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Lockheed tops third-quarter profit view on increased sales of F-35 jets

By Ankit Ajmera and Andrea Shalal

(Reuters) - Lockheed Martin Corp, the Pentagon's No. 1 weapons supplier, on Tuesday reported better-than-expected quarterly results on higher demand for its F-35 fighter jets and said it expects full-year revenue and profit at the high end of its forecast.

Lockheed shares initially fell 2.5 percent on disappointment about its forecast for flat revenues and lower margins in 2016, but they recovered to close at $208.73, down just under 1 percent from Monday.

Lockheed also won U.S. government approval to sell up to four of its smaller warships to Saudi Arabia, a deal with an overall price tag of $11.25 billion. The company said it expects to finalize the deal in 2016, along with a big order from Qatar for its THAAD ballistic missile defense system.

Chief Executive Marillyn Hewson told analysts that Lockheed remained on track to boost international sales to 25 percent of overall revenues in coming years.

Revenue at Lockheed's aeronautics division increased about 11 percent to $3.92 billion in the third quarter, with $500 million coming from additional sales of the F-35 fighter jet, the company said.

Lockheed is developing and building F-35 jets for the U.S. military and nine other countries. With estimated development and procurement costs of $391 billion for the United States alone, the F-35 is the world's most expensive weapons program.

Lockheed's prospects for selling 65 F-35 jets to Canada dimmed after the election of Liberal leader Justin Trudeau as prime minister given Trudeau's vow to reject any F-35 purchases, U.S. industry and government sources said.

The company said it expected to finalize its planned $9 billion purchase of helicopter maker Sikorsky Aircraft from United Technologies Corp in the fourth quarter.

The company said it would revise its 2015 forecast after it closed that deal and completed a strategic review aimed at selling or spinning off its services businesses.

Excluding both moves, total operating margin in 2016 should range from 11.0 percent to 11.5 percent, down from the expected margin of about 12 percent in 2015, it said.

The company forecast 2015 sales of $45 billion, and segment operating profit of $5.4 billion. Its previous forecast called for sales of $43.5 billion to $45 billion and segment operating profit of $5.225 billion to $5.375 billion.

Lockheed also forecast earnings per share of $11.30 in 2015, the high end of its earlier forecast of $11.00 to $11.30.

Analysts, on average, look for 2015 sales of $44.82 billion and earnings of $11.38 per share, according to Thomson Reuters I/B/E/S.

Lockheed said it had $2.4 billion in potential cost and termination liability exposure, given its decision to self-fund work on C-130J transport planes and F-35 jets while contracts are being negotiated with the U.S. government.

It said it was finalizing both deals and expected to receive more funding this year, but about $750 million in cash payments could be delayed until 2016.

For the quarter ended Sept. 27, total net sales rose to $11.46 billion from $11.11 billion a year earlier.

Net income fell to $865 million, or $2.77 per share, from $888 million, or $2.76 per share, a year earlier.

Analysts, on average, expected profit of $2.72 per share on revenue of $11.14 billion.

(Reporting by Ankit Ajmera in Bengaluru and Andrea Shalal in Washington; editing by Anil D'Silva, Saumyadeb Chakrabarty, Jeffrey Benkoe and Dan Grebler)