3.8% at $50.13, after posting a new 52-week high of $50.35 earlier today; Manpower Inc. (NYSE: MAN) is up nearly 14% at $45.70; Marathon Petroleum Corp. (NYSE: MPC) is up nearly 10% at $41.98; Northrup Grumman Corp. (NYSE: NOC) is up 2.22% at $59.34; and Whirlpool Corp. (NYSE: WHR) is up 14% at $61.93.

Other standouts from today include the following stocks:

Key Tronic Corp. (NASDAQ: KTCC) is up nearly 37% at $8.53, after posting a new 52-week high of $8.74 earlier today. The computer peripherals maker posted better-than-expected earnings and revenues after markets closed last night.

Sangamo BioSciences Inc. (NASDAQ: SGMO) is up more than 21% at $4.19. The pharmaceutical maker has announced a collaboration with Shire plc (NASDAQ: SHPGY) to develop a hemophilia treatment.

Medivation Inc. (NASDAQ: MDVN) is up more than 21% at $67.26, after posting a new 52-week high of $70.87 earlier today. The development stage drug maker has reported highly positive results on a test of its late-stage prostate cancer treatment. We have more coverage here.

JDA Software Group Inc. (NASDAQ: JDAS) is down more than -17% at $24.39. The software maker issued a fairly weak quarterly report and continuing investor wariness remains over an SEC investigation of the company’s accounting practices.

IXYS Corp. (NASDAQ: IXYS) is down more than 14% at $11.76. The integrated circuit maker posted poor quarterly numbers after markets closed last night.

Stay tuned for Thursday. Federal Reserve chairman Ben Bernanke is speaking at 10:00 a.m. and Dallas Fed president Richard Fisher is speaking in the evening. We have noted the following events on the schedule (all times Eastern):

• 7:30 a.m. – Challenger Job-cut data
• 8:30 a.m. – New claims for unemployment benefits
• 10:30 a.m. – EIA weekly natural gas storage report
• 4:30 p.m. – Federal Reserve money supply and balance sheet reports

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Paul Ausick

Read: The 10 Most Expensive Weapons in the World

To understand the magnitude of these weapons’ budgets, one only needs to look at the recent government initiatives aimed to save the economy. The $868 billion cost of the most expensive weapons in the world is much more than the $700 billion set aside by Congress as part of the TARP to salvage the nation’s massive financial system. It is also more than President Obama’s $787 billion stimulus package approved by Congress in February 2009.

The Pentagon breaks the costs of weapons into two categories. The first is research and development. The second is the actual costs to buy the weapons. Together, the two figures can be staggering. The total cost of the Virginia Class Submarine, for example, surpasses $83 billion. That entire amount has been and will be invested to launch only 30 of the weapons. All told, it is an extraordinary expense base to maintain America’s defense.

24/7 Wall St. reviewed the figures from the Department of Defense budget and provided by the General Accounting Office to find the 10 Most Expensive Weapons in the World.”

The US House-Senate budget reduction committee, or the ‘super committee’, that is charged with recommending $1.5 trillion in budget cuts over the next 10 years has just another 10 days to deliver its recommendations before automatic cuts of $1.2 trillion kick in. If the committee fails to agree on cuts, the automatic cuts fall equally among defense spending and a variety of programs that are together lumped under the heading discretionary spending.The discretionary spending cuts would likely come from federal programs that aid the poor, education, and the elderly.

No specific cuts have been identified in the legislation that created the super committee, but to achieve $600 billion in cuts over ten years is sure to cause some pain to a variety of constituencies. That amount is increased by the $350 billion in cuts already approved by Congress over the next ten years. Trying to discern where a publicly traded company might get hurt by impending cuts is, at this point, pretty much guesswork.

On the defense end, cuts are far more likely to have an effect on publicly traded companies that have significant federal defense contracts for everything from fighter planes to software. The following chart shows the top ten defense contractors in 2011, together with the total amount of their contracts, as derived from 2010 contract levels:

Privately held DynCorp International Inc. falls just above H-P, at $2.4 billion. Excluding DynCorp, the top ten contractors are slated to post sales of $47.6 billion in federal contracts in 2011. The top ten in 2010 posted sales of $68.2 billion. So far in 2011, a total of more than $196 billion in defense contracts have been awarded. The total in 2010 reached $247 billion, and that number is almost surely out of reach for this year.

Cuts to defense spending have already begun, as the US winds down its presence in Iraq and prepares to do the same in Afghanistan. Not including the wars in Iraq and Afghanistan, the Pentagon budget for 2011 reached nearly $550 billion.

Since the last report, the number of millionaires has increased by 7.3 percent, following a gain of 17.5 percent in 2009, which came after a steep drop in 2008. Despite the rosy state of America’s rich, the same cannot be said for the residents of the cities these millionaires call home. A review of the local economies of these cities demonstrates that the fortunes of the rich don’t depend on how their neighbors do.

