Lockheed Martin Corp. (LMT), the No. 1 U.S. defense contractor, on Tuesday said quarterly profit rose 27 percent on higher margins at its space and electronics systems units and boosted its outlook.

The Bethesda, Md.-based company, maker of the F-16 fighters and C-130 J transport planes, reported first-quarter profit of $369 million, or 83 cents per share, compared with $291 million, or 65 cents per share, in the year-ago quarter.

Special items, including a gain on the sale of its investment in a telecommunications satellite consortium and a loss to write down the value of a satellite, on a net basis added 3 cents a share to the earnings.

Analysts had expected the company to earn 75 cents a share, excluding items, according to Reuters Estimates.

Operating profit at all of the company's units increased, even as aeronautics sales declined, thanks to improving margins. Lockheed has increasingly focused on computer systems used in homeland security as well as civilian government departments,

Total sales at rose 2 percent to $8.5 billion, compared with analysts' forecasts of $8.69 billion.

"In particular our systems and information technology group ...has continued to have consistent growth both top line and bottom line for the past several years and we expect that trend to continue," said Lockheed Chief Financial Officer Chris Kubasik in an interview.

Kubasik said Lockheed, which has closed on seven acquisitions in the past two years, would eye additional deals to beef up the systems and information technology group.

Lockheed raised its full-year outlook to earnings of $3.35 to $3.55 a share on revenue of $36.5 billion to $38.0 billion.

Lockheed had previously forecast earnings of $3.05 to $3.30 per share, compared with analysts' forecast of $3.34. Its previous revenue forecast was $36.0 million to $37.5 billion.

Some analysts said they were still cautious about the stock based on a cloudy outlook for government defense spending.

"At Lockheed's current stock price, we fear the market is not properly discounting the risk associated with future defense spending, which is magnified in the case of Lockheed Martin by the large number of contracts recently won," Prudential analyst Jared Muroff said in a research note.

Lockheed shares were up a penny at $59.76 on the New York Stock Exchange (search), about in line with the decline in the overall defense sector. Lockheed shares have outperformed the Amex Defense index (search) by about 6 percent so far this year.

Kubasik said Lockheed would probably benefit from the quadrennial defense review, a study of defense programs conducted every four years now under way at the Pentagon.

"Things may slow but we're still projecting top line growth," he said, adding that the review would help "validate" weapons such as Lockheed's F/A-22 stealthy fighter jet.

The so-called Raptor won approval for full-rate production from a key Pentagon panel earlier this month, but it still faces major budget cuts under the Bush administration's fiscal 2006 budget plan.

The company said the raised outlook reflects improved sales primarily in its space systems segment, acquisitions completed in the first quarter of Sytex Group Inc. (search) and Statsys Ltd (search), the one-time gains recorded in the first quarter, and the deferral of stock option expenses until Jan. 1, 2006.

Kubasik said he expects sales at Lockheed's aeronautics business to grow in each of the next three quarters and end the year little changed from 2004.