Raytheon [RTN] yesterday posted strong earnings results in its fourth quarter despite a drop in sales but the company, similar to its big name competitors, offered relatively flat sales and lower earnings guidance for 2012.

Net income was up sharply, 18 percent, to $543 million, $1.57 earnings per share (EPS), from $459 million ($1.25 EPS) a year ago. Excluding the impacts of discontinued operations, income was still strong, up 14 percent to $552 million ($1.58 EPS) from $474 million ($1.37 EPS), easily beating analysts’ expectations of $1.34 EPS.

Operational improvements and a reduced share count from a stock repurchase program more than offset negative tax-related adjustments and higher pension expenses to drive the earnings improvement in the quarter.

The Space & Airborne, Missile Systems and Intelligence & Information Systems (IIS) segments each posted double-digit gains in operating income. Missile Systems benefited from a $21 million contract resolution while (IIS) received a $9 million insurance recovery claim. SAS benefited from improved program performance.

Sales in the quarter fell 6 percent to $6.4 billion from $6.9 billion, impacted in part due to five fewer working days than a year ago. Of the operating segments, only SAS reported higher sales, up 3 percent due to Raytheon’s acquisition a year ago of Applied Signal Technology. Operating cash flow was $1.3 billion.

Specific programs that contributed to the lower sales included less work on the Navy’s DDG-1000 destroyer program, an international Patriot program, the Rolling Airframe Missile and Standard Missile programs, Army programs, and programs with the Defense Threat Reduction Agency and Transportation Security Administration that are nearing completion.

Operating margins, including adjustments for the increased pension expense, grew 170 basis points to 13.4 percent in the quarter.

For 2012, Raytheon expects its earnings from continuing operations to slip to between $4.90 and $5.05 EPS with sales to remain relatively flat, with the low end of the guidance down a bit at $24.5 billion and the upper end of the range showing scant growth at $25 billion. The earnings guidance doesn’t assume an extension of the federal research and development tax credit, which would add 7 cents EPS if Congress renews it.

In 2011 Raytheon’s earnings from continuing operations were $1.9 billion ($5.28 EPS) versus $1.8 billion ($4.79 EPS) a year ago. Sales were $24.9 billion, down slightly from $25.2 billion in 2010.

As the Pentagon’s budget begins to soften, Raytheon expects its international business to pick up most of the slack. International bookings in the quarter were 33 percent of the total, which was $7.1 billion for a strong 1.1 book-to-bill ratio. Backlog at the end of 2011 stood at $35.3 billion, with the international component accounting for 37 percent, versus $34.6 billion a year ago.

In 2012, Raytheon expects about 30 percent of its bookings from international business, that’s versus 29 percent in 2011, and about 26 percent of sales coming from international customers, representing a mid-single digit increase, William Swanson, Raytheon’s chairman and CEO, said on yesterday’s earnings call.

Work on classified programs continues to account for a significant part of Raytheon’s business, with 12 percent of bookings and 15 percent of sales in 2011 being on secret work. In 2012 the classified bookings are expected to be in the 13 to 15 percent range and sales in the 14 to 15 percent range, Swanson said.