Unemployment remains a significant issue for the country. Half of the cities on this list have unemployment rates above the national average of 9.1 percent. San Jose, San Francisco and Chicago are over 9.3 percent. Los Angeles and Detroit are both over 11 percent.

• Read: The American Cities With The Most Millionaires

Housing markets in most of these cities present an even starker contrast. Eight of the ten markets on the list were flat or decreased in value. While Boston, Philadelphia and New York dropped less than 5 percent, in Chicago, Detroit and San Francisco housing dropped in excess of 10 percent.

Despite moribund local economies, millionaires in all of these cities increased in number, in some cases significantly. Houston had 88,200 millionaires in 2009. In one year, the number of millionaires grew 9.6 percent to 96,700. This followed an impressive gain in the prior year, when the number of millionaires in the city grew nearly 30 percent. The number of millionaires in other cities on the list also grew significantly between 2008 and 2009, and less the following year. San Jose’s millionaire population increased by 24.5 percent in the first period and only 2.7 percent in the most recent. These initial recoveries have as much to do with the drops in wealth in 2007 as anything else.

While there is a clear disconnect between the fates between the cities’ millionaires and their average residents, the reasons why the wealthy became wealthier seem to be the same. In all of the cities on the list industry recovered. In New York and Chicago, finance prevailed. In Houston, energy powered the economy. In San Jose, it was tech. And although gains were seen, in sales and stock price, the fortunes of average workers have remained constant and in some places become worse.

To provide perspective on the local economies on the Cap Gemini’s list, 24/7 Wall St. used Zillow’s real estate database for the yearly change in home value for each metropolitan statistical area in June 2011. We also included the most recent unemployment data for each area. Finally, we reviewed the Fortune 500 list to identify the largest publicly traded companies that are headquartered in those cities.

These are the American Cities with the Most Millionaires.

Shares short in GM (NYSE: GM) jumped 26% to 41.5 million. The short interest in Alcoa (NYSE: AA) was higher by 14% to 69.3 million. Shares sold short in defense firm Northrop Grumman (NYSE: NOC) moved higher by 226% to 26.7 million for the period which ended May 15.

Shares short in GE (NYSE: GE) were up 75.6 million shares. Shares sold short in Bank of America (NYSE: BAC) rose 8% to 100 million. Shares short in Johnson & Johnson (NYSE: JNJ) rose 24% to 34.6 million. The short interest in Merck (NYSE: MRK) was up 26% to 26.5 million.

Share short in Intel (NASDAQ: INTC) rose 18% to 97 million. Cisco (NASDAQ: CSCO) short interest rose 8% to 52.2 million.

Source: NASDAQ and NYSE

Douglas A. McIntyre

It has taken 11 years, a bribery scandal that sent a Boeing official to jail and cost the company’s former CEO his job, and a third round of bidding due to irregularities in the first re-bid. The tanker contract may be the last of the big-time defense deals for a long time, and that’s what makes it so important.

The US Congress and the Defense Department are starting to cut back on defense spending, which does not augur well for defense contracts like Boeing, Lockheed Martin Corp. (NYSE: LMT), Northrop Grumman Corp. (NYSE: NOC), General Dynamics Corp. (NYSE: GD), United Technologies Corp. (NYSE: UTX), and others. The Pentagon has already cautioned defense contractors against mergers, or at least mergers that are considered without Pentagon input. That leaves only organic growth to boost the companies’ revenues and profits, and those will be under pressure as defense spending decreases not just in the US, but globally.

The nominal price tag on the tanker contract is $35 billion, but as much as three times that amount is at stake given maintenance and upgrades over the life of the tanker. The current Air Force tanker has been in service for more than 50 years, and that’s a lot of incremental income for the builder.

EADS has 10 days to file a protest following a meeting with Air Force officials on February 28th at which time the European company will be briefed by the Air Force on the results of the bidding. A ruling on the protest could take weeks or months, and if EADS prevails, there could be yet another round of bidding.

The Defense Department would like very much to avoid that. The new tanker, which will be designated the KC-46A, needs to get off the starting line if the full order of 179 planes are going to get built. As Pentagon budgets shrink, that number could fall. As it is, the win for Boeing immediately pays just $3.5 billion for delivery of the first 13 planes, which are scheduled through 2027.

And given Boeing’s headaches getting its new passenger planes out the door, there should be concern about the company’s ability to deliver the new tanker on time and on budget. If Boeing misses deadlines and busts budgets, it’s reasonable to expect that the Congress and the Pentagon will be reluctant to go ahead with the full complement of tankers.

Boeing’s shares are up about 3% this morning on heavy volume.

Paul Ausick

The nation’s largest defense contractors are Lockheed Martin Corp. (NYSE: LMT), Boeing Co. (NYSE: BA), Northrop Grumman Corp. (NYSE: NOC), General Dynamics Corp. (NYSE: GD), Raytheon Co. (NYSE: RTN), and United Technologies Corp. (NYSE: UTX). What the Pentagon fears, of course, is that consolidation will reduce competition and drive up prices for weapons and materials at a time of declining budgets. The Pentagon appears to be calling for more patriotism and reduced attention to the bottom line.

