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Defense Stock Roundup: Impressive Q2 Picture, LMT, BA, GD, NOC Earnings Beat

Zacks Equity Research
The Zacks Aerospace sector has seen earnings improve 25.4% year over year on 8.6% sales growth in the current reporting cycle, as of Jul 25.

With 147 S&P 500 companies having already reported results, the Q2 earnings season is in full swing. As of Jul 25, earnings of these members increased 23.3% year over year on 9.1% higher revenues. For the S&P 500 index as a whole, total Q2 earnings are expected to grow 22.3% from last year’s second quarter, on 8.4% revenue growth.

The Zacks Aerospace sector has seen earnings improve 25.4% year over year on 8.6% sales growth in the current reporting cycle, as of Jul 25.

Such impressive numbers have boosted the defense stocks over the trailing five trading sessions. Consequently, the major indices of the Aerospace-Defense space, the S&P 500 Aerospace & Defense (Industry) and the Dow Jones U.S. Aerospace & Defense index, inched up 0.6% in the trailing five trading sessions.

Nevertheless, quarterly results from a number of Aerospace-Defense majors, namely Textron, Inc. TXT, Lockheed Martin Corp. LMT, The Boeing Company BA, United Technologies, Corp. UTX, General Dynamics Corp. GD, Northrop Grumman Corp. NOC and Honeywell International Inc. HON remained a key area of investors focus.

Recap of Past Week’s Important Stories

1. Textron reported second-quarter earnings from continuing operations of 87 cents per share, which surpassed the Zacks Consensus Estimate of 70 cents by 24.3%. Total revenues came in at $3,726 million, outpacing the Zacks Consensus Estimate of $3,585 million by 3.9%.

As of Jun 30, 2018, the company’s cash and cash equivalents totaled $554 million compared with $1,079 million as of Dec 31, 2017. Capital expenditures amounted to $82 million compared with $85 million in the prior-year quarter.

Also, Textron raised its guidance for 2018 (read more: Textron Tops Q2 Earnings Estimates, Lifts '18 EPS View).

2. Lockheed Martin’s second-quarter adjusted earnings of $4.31 per share exceeded the Zacks Consensus Estimate of $3.89 by 10.8%. In the reported quarter, total revenues summed $13.40 billion, which surpassed the Zacks Consensus Estimate of $12.75 billion by 5.1%.

Lockheed Martin ended the second quarter (on Jun 24, 2018) with $105 billion in backlog, up a mere 0.2% from $104.8 billion at the end of first-quarter 2018.

For 2018, Lockheed Martin raised its financial outlook. During the second quarter, the company repurchased 1 million shares for $310 million (read more: Lockheed Martin Beats on Q2 Earnings, Raises 18' View).

3. Boeing’s adjusted earnings came in at $3.33 per share for second-quarter 2018, beating the Zacks Consensus Estimate of $3.24 by 2.8%.The company's revenues amounted to $24.26 billion in the quarter, surpassing the Zacks Consensus Estimate of $23.98 billion by 1.2%.

Backlog at the end of the second quarter was up $488 billion from $486.2 billion at the end of the last reported quarter.

Boeing exited the second quarter with cash and cash equivalents of $8.12 billion and short-term and other investments of $1.65 billion. The company lifted its 2018 revenue guidance as well (read more: Boeing Beats on Earnings in Q2, Hikes '18 Sales View).

4. United Technologies’ second-quarter earnings of $1.97 per share surpassed the Zacks Consensus Estimate of $1.85 per share. The company posted revenues of $16.71 billion, which came well ahead of the Zacks Consensus Estimate by 2.71%.

Exiting the quarter, United Technologies had cash and cash equivalents of $11,068 million, up from $8,985 million recorded as of Dec 21, 2017.

The company upped its 2018 earnings view to $7.10-$7.25 per share from $6.95-$7.15 projected earlier (read more: United Technologies Q2 Earnings Top, '18 EPS View Up).

5. General Dynamics reported second-quarter 2018 adjusted earnings from of $2.82 per share, which exceeded the Zacks Consensus Estimate of $2.49 by 13.3%. Total revenues came in at $9,186 million outpacing the Zacks Consensus Estimate of $9,108 million by 0.9%.

As of Jul 1, 2018, General Dynamics’ cash and cash equivalents were $1,862 million compared with $2,983 million as of Dec 31, 2017.

Free cash flow from operations at the end of the second quarter was $612 million compared with $386 million in the previous year’s second quarter (read more: General Dynamics Q2 Earnings Top Estimates, Sales Up Y/Y).

6. Northrop Grumman’s second-quarter 2018 earnings of $3.93 per share topped the Zacks Consensus Estimate of $3.83 by 2.6%. The company reported total revenues of $7.12 billion, which surpassed the Zacks Consensus Estimate of $7 billion by 1.7%.

Northrop Grumman’s cash and cash equivalents as of Jun 30, 2018, were $1.54 billion, down from $11.22 billion as of Dec 31, 2017.

On the bottom-line front, the company has raised its 2018 outlook. Northrop Grumman now expects to generate earnings in the range of $16.60-$16.85 per share (read more: Northrop Grumman Q2 Earnings Beat, ‘18 EPS View Up).

7. Honeywell International’s adjusted earnings in the second quarter came in at $2.12 per share, outpacing the Zacks Consensus Estimate of $2.01.Revenues of $10,919 million exceeded the Zacks Consensus Estimate of $10,776 million. 

Exiting the quarter, Honeywell had cash and cash equivalents of $8,082 million, higher than $7,059 million recorded as of Dec 31, 2017.

For 2018, the company envisions earnings to be in the band of $8.05-$8.15 per share, higher than the previous projection of $7.85-$8.05 per share (read more: Honeywell Tops Q2 Earrings on Operational Excellence).

Performance

Over the last five trading sessions, the defense biggies put up a mixed show. While Northrop Grumman lost the most with 8.9% share price decline, General Dynamics’ shares have gained 3.2% in this period.

The industry's performance over the last six months has also been a mixed bag. Textron gained the most, with its shares rallying 11.6%, followed by Boeing.

The following table shows the price movement of the major defense players over the past five trading days and during the last six months.

Company Last Week Last 6 Months
LMT 1.05% -6.37%
BA 1.12% 4.69%
GD 3.15% -11.39%
RTN -4.44% -7.89%
NOC -8.90% -11.99%
COL 1.36% -0.80%
TXT 1.56% 11.62%
LLL 1.42% -4.88%