Lockheed Martin [LMT] on Tuesday reported higher sales but lower earnings in its third quarter was profits were largely hampered by results from the company’s Space Systems segment.

A handsome gain a year ago in the space business didn’t recur in the latest quarter and the segment also suffered from lower risk retirements, a charge related to performance, and lower volume on two military satellite programs, the Space Based Infrared Satellite missile warning system and the Advanced Extremely High Frequency communications system. The business also had lower net profit rate booking adjustments in the quarter.

The Space Systems segment also posted lower equity earnings in its rocket launch joint venture with Boeing [BA], United Launch Alliance, which represented about one-fifth of the segment’s operating profit in the quarter.

Overall, net income tumbled by more than half in the quarter to $939 million, $3.24 earnings per share (EPS), from $2.4 billion ($7.93 EPS) a year ago. Last year’s third quarter earnings benefited from the divestiture of the former Information Systems & Global Solutions business, which contributed $1.2 billion to bottom line, and the taking of a majority ownership in a U.K. joint venture that support’s that country’s nuclear deterrent. The AWE Management venture is reported in the Space Systems segment.

Excluding the gain from the IS&GS sale to Leidos [LDOS], earnings from continuing operations still slid 15 percent. Per share earnings of $3.24 were two cents shy of consensus estimates.

While the decline in Space Systems profits drove Lockheed Martin’s earnings down, the Missiles and Fire Control, and Rotary and Mission Systems segments also reported lower operating income on tactical missile programs, a new reserve for a program, performance issue with the Vertical Launching System, and helicopter programs at the Sikorsky unit related to aircraft mix.

F-35 developer Lockheed Martin is part of the Aerospace Industries Association (AIA) trade group. Photo: Air Force
Sales and profits related to F-35 Joint Strike Fighter production and sustainment were strong in Lockheed Martin’s third quarter. Photo: Air Force

The profit declines at three of Lockheed Martin’s four operating segments were partially offset by a strong showing at Aeronautics, which saw income soar on production, sustainment and retired risk on the F-35 Joint Strike Fighter program. To a lesser degree, Aeronautics also benefitted from higher risk retirements on the F-16 fighter program.

Sales in the quarter rose 5 percent to $12.2 billion from $11.6 billion a year ago, driven primarily by higher volume and sustainment on the F-35 program. The top line also expanded due to growth in tactical missile program business, and training and logistics services.

Despite the income drop, Lockheed Martin upped its sales and earnings guidance for2017. The forecast for sales was raised by $200 million and now stands between $50 billion to $51.2 billion, driven by improved outlooks for Space Systems, Missiles and Fire Control, and Rotary and Mission Systems.

Earnings are now expected to be between $12.85 and $13.15 EPS, driven largely by the sale of a property in the fourth quarter, and slightly improved prospects at Aeronautics, Missiles and Fire Control, and Space Systems.

Lockheed Martin also provided general guidance for 2018, saying sales are expected to be up about 2 percent from the 2017 outlook with segment operating margin between 10.3 percent and 10.5 percent.

Backlog at the end of the third quarter stood at $104 billion a record. So far, this year the company has generated $4.3 billion in free cash flow.