Three big defense contractors posted solid profits on Wednesday, but their shares fell on concerns that leaner budgets would hurt performance.

Industry leader Lockheed Martin Corp said business was strong as its third-quarter sales rose, but added it expected flat sales for 2012 in an uncertain backdrop for defense spending.

Quarterly sales from Northrop Grumman and General Dynamics missed expectations, showing effects of existing Washington efforts to curb defense spending.

Lockheed's shares fell 3.6 percent to $76.06, while Northrop's shares were down 2.6 percent to $55.11 and General Dynamics shed 2.5 percent to $63.62.

The problem I see is uncertainty, uncertainty, uncertainty, Morgan Keegan defense analyst Brian Ruttenbur said. Nobody knows what is going to happen.

After spending heavily for a decade on wars in Iraq and Afghanistan, the U.S. Defense Department faces the prospect of cuts of up to about $1 trillion.

Under the debt reduction agreement signed by President Barack Obama last summer, the Defense Department is looking to cut at least $350 billion from its projected spending over the next 10 years. It could face an additional $600 billion in automatic spending cuts unless a congressional supercommittee agrees on alternatives.

It's hard to imagine everybody's immune from a trillion-dollar cut, Ruttenbur said of the defense contractors.

Lockheed, the developer of the F-35 Joint Strike Fighter and F-16 fighter jet, said earnings were $700 million, or $2.10 a share, for the third quarter, compared with $560 million, or $1.54 a share, a year earlier. Earnings from continuing operations were $1.99, compared with $1.81 expected by analysts on average, according to Thomson Reuters I/B/E/S.

Quarterly revenue at Lockheed rose nearly 7 percent to $12.1 billion. It said it expected flat sales for 2012, assuming the U.S. defense budget is approved in a timely manner with funding at levels consistent with President Barack Obama's proposed budget.

Stock buybacks and cost-cutting helped Northrop and General Dynamics top Wall Street profit estimates as defense revenues fell.

Northrop, a supplier of unmanned spy planes, had earnings of $520 million, or $1.86 a diluted share, in the third quarter. Analysts expected $1.68 a share. Its quarterly revenue fell 6 percent to $6.6 billion.

General Dynamics , which makes business jets as well as tanks and other military equipment, said its third-quarter net earnings were $652 million, or $1.80 a share. Earnings from continuing operations were $1.83, compared with $1.77 expected by analysts.

Quarterly revenue at General Dynamics fell 2 percent to $7.85 billion.

(Reporting by Karen Jacobs, editing by Maureen Bavdek and Gunna Dickson)

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