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US defense contractors are increasing their sales to the rest of the world
While the US is spends far and away the most on defense annually, US contractors the government buys from are increasingly looking outside of the US for sales.
Defense contractors such as Lockheed Martin, Raytheon, and Northrop Grumman have increased the amount of revenue they bring in from outside the US by nearly 10% in the last 6 years, according to RBC Capital Markets.
In 2008, contractors made an average of 15% of their revenue from international contracts.
By 2014, that number had increased to 24%.
(RBC Capital Markets)
Raytheon, the maker of missile systems like the Tomahawk, told Reuters after they reported earnings this quarter that 44% of their current backlog is from international orders and the company expects between 32% to 35% of annual orders to come from non-US buyers.
This also comes on the heels of a request last week by the Saudi Arabian government to purchase $5.4 billion of missiles from Lockheed Martin and a separate $1.6 billion purchase of missiles by 5 international governments also from Lockheed Martin.
(RBC Capital Markets)
According to RBC, these companies may be turning to the international market in part due to the flatlining — and potentially shrinking — percentage of the US federal budget being put towards defense.
While the government does still spent about $581 million, about 36% of all global defense spending, the requested budget from the Department of Defense actually decreased from 2014 to 2015.
RBC also notes that the Office of Management and Budget projects the percentage of federal outlays going to defense to start sliding over the next few years.
This could change, however, depending on the outcome of the 2016 presidential election.
So while its main customer starts to draw down the amount of defense spending, these contractors are looking outside of the US for sales.
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