Lockheed Martin's first quarter profits rose 27 per cent, despite weaker-than-expected revenues, as the US defence group improved the performance of its space and computer technology units.

The world's largest defence contractor on Tuesday increased its profit forecast for the year by 8 to 10 per cent.

The space business has faced challenges over the past few years, particularly from overcapacity in the commercial satellite market. Lockheed's improved outlook reflects more revenue from the space unit this year, as well as the effects of an acquisition and the delay in booking as expenses stock options used for employee compensation.

The company expects earnings per share this year of $3.35-$3.55, up from earlier expectations of $3.05-$3.30. It projects sales this year of $36.5bn-$38bn, up from prior forecasts of $36bn-$37.5bn.

Nevertheless, investors and analysts remain watchful for signs that US defence spending could be reduced significantly in the near future because of federal budgetary pressures.

Lockheed could be sensitive to shifts in spending. It has recently won several big defence contracts and could be vulnerable if they were scaled back as well as being exposed to Pentagon evaluations of several ongoing military programmes, some analysts said. A rise in its stock price relative to its earnings was "limited due to defence budget and Lockheed specific programme risk", said David Strauss, analyst at UBS, in a report.

Lockheed improved its first-quarter earnings with profit margin expansions in its space and aeronautics businesses, and higher sales in its computer system and electronics unit.

Net income increased 27 per cent to $369m, or 83 cents per share, compared with $291m, or 65 cents, last year.

Sales in the quarter increased 2 per cent to $8.49bn, from $8.35bn last time, which was lower than Wall Street's averaged projection of a 5 per cent rise.

Space division profits rose 28 per cent in the quarter, on a sales increase of 5 per cent.

Sales in its aircraft business fell 4 per cent, but profits increased 8 per cent. The group saw lower sales of its F-16 fighter jet, but more sales in its C-5 heavy cargo plane, and improvements in the scrutinised C-130 cargo aircraft programme.

It also said it had won a $1.1bn contract to upgrade Turkey's F-16 fighters.

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