How deep a bite from federal cuts for Philly 50?

Posted: April 29, 2013

The automatic federal budget cuts that took effect March 1 have produced much rhetoric, but little impact on corporate financial results so far.

Still, comments by company executives on earnings calls indicate that they remain concerned over how hard the cuts may fall later this year.

US Airways and other airlines squawked about Federal Aviation Administration furloughs of air traffic controllers that began last Sunday, contributing to flight delays. US Airways noted that government-related travel fell 37 percent for the airline in March.

It's only natural to focus on the defense industry, which has the Department of Defense as its No. 1 customer. Still, Lockheed Martin Corp. and Boeing Co. reported little impact from sequestration in their first-quarter reports.

The hit to revenue is expected to amount to $825 million for Lockheed Martin for its full year, while Boeing - maker of Chinook helicopters and the V-22 Osprey tilt rotorcraft - didn't provide a figure.

Besides arms-makers, there is a swath of information-technology firms whose top lines could be dented by the federal cutbacks.

International Business Machines Corp. noted during its earnings call that its U.S. federal business was down 13 percent during the first quarter. But chief financial officer Mark Loughridge said it was hard to measure whether that was a result of the federal budget cuts.

Blue Bell-based Unisys Corp. may feel more pain from federal spending cuts. It said it generated 43 percent of its $810 million in first-quarter revenue from the public sector, including 14 percent from the federal government.

Federal revenue amounted to $114 million for Unisys during the first three months of 2013, down from $125 million for the same quarter in 2012. Half of that revenue comes from contracts with the Department of Homeland Security, Department of Defense, and intelligence agencies. The rest is sourced from civilian agencies.

Unisys' verdict on those federal budget cuts? "We do not yet have a full assessment of the impact of sequestration on Unisys," chief financial officer Janet Haugen told financial analysts April 24.

"We continue to work with the agencies we serve on a contract-by-contract basis to understand the impact, but do not know what effect, if any, it will have on the company," she said.

Those budget cuts only add to a federal procurement process marked by aggressive competition, significant pricing pressure, and award delays from protests by losing bidders, she said. The one bright spot Unisys noted is that it has a "smaller number of contracts to defend" in 2013.

Defending doesn't necessarily mean landing a new contract. As Haugen said, "Incumbency is not the advantage it once was and lower win rates are in evidence for incumbents across the U.S. federal marketplace."

Contact Mike Armstrong at 215-854-2980 or, or @PhillyInc on Twitter.

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