Lockheed Martin sales, profit miss Wall Street estimates

By Mike Stone

(Reuters) - Lockheed Martin Corp's (LMT.N) quarterly profit and sales missed Wall Street estimates on Tuesday and the Pentagon's No. 1 weapons provided a tepid profit forecast for 2018, sending shares down more than two percent.

Despite the first profit miss after five quarters in a row of beating estimates, Lockheed raised its full-year sales forecast, set a higher dividend and forecast sales would grow another 2 percent next year.

Analysts noted that Lockheed's 2-percent growth forecast for 2018 was conservative given the market's expectations of higher defence spending under U.S. President Donald Trump.

During a conference call with Wall Street analysts, Bruce Tanner, Lockheed's CFO, was upbeat about the company's growth prospects and record $104-billion orders backlog, but he was cautious about the speed of the company's growth projections. "It just doesn't happen overnight and especially if you will allow me to call 2018 overnight," he said.

During the quarter, operating profit from Lockheed's Space Systems business unit halved to $218 million, partly due to a non-recurring pre-tax gain that had occurred in the third quarter of 2016 as well as slightly lower sales volume in two government satellite programs.

Tanner said "we expect this timing-related shortfall will be more than made up for during the fourth quarter."

The aeronautics division, which makes the F-35 fighter jet, was the only Lockheed business unit to increase profitability from last year.

Lockheed's net earnings from operations fell 13.8 percent to $939 million, or $3.24 per share, from $1.1 billion, or $3.61 per share. Increased sales of $12.2 billion from $11.6 billion a year ago, were below Wall Street's expectations.

Analysts had expected $3.26 per share on revenue of $12.81 billion, according to Thomson Reuters I/B/E/S.

Still, the Bethesda, Maryland-based company increased its full-year 2017 sales forecast to $51.2 billion, from $50 billion, citing its continued focus on operational performance and $200 million worth of property sales.

During the quarter, Lockheed had notable wins on several large programs.

The U.S. Air Force awarded one of two $900-million contracts to continue development work on a replacement for the air-launched nuclear cruise missile. And the U.S. State Department approved the possible sale of a THAAD anti-missile defence system to Saudi Arabia at an estimated cost of $15 billion.

Lockheed said that it was in the process of hiring 1,000 engineers for programs won in 2017.

Still, the company's raised sales outlook for 2018 came with caveats as it included a drop in projected cash flow compared with 2017. The company said materials costs for the F-35 multi-year "block buy" would go up in 2018 and capital investments would be made in facilities for the Space Systems division.

The company sees 2017 ending with diluted higher earnings per share between $12.85 and $13.15, up from its previous estimate of $12.30 to $12.60 per share. In addition, Lockheed said it would raise its quarterly dividend rate by 10 percent to $2.00 per share.

Lockheed shares were down 2.7 percent at $312.15 in afternoon trading. Despite Tuesday's drop, Lockheed shares trade near record highs and have more than tripled in the last five years.

(Reporting by Mike Stone in Washington, DC; Editing by Nick Zieminski and Chris Sanders)