Lockheed Martin [LMT] on Tuesday posted lower net income on due to severance charges and lower operating profits at several of its segments despite higher sales.

Net income fell 10 percent to $794 million, $2.58 earnings per share (EPS), from $878 million ($2.74 EPS) a year ago, missing consensus estimates by a penny per share. Sales increased 16 percent to $11.7 billion from $10.1 billion a year ago.

Lockheed Martin’s F-35 Joint Strike Fighter helped contribute to higher sales in the first quarter.

Most of the decline in earnings, $64 million (21 cents EPS), is due to severance charges for workforce reductions at the Aeronautics and Information Systems & Global Solutions (IS&GS) segments. In addition, operating profits were down more than 20 percent at IS&GS, Missiles and Fire Control (MFC) and Space Systems.

IS&GS is in the process of being acquired by Leidos [LDOS] with the deal expected to close in the third or fourth quarter. The segment’s profit fell on development issues on a large international data center migration and consolidation program, and the wind down and completion of certain information technology projects for United Stated defense and intelligence agencies. Still, IS&GS performed better than internal expectation, Bruce Tanner, Lockheed Martin’s chief financial officer, said on the company’s earnings call.

At MFC and Space Systems, profits fell on lower risk retirements and deliveries for the PAC 3 air and missile defense program, lower risk retirement on fire control programs, lower volume and risk retirement on various government satellite programs, and lower earnings at the United Launch Alliance joint venture with Boeing [BA].

The primary driver for the higher sales was the acquisition late last year of helicopter maker Sikorsky Aircraft from United Technologies [UTX], which added $990 million to the top line. Sikorsky, which is part of the Mission Systems and Training segment, posted a $60 million operating loss.

Marillyn Hewson, Lockheed Martin’s chairman, president and CEO, said the integration of Sikorsky is “progressing well” and the company continues to see “cost reduction and efficiency opportunities emerging.” Tanner said the acquisition continues to track toward around $150 million in annual cost savings beginning in 2018 and the business unit’s performance is at or slightly ahead of expectations.

Lockheed Martin’s sales also benefited from a handsome 21 percent increase at the Aeronautics segment on the back of the F-35 program due to production and sustainment activities, increased deliveries of C-130 and C-5 transport aircraft. Sales were also up modestly in the MFC segment on higher deliveries in the LANTIRN and SNIPER fire control programs.

Lockheed Martin delivered six F-35s in the quarter, two fewer than a year ago but expects to meet its target of 53 for the year, Tanner said. He attributed the decline to the transition between production lots and acceptance for new software.

The company increased its earnings guidance for the year by a nickel to between $11.50 and $11.80 EPS on the strength of an improved outlook for segment operating profit despite the severance charges in the first quarter. IS&GS, Space Systems, MST and Aeronautics are all forecasting higher operating profits than projected in the prior guidance.

The sales outlook was also raised by $100 million to between $49.6 billion and $51.1 billion based on improved expectations at IS&GS, which is being driven by continued work under older, higher margin contracts while new contracts await protest resolutions, better performance on contract closeouts under contracts the company lost, and better performance, Tanner said.

Free cash flow was a robust $1.4 billion and the company returned just over $1 billion to shareholders in the form of dividends and share repurchases. Backlog at the end of the quarter stood at $97.9 billion, down $1.7 billion from the end of 2015, and for the year is expected to finish between the low $90 billion area up to $95 billion, excluding IS&GS, Tanner said.

Tanner said most of the major competitions the company is focusing on, including the Air Force T-X jet trainer, JSTARS recapitalization program, will be decided in 2017. He said other key strategic competitions such as the Ground Based Strategic Deterrent to replace the Minuteman III ICBMs and Long-Range Standoff nuclear cruise missile also won’t be decided on until 2017 or after.