UPDATE 2-BAE still in U.S. export talks, sees 2010 growth

* Three out of four divisions to grow 2010 earnings

* Says 2010 order intake has been good

* Loss of FRES will not hit full-year outlook
* Shares 1.4 percent down

(Adds analyst comment, shares, more details)

By Rhys Jones

LONDON, May 5 (BestGrowthStock) – BAE Systems (BAES.L: ) said it was
still in talks with regulators about the renewal of its U.S.
export licenses and it expected to shrug off the loss of a key
British army contract to deliver earnings growth in 2010.

The British defence contractor said on Wednesday it expected
three of its four divisions to deliver growth in 2010 and that
sales at its land and armaments business would improve during
the year as cost saving initiatives kicked-in.

The U.S. State Department last month said it would delay
action on any new export license requests by BAE after it
pleaded guilty to violating U.S. laws in connection with foreign
arms contracts and paid a $400 million fine to settle a
long-standing inquiry into its practices. [ID:nLDE6292CC]

“The company has an ongoing dialogue with other U.S.
regulatory agencies in order to address their concerns regarding
matters arising from the settlement with the (U.S.) Department
of Justice,” BAE said.

However, BAE said the recently released U.S. Quadrennial
Defence Review and 2011 U.S. defence budget identified
investment growth “at the upper end” of its assumptions, mainly
due to America’s commitment to the F-35 Lightning II programme,
in which BAE is a large participant through its British and U.S.

Britain’s defence budget faces a severe squeeze which could
lead to cuts in troop numbers and equipment no matter which
party wins Thursday’s election in Wednesday. [ID:nLDE62S298]

BAE shares, which have lost 7 percent in the last month,
were 1.4 percent at 344.30 pence by 0800 GMT, valuing the group
at around 12 billion pounds.

“Uncertainty over UK defence spending ahead of this weeks
election continues to weigh materially on BAE,” said Numis
analyst Allan Smylie, who added this may be “overdone” because
Britain accounts for just 18 percent of BAE’s revenues and the
outlook for U.S. defence spending had improved.

BAE said order intake had been good in the first quarter and
that it had won orders worth 360 million pounds ($548 million)
on the Astute class submarine programme.

The British government in March awarded U.S. firm General
Dynamics (GD.N: ) the contract to build new armoured vehicles for
Britain’s army, a significant blow to BAE, which has altered its
vehicle production plans because of the loss.

“Whilst disappointing, this decision does not impact the
outlook for the business … the group had already embarked on a
significant programme of rationalisation in response to reducing
land systems activity in the UK,” the company said.

“In aggregate, and despite a planned lower level of land
vehicle activity, the group continues to expect growth for 2010
based on constant exchange rate assumptions.”

Stock Market Research

(Editing by Paul Sandle and Jon Loades-Carter)
($1 = 0.6564 pound)

UPDATE 2-BAE still in U.S. export talks, sees 2010 growth