WASHINGTON (Reuters) - Northrop Grumman Corp (>> Northrop Grumman Corporation) and Boeing Co (>> The Boeing Company) did better than expected in the first quarter and raised their full-year profit forecasts.

General Dynamics Corp (>> General Dynamics Corporation), the other big U.S. defense company to report results on Wednesday, had a 9 percent drop in first-quarter earnings, and cited budget anxiety that was slowing government contract awards and a $67 million charge from its European combat systems operations.

The companies warned in calls with industry analysts that their outlooks could dim if U.S. lawmakers do not take action to avoid an additional $500 billion in across-the-board defense spending cuts that are due to take effect in January under a process known as "sequestration." Those cuts would come on top of $487 billion in defense cuts already being implemented for the next decade.

Northrop Chief Executive Wes Bush said sequestration represented an "ugly cloud" that would have a devastating effect on the industry and was forcing defense companies and the Pentagon to map out contingency plans. But he said there was too much uncertainty to give any specifics at this point.

Given the difficult budget environment, Northrop and the other firms stressed that they were keenly focused on improving their performance and cutting costs wherever possible.

Backlogs were strong across all three companies, but General Dynamics and Northrop reported lower revenue. Margins remained strong at all three companies.

Northrop reported a 2 percent increase in profits from continuing operations in the first quarter, citing cost-cutting across the company.

Northrop's net earnings fell 4.5 percent, reflecting a $34 million gain in the year-ago period from discontinued operations from Northrop's spinoff of shipbuilder Huntington Ingalls Industries Inc.

The maker of unmanned spy planes and electronic sensors said income from continuing operations was $506 million, or $1.96 per diluted share, compared with $496 million, or $1.67 a share, a year ago.

It raised its guidance for the full year nearly 30 cents to $6.70 to $6.95 per diluted share.

Boeing's defense business saw revenue rise 8 percent, with operating profit up 11 percent, bolstered by the first booking for F-15 fighter sales to Saudi Arabia.

Excluding a gain related to a satellite contract dispute, Boeing's earnings were $1.11 per share, beating the analysts' average estimate of 94 cents, according to Thomson Reuters I/B/E/S.

The company increased its profit forecast for 2012 to a range of $4.15 to $4.35. The previous upper range had been $4.25 per share.

Rob Stallard, an analyst with RBC Capital, said Boeing could raise its earnings estimate and guidance as the year progresses after a "very good start" in both its defense and commercial divisions.

Indeed, revenues at Boeing's commercial division rose 54 percent to $10.9 billion on higher delivery volume.

General Dynamics said net earnings had fallen to $564 million, or $1.57 per share, from $618 million, or $1.64 per share, a year earlier.

Revenue dropped to $7.6 billion from $7.8 billion.

The company affirmed its forecast for full-year earnings per share of $7.10 to $7.20, below analysts' forecasts of $7.32, according to Thomson Reuters I/B/E/S, but said strong demand for Gulfstream jets could provide some upside later in the year.

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The charge from the European operations reduced the General Dynamic's earnings per share by 13 cents in the quarter. Excluding the charge, earnings per share beat analysts' estimates by a penny.

Chief Executive Officer Jay Johnson said the company's first-quarter performance reflected continued growth in its aerospace segment and healthy North American demand for Gulfstream aircraft. He said the uncertain federal budget environment had slowed government orders early in the first quarter, but activity had begun to pick up in recent weeks.

The issue was particularly acute in the company's information systems and technology division, even for contracts whose funding has already been approved, Johnson added.

General Dynamics shares finished trading Wednesday down 3.6 percent at $67.56 on the New York Stock Exchange, while Northrop shares gained 0.4 percent and Boeing ended 5.3 percent higher.

(Reporting By Andrea Shalal-Esa; Editing by Maureen Bavdek and Tim Dobbyn)

By Andrea Shalal-Esa