Lockheed Tops Earnings, Sales View Muted

Zacks

The world’s largest stand-alone defense contractor, Lockheed Martin Corporation (LMT) posted first quarter 2013 adjusted earnings of $2.48 per share, comfortably surpassing the Zacks Consensus Estimate of $2.01 by 23.4%.

Earnings in the reported quarter also surged 2.5% from the year-ago adjusted profit level of $2.42 per share. The upcast in earnings year over year was mainly attributable to lower tax expenses.

On a reported basis, per share earnings were $2.33 versus $2.03 in the year-ago quarter. The variance in the reported quarter between adjusted and reported earnings was due to a special charge of $0.06 per share related to workforce reductions at the company's Information Systems and Global Solutions business as well as a non-cash pension adjustment of $0.23 per share.

Revenue

In the reported quarter, total revenue was $11,070.0 million, higher than the Zacks Consensus Estimate of $10,406.0 million. However, the quarterly figure dropped almost 2% from the year-earlier level of $11,293.0 million.

Lockheed Martin − first of the giant U.S. defense contractors to report first-quarter 2013 earnings − expects revenues for this year to be on the lower end of the $44,500 million to $46,000 million guided range provided in Jan 2013. The cut in U.S. military spending will likely reduce revenues by around $825 million.

Segmental Performance

Aeronautics

Aeronautics’ quarterly sales decreased 14% year over year to $3,186 million in the reported quarter due to lower sales from F-16 and C-130 programs. Partially offsetting the decreases were higher sales from C-5 programs.

Segmental operating profit fell 1.6% to $379 million while operating margin expanded by 150 basis points to 11.9% in the reported quarter.

Information Systems & Global Solutions

Information Systems & Global Solutions’ quarterly sales increased marginally by 0.8% to $2,106.0 million. The improvement was mainly attributable to higher net sales from the Defense Information Systems Agency – Global Information Grid Services Management - Operations contract and National Science Foundation Antarctic Support Contract.

However, these were tempered by lower net sales from some programs like Next Generation Identification and Centers for Medicare & Medicaid Services Consolidated IT Infrastructure Contract. Again, the completion of the Outsourcing Desktop Initiative for NASA and Transportation Worker Identification Credential programs in the first quarter and third quarter of 2012 also affected the segment revenue in the reported quarter.

Segmental operating profit came in at $189 million compared with $188 million in the year-ago period. Operating margin in the reported quarter was in line with the first quarter 2012 level of 9.0%.

Missiles and Fire Control

Missiles and Fire Control segment’s quarterly sales rose 12.6% to $1,988.0 million. In the reported quarter the upward spike in sales came from higher volume for tactical missile programs and fire control systems programs.

Segmental operating profit declined by more than by 7% to $344.0 million and operating margin dropped by 370 basis points to 17.3% in the reported quarter.

Mission Systems and Training

Mission Systems and Training segment’s quarterly sales declined 0.4% year over year to $1,830.0 million. Lower sales mainly from the Persistent Threat Detection System program and integrated warfare systems and sensors programs offset higher sales from various undersea systems programs, the Littoral Combat Ship program and numerous smaller programs.

Segmental operating profit rose by 28% to $201.0 million while operating margin expanded 250 basis points to 11.0% in the reported quarter.

Space Systems

Space Systems’ segmental sales increased by 3.5% to approximately $1,960.0 million. In the reported quarter sales climbed in certain strategic and defensive missile programs as well as government satellite programs.

Segmental operating profit fell by almost 4% to $230.0 million while operating margin contracted 90 basis points to 11.7%.

Backlog

Lockheed Martin finished first quarter 2013 with $77,900 million of backlog. Of this, $28,000 million belonged to the Aeronautics segment and $17,900 million to the Space Systems segment. The rest is made up of $13,400 million for the Missiles and Fire Control segment; $10,800 million for Mission Systems and Training; and $7,800 million for Information Systems & Global Solutions.

Financial Condition

Cash and cash equivalents of Lockheed Martin were $3,065.0 million versus $1,898.0 million at year-end 2012. Long-term debt fell to $6,304.0 million (including current portion) from $6,308.0 million at year-end 2012.

The company repurchased 5.1 million shares at a cost of $461 million in the first quarter 2013 versus 2.7 million shares at a cost of $242 million in the first quarter of 2012. The company disbursed $371 million as dividends in the reported quarter and $327 million in the first quarter of 2012.

Guidance

Lockheed Martin affirmed its full year 2013 earnings per share in the range of $8.80–$9.10.

Of Lockheed Martin’s major peers, General Dynamics Corp. (GD) is scheduled to report its first quarter 2013 results on Apr 24 and Raytheon Co. (RTN) on Apr 25.

Another major aerospace player, Textron Inc. (TXT) recently reported first quarter 2013 earnings from continuing operation of 40 cents per share, missing the Zacks Consensus Estimate of 47 cents by 14.9%.

Lockheed Martin retains a Zacks Rank #3 (Hold).

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