General Dynamics (NYSE: GD) turned in a quarterly profit that beat expectations. The business of battle overshadowed aviation industry contraction, which contributed to the result. Thanks to the strong Q3, General Dynamics has raised its profit forecast for the year.

JPMorgan analyst Joseph Nadol wrote to his clients this morning that "the stock has been strong recently" and "there is no denying that the company posted good results." But, he also observed that the near-term upside is limited, because investors expected a solid Q3, and the company still faces some pressure from a pretty sharp drop in its aerospace backlog.

Parker Hannifin (NYSE: PH), makers of motion and control technologies, was just awarded $2 billion in contracts to supply fuel and hydraulic systems for the new A350 aricraft. Parker's aerospace division will supply the entire fuel management system for the wide body aircraft. Likewise, Parker aerospace will supply hydraulic power and distribution components and measurement controls for the A350.

News of these awards comes immediately following Parker Hannifin's posting a record 2Q2008 sales revenue of $2.8 billion, an increase of almost 13%. A healthy 5% of this growth was organic, 3% resulted from four separate acquisitions the company made during the quarter. Net income increased just under 10% to $212 million, and cash flow increased more than 8% to $473 million. As a result, diluted EPS increased 13% to $1.23.

Parker Hannifin reported great results in its international segment. Revenue increased 28% to $1.2 billion, while operating income increased 44% to $175 million. These results helped make up for some softness in the domestic industrial market. While the domestic aerospace segment posted a 7% increase in sales, operating income dropped by 23%. The same is true of the climate control segment which posted a 22% drop in operating income.

On a more positive note, total orders are running 10% ahead of last year, with both industrial and aerospace segments posting 16-19% increases. CEO Don Washkewicz forecasts good order growth throughout all of 2008. As a result, he boosted earnings guidance modestly to the $5.15-$5.40 range.

Parker Hannifin forecasts a number of new product launches in 2008, with more products in the development pipeline. The company has increased its annual dividend for 51 consecutive years and shows no signs of breaking with tradition. The stock currently trades just under $62.

Lockheed Martin (NYSE:LMT) today announced strong third-quarter earnings. In light of the booming business, it also increased its 2007 return on invested capital projection to 20%, and forecasts 2008 ROIC of as much as 18%.



The company reported net earnings for the quarter of $766 million, up from $629 million in the same quarter of 2006. Diluted EPS for the quarter was $1.80, well above analyst expectations of $1.64 and up from $1.46 in 2006. The performance supports the company's July updated projection that 2007 EPS will reach $6.70-$6.85.

Most impressively, each of the four business segments comprising Lockheed reported gains. Operating profits for Aeronautics was up 12.4%, primarily due to strong combat aircraft sales. Electronic Systems rose 12.3% due to missile and maritime sales. Information Systems and Global Services climbed 9.1% as the company's combat support services realized higher volume, and Space Systems finished 10% over same quarter 2006 thanks to satellite and missile systems sales.

In September, the company announced a 20% dividend increase for the second quarter of 2007, as well as increasing its buyback program by 20 million shares.

With a weak dollar, the emergence of new economies around the world interested in developing national defenses, and renewed interest in space programs, the company seems to have found the sweet spot in numerous markets. Investors seem to agree. The stock was up by 0.46% in early trading, to $107.70.

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Diversified industrial manufacturer Eaton Corporation (NYSE: ETN) recently announced increases to both 2Q and FY 2007 guidance based on increases in sales growth. But these sales numbers bear investigating. According to 2Q 2007 earnings, sales increased 4% to $3.25 billion. But 3% of that growth was due to acquisitions, 2% was due to favorable exchange rates, and organic growth accounted for NEGATIVE 1%. Likewise, the EPS numbers bear scrutiny. 2Q EPS was $1.64, well ahead of the forecast $1.35-$1.45, but $0.17 of that differential was due to a tax adjustment, not to increased profitability. Nonetheless, Eaton has raised FY guidance by $0.30 to reflect FY EPS in the $6.75-$6.95 range.

Eaton CEO Alexander Cutler credits Eaton's diversification strategy and implementation of a program entitled Excel 07 for the company's positive performance. Upon closer investigation, these two programs resulted in an operating margin of 12.9%, exactly the same operating margin the company posted in 2Q 2006 without the benefit of these two initiatives. Some sectors of the company are posting good numbers. The electrical power sector posted a sales increase of 11%, and this was before the introduction of Eaton's hybrid truck power system went into production. Eaton electrical power quality deals primarily with non-residential customers, so it remains unaffected by the ongoing carnage in the US residential housing market. The fluid power sector, primarily hydraulics, is poised to post great numbers. Eaton just won two large military helicopter contracts totaling more than $220 million. The aerospace industry, both in the US and Europe, remains a lucrative customers for Eaton.

Eaton's stock has taken several hits recently, closing on 16 August at $85.12, down $2.63. Much of this loss can be traced back to negative publicity about continuing declines in Eaton's heavy-duty truck sector due to implementation of NAFTA regulations. But Eaton knew about these regulations well ahead of time and has been making strategic acquisitions in its other sectors to offset anticipated losses in the truck sector.

Boeing Co. (NYSE:BA): Rival Airbus booked its first firm order for the A350 XWB. Finnair converted an order for nine of the old A350s to the new version and added two more. The first planes are booked for delivery beginning in 2014.

Continental Airlines ordered five 787-9 Dreamliners from Boeing this week, bringing its total order from the 787 line to 25 planes. Delivery of their first 787-9s is scheduled for 2009.

L-3 Communications Holdings (NYSE:LLL): L-3 Communications received a $43 million, five-year contract from the U.S. Army to develop software technology for networked warfare.

Lockheed Martin (NYSE:LMT) and Northrop Grumman (NYSE:NOC): A $600 million combined project of Lockheed Martin and Northrop Grumman Corp. to build a dozen fast-response cutters was canceled last week. The project, on hold for the last year, was beset with cost overruns and had come under sharp criticism from Sen. John Kerry. The Coast Guard plans to re-bid the project.