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Defense Stock Roundup: LMT, UTX, NOC, GD Report Impressive Q2 Earnings

Zacks Equity Research

Defense stocks saw a strong start to the Q2 earnings season, with Textron delivering a positive earnings surprise. With other defense biggies following suit, the major indices of the Aerospace-Defense space ended in the green over the trailing five trading sessions. Notably, the S&P 500 Aerospace & Defense (Industry) and the Dow Jones U.S. Aerospace & Defense Index gained 2.4% in the aforementioned time period driven by impressive Q2 numbers.

Among the past week’s highlights, quarterly results from a number of Aerospace-Defense majors namely Lockheed Martin Corp. LMT, United Technologies, Corp. UTX, Northrop Grumman Corp. NOC, General Dynamics Corp. GD, The Boeing Company BA, FLIR Systems Inc. FLIR and Raytheon Company RTN remained a key area of investors’ focus.

Recap of Past Week’s Important Stories

1.  Lockheed Martin’s second-quarter 2019 earnings of $5 per share surpassed the Zacks Consensus Estimate by 5.5%. The bottom line also improved 23.5% year over year. Net  sales amounted to $14.43 billion, which outshined the Zacks Consensus Estimate by 1.9%. The top-line figure also increased 7.7% year over year.

Lockheed Martin ended the quarter with $136.7 billion in the backlog, up 2.4% from $133.5 billion at the end of first-quarter 2019. Its cash from operations at the end of the second quarter amounted to $3.33 billion compared with $0.56 billion a year ago.

For 2019, Lockheed Martin raised its financial guidance. It currently expects to generate earnings of $20.85-$21.15 per share on revenues of $58.25-$59.75 billion (read more: Lockheed Martin Beats on Q2 Earnings, Hikes '19 View).

2.  United Technologies’ second-quarter adjusted earnings came in at $2.20 per share, surpassing the Zacks Consensus Estimate. The reported figure was also higher than $1.97 registered a year ago.

Revenues totaled $19,634 million, up 17.5% year over year. Exiting the second quarter, United Technologies had cash and cash equivalents of $6,819 million, up from $6,152 million on Dec 31, 2018.

For 2019, the company raised its earnings guidance to $7.90-$8.05 per share from $7.80-$8.00 projected earlier (read more: United Technologies' Q2 Earnings and Revenues Beat).

3. Northrop Grumman’s second-quarter 2019 earnings of $5.06 per share surpassed the Zacks Consensus Estimate by 9%. The bottom line also increased 12% year over year. The company reported total sales of $8,456 million, which outpaced the Zacks Consensus Estimate by 0.7% and increased 19% year over year.

The company’s net cash inflow from operating activities as of Jun 30, 2019, was $694 million compared with $638 million as of Jun 30, 2018.

For 2019, Northrop Grumman raised its earnings expectations from $18.90-$19.30 to $19.30-$19.55 per share (read more: Northrop Grumman Beats on Q2 Earnings, Ups '19 EPS View).

4. General Dynamics’ second-quarter 2019 earnings from continuing operations of $2.77 per share beat the Zacks Consensus Estimate by 736%. Operating earnings improved 5.7% year over year. Revenues totaled $9,555 million, which exceeded the Zacks Consensus Estimate by 1.6% and increased 4% year over year.

The company recorded a total backlog of $67.6 billion, up 1.96% year over year. Funded backlog at the quarter-end was $54.4 billion.

In the first six months of 2019, the company’s cash used for operating activities was $504 million compared with $291 million cash provided by operating activities in the comparable year-ago period (read more: General Dynamics' Q2 Earnings Beat, Backlog Up Y/Y).

5. Boeing incurred an adjusted loss of $5.82 per share in second-quarter 2019 against the year-ago quarter’s earnings of $3.33. Excluding the one-time impact of $8.74 per share related to 737 Max issues, the company posted earnings of $2.92 per share.

Revenues amounted to $15.75 billion, which missed the Zacks Consensus Estimate by 12.4% and plunged 35% on a year-over-year basis. Backlog at the end of the second quarter slipped to $474 billion from $487 billion at the end of first-quarter 2019.

The company generated $2.20 billion of operating cash flow at the end of the second quarter, down 71.9% year over year (read more: Boeing Q2 Earnings Down Y/Y on Lower 737 Deliveries).

6. FLIR Systems’ second-quarter 2019 adjusted earnings of 56 cents per share surpassed the Zacks Consensus Estimate by 1.8% and also increased 1.8% year over year. Revenues increased 6.5% year over year, beating the Zacks Consensus Estimate by 0.42%.

Cash flow from operating activities for the six months (ended Jun 30, 2019) amounted to $121.5 million, down 20.7% from $153.3 million in the first half of 2018.

FLIR Systems continues to expect 2019 adjusted earnings of $2.30-$2.36 per share on revenues of $1.92-$1.95 billion (read more: FLIR Systems Q2 Earnings & Revenues Beat Estimates).

7. Raytheon’s second-quarter 2019 earnings per share (EPS) of $2.92 from continuing operations surpassed the Zacks Consensus Estimate by 11.9% and improved 5% year over year. Sales came in at $7,159 million, which increased 8.1% year over year and also exceeded the Zacks Consensus Estimate by 2.2%.

Its operating cash flow from operating activities amounted to $412 million at the end of second-quarter 2019 compared with $1,439 million at the end of second-quarter 2018.

Raytheon raised its financial guidance for 2019. The company currently expects earnings from continuing operations to lie in the range of $11.50-$11.70 per share on revenues of $28.8-$29.3 billion (read more: Raytheon Q2 Earnings Top, Sales Improve Y/Y, View Up).

Performance

Over the past five trading sessions, the defense biggies put up a solid show, except Northrop Grumman and Boeing. Lockheed Martin gained the most with 5% increase in share price, followed by General Dynamics.

The industry's performance has been impressive over the last six months as well, except for Northrop Grumman. This time also Lockheed Martin has gained the most with a 6% rise in the share price, followed by Boeing.

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

Company Last Week Last 6 Months
LMT 3.82% 29.01%
BA -7.74% -4.42%
GD 2.03% 5.59%
RTN 7.97% -0.75%
NOC 10.24% 0.56%
TXT 3.34% 4.55%
LLL 3.87% 1.00%

What’s Next?

Spirit AeroSystems and L3 Harris are set to release their second-quarter 2019 results on Jul 31.

Huntington Ingalls is scheduled to release its second-quarter 2019 numbers on Aug 1.

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