* Full-year revenue forecast about $45 billion
* Backlog at $79 billion, gives 'strong footing'
By Andrea Shalal-Esa
WASHINGTON, Oct 22 (Reuters) - Lockheed Martin Corp,the No. 1 supplier to the Pentagon, reported on Tuesday higherthird-quarter profit despite a 4 percent decline in sales, andlifted its forecast for full-year earnings, even as U.S.military spending shrinks.
Lockheed said mandatory budget cuts that took effect infiscal 2013 would knock about $400 million to $450 million fromits full-year revenue, just over half of what it initially projected. It said the nearly two-week government shutdown hadshaved sales by another $15 million to $20 million a week.
Lockheed is the first big U.S. arms maker to reportthird-quarter financial results. General Dynamics Corp,Boeing Co, Raytheon Co and Northrop Grumman Corp are due to report earnings later this week.
Analysts expect most of the companies to post decliningrevenue and slightly higher or flat profit.
Lockheed forecast a further slight decline in sales in 2014and an operating margin of above 11.5 percent. Its operatingmargin hit a record level of 12.8 percent in the third quarter.
Joe Nadol, an analyst at JP Morgan, said Lockheed's resultswere solid and slightly better than expected.
"Profitability, orders, and cash flow were all highlights,"Nadol wrote in a note. "The key question for earnings next yearis margin, and while segment margin guidance of (more than) 11.5percent is a marker, it does leave a lot of room for a declinefrom the 12.8 percent posted year to date."
Lockheed, which builds F-35 fighter jets, satellites,missile defense equipment and coastal warships, said uncertaintyabout future U.S. budget levels was limiting its ability to makeneeded investments. Lockheed, also the largest informationtechnology (IT) provider for the U.S. government, said thedownturn in government spending continued to weigh on IT sales.
Chief Executive Marillyn Hewson urged lawmakers to find abetter solution to U.S. fiscal challenges than across-the-boardcuts required under sequestration.
She told reporters that cutting planned military spending byan additional $50 billion a year over the coming years wouldmake it difficult for the U.S. government to meet its nationalsecurity needs, and could jeopardize thousands of smallersuppliers in the United States that employ tens of thousands ofworkers.
Lockheed's earnings from continuing operations rose 15percent to $842 million from $727 million a year earlier.Earnings per share rose 16.3 percent to $2.57 and beat the $2.26expected by analysts in a poll by Thomson Reuters I/B/E/S.
The company forecast consolidated operating profit rangingfrom $4.625 billion to $4.775 billion for the full year, up froman earlier forecast of $4.55 billion to $4.7 billion. It expects earnings per share of $9.40 to $9.70, up from $9.20 to $9.50.
Chief Financial Officer Bruce Tanner said Lockheed hadmaintained strong earnings in the quarter by such measures asconsolidating facilities and layoffs.
Hewson said the company expected continued growth ininternational sales.
Revenues were projected to reach about $45 billion in thefull year, just over the low end of the earlier forecast rangeof $44.5 billion to $46 billion, he told reporters.
Tanner said the company had a backlog of $79 billion, givingit "a real strong footing" for the future. By the end of theyear, the backlog was expected to rise to over $80 billion,Tanner told analysts on the company's earnings call.
Hewson told analysts she expected international sales toreach 20 percent of revenues in the near future, buoyed bydemand for missile defense equipment and growing F-35 orders.She said Japan and Israel were expected to finalize additionalorders in 2014, and Lockheed remained optimistic about theF-35's prospects in a South Korean tender.
Revenue fell at four of the company's five divisions in thethird quarter, reflecting what Tanner described as a "softeningbusiness environment."
However, its missiles and fire control business boostedsales and profit, helped by sales of its Patriot AdvancedCapability-3 missiles and the Terminal High Altitude AreaDefense missile defense system.
In the aeronautics division, increased sales of F-35 fighterjets and C-130 and C-5 transport planes helped offset a declinein F-16 revenue caused by a drop in deliveries.
Tanner said Lockheed was not affected by the U.S.government's decision to restrict shipments of F-16s and othermilitary aid to Egypt, since such sales occurred on agovernment-to-government basis, and the U.S. governmentcontinued to buy and accept the F-16 warplanes from Lockheed.
Its F-35 fighter jet program accounts for about 15 percentto 16 percent of total revenues, and was slated to rise by about15 percent from 2013 to 2014, Tanner said. "It's an incrediblylarge program. It's only going to get bigger," he said.
PENTAGON REVIEWS F-35
Hewson and Tanner said they had not been briefed on aPentagon review of the F-35 program on Monday, but wereconfident officials would approve a production increase incoming years.
U.S. defense officials met for five hours, said JoeDellaVedova, a spokesman for the Pentagon's F-35 program office.
Maureen Schumann, spokeswoman for Pentagon acquisition chiefFrank Kendall, said the meeting reviewed development,production, and maintenance of the F-35, and operational andsupport issues, but no decisions were made.
She offered no details on when a decision on increasingproduction would be made.
Tanner said Lockheed was ready to double production to about60 planes a year, but needed certainty about future productionrates before it could invest in more assembly stations at itsFort Worth, Texas, plant.
Lockheed spokeswoman Laura Siebert said each station wouldcost about $5 million.
The Pentagon's current plans call for production to increasefrom 36 planes each in the sixth and seventh contracts signedthis year to about 110 jets in the 10th batch, which is due tobe negotiated and signed in fiscal 2016.
Lockheed shares closed up 3.8 percent at $130.05 on Tuesday.
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