The Defense Department is also not thrilled with the announced intention of Northrop Grumman to spin-off its shipbuilding business following the Navy’s decision to lower its targeted fleet growth. As The Wall Street Journal points out, Northrop’s Newport News shipyard is the sole maker of US nuclear-powered aircraft carriers.  It’s not likely that the Pentagon will let a contract to a Korean or Chinese shipbuilder to build the country’s defense fleet.

And while there have been no reports of mergers within the industry, a rumor floated around last year that Boeing may merger with Northrop. Boeing denied the rumor, saying the company was focused on organic growth.

What the Pentagon claims to be seeking with its new comments on mergers is transparency in the event a merger is proposed. That’s a pretty vague requirement. After all, how much transparency does the Pentagon really want above and beyond that already required by the SEC? Probably not much, but what the Pentagon might be angling for is some more active role in reviewing just what effects might come from a big merger.

For example, in the absence of a competitive bidder for a particular item, might the Pentagon want to enforce a fuller disclosure of the cost to build the item, thus limiting the margin to the contractor? Perhaps more detailed information on bids would be a good thing, but if there is no US-based competitor, what’s the alternative? Either the Pentagon wants the item or it doesn’t? Outsourcing a new radar system to China is out of the question.

What the Pentagon wants to avoid is consolidation at the top of the defense contractor list. It would welcome transactions that make defense firms more efficient. Falling budgets mean that the Pentagon will need to get more for what it spends. That, in itself, will be a difficult transition.

Paul Ausick

Indeed, just as the U.S. is slashing spending on aerospace systems and defense equipment, China has opened its checkbook.  According to GlobalSecurity.Org,  the People’s Republic had a 2010 defense budget of 532.115 billion yuan (about $77.9 billion at current exchange rates) , an increase of 7.5% more than last year. Defense spending in China has gained by a whopping 12.9% annually since 1989.  Other sources give the figure at $98.8 billion as of 2009. Regardless, it’s a pittance compared with the $600 billion the Pentagon is due to spend.  So far, it has been money well spent by China.

For instance, media reports about China’s “stealthy” J-20 fighter jet appeared ahead of this week’s state visit to the U.S. by leader Hu Jintao.  J-20′s design would help it evade radar though not as well as the U.S. F-22 Raptor, aviation expert Richard Aboulafia told the Wall Street Journal.  While that may offer some comfort, the F-22 is one of the high-tech weapons systems headed yet again for the budgetary chopping block.

“Gates halted F-22 production at 187 planes for budgetary reasons, but the Air Force argues that producing 12 planes a year – the equivalent in cost of two weeks of fighting in Afghanistan – would be enough to maintain U.S. air superiority for decades,”  according to FoxNews.com

Given that the budget deficit tops $1 trillion,  Gates’s view may carry the day with the fiscal conservatives in Congress.  For the Chinese, who reportedly pilfered the design for the J-20 using online espionage, the advantages are many.  They probably will be able to improve the aircraft’s design to make it even more stealthier in the coming years and make it at a cheaper price, as it the Chinese do with everything else.   As a result, this will force U.S. defense contractors to keep their prices low when it comes time to sell the F-22 to foreign countries, which have long been a critical market for these companies.  The same holds true for the F-35 Joint Strike Fighter, which was developed with frugality in mind but has also been cut by DOD bean counters.

The Chinese threat also extends to outer reaches of the heavens.   As the Heritage Foundation noted today,  China launched a record 15 satellites in 2010, marking the first time since the Cold War that any nation matched the U.S.  in this metric.  Beidou already is outpacing Europe’s Galileo system, which was supposed to be running by 2008.  It already has plans to launch another 8 to 10 satellites by 2012 with global coverage by 2020,  Wired magazine says.   Indeed, the Chinese already have plans for a manned moon landing by 2017.  The U.S. had planned a $100 billion return lunar visit in 2018 before it was scrapped for budgetary reasons.  China views the Moon as a potential source of natural resources.

China’s Jin class nuclear submarines are scaring the bejesus out of some defense experts.  Their ascendancy comes as the U.S. military shipbuilding industry continues to struggle because there just isn’t enough work to go around.  In 2008, the U.S. Navy awarded a $14 billion contract to Northrop Grumman Corp. (NYSE: NOC) and General Dynamics Corp.’s  (NYSE: GD) Electric Boat Division, the two military ship contractors, to double the number of submarines being built to two.  Last year,  Northrop reportedly was in talks to sell its shipbuilding division to several private equity firms because the returns were so poor.

For U.S. aerospace and defense contractors, China is the worst kind of competitor: an uneconomical one.   American companies need to think of whether they will make a return on their investment while furthering the aims of U.S. policies.   Their rivals in China only need to worry about keeping their government masters happy.

China is able endure short-term fiscal pain for long-term gain in one of the few industries which continue to employ tens of thousands of Americans in high-paying jobs.

–Jonathan Berr