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Why Is Lockheed (LMT) Up 11.7% Since Last Earnings Report?

·4 min read

A month has gone by since the last earnings report for Lockheed Martin (LMT). Shares have added about 11.7% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Lockheed due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Lockheed Martin Q2 Earnings Top Estimates, EPS View Down

Lockheed Martinreported second-quarter 2022 earnings of $1.99 per share, which surpassed the Zacks Consensus Estimate of $1.74 by 14.4%.

Operational Highlights

In the reported quarter, net sales amounted to $15.45 billion, which missed the Zacks Consensus Estimate of $16.16 billion by 4.4%. The top line also declined 9.3% from $17.03 billion reported in the year-ago quarter.

Backlog

Lockheed Martin ended the second quarter of 2022 (on Jun 26, 2022) with $134.64 billion in backlog compared with $135.23 billion at the end of first-quarter 2022. Of this, the Aeronautics segment accounted for $43.82 billion, while Rotary and Mission Systems contributed $35.10 billion. Meanwhile, Space Systems and the Missiles and Fire Control segments contributed $26.55 billion and $29.17 billion, respectively.

Segmental Performance

Aeronautics: Sales declined 12% year over year to $5.86 billion, primarily due to lower net sales from the F-35 and F-16 programs.

The segment’s operating profit improved 7% year over year to $612 million. The operating margin expanded 180 basis points (bps) to 10.4%.

Missiles and Fire Control: Quarterly sales declined 7% year over year to $2.75 billion due to lower sales at tactical and strike missile programs as well as sensors and global sustainment programs.

The segment’s operating profit improved 4% year over year to $418 million, while the operating margin expanded 160 bps to 15.2%.

Space Systems: Sales decreased 11% year over year to $2.83 billion in the second quarter. The decrease was primarily due to lower net sales at the Atomic Weapons Establishment program as it was no longer included in the company's financial results beginning in the fourth quarter of 2021. Also, lower net sales from commercial civil space programs resulted in the poor sales performance of the segment.

The segment’s operating profit declined 20% to $268 million. The operating margin contracted 100 bps to 9.5% in the quarter under review.

Rotary and Mission Systems: Quarterly revenues declined 5% on a year-over-year basis to $4.01 billion. The decrease was primarily due to lower sales for integrated warfare systems and sensors (IWSS) programs, various C6ISR programs and Sikorsky helicopter programs. 

The segment’s operating profit dropped 12% to $403 million in the second quarter. The operating margin contracted 80 bps to 10% in the reported quarter.

Financial Condition

Lockheed Martin’s cash and cash equivalents totaled $1.78 billion at the end of second-quarter 2022 compared with $3.60 billion at the end of 2021.

Cash from operations at the end of second-quarter 2022 amounted to $2.74 billion compared with $3.02 billion a year ago.

Guidance

Lockheed Martin updated its financial guidance for 2022.

The company currently expects 2022 revenues to be $65.25 billion, lower than the prior guidance of approximately $66 billion. The Zacks Consensus Estimate for full-year revenues, which is pegged at $65.96 billion, is slightly higher than the company’s guidance.

Earnings per share are now anticipated to be $21.55 for 2022, lower than the prior guidance of $26.70. The Zacks Consensus Estimate for the company’s full-year earnings, which stands at $22.31 per share, lies above LMT’s guidance.

However, the company has maintained its free cash flow guidance at $6 billion for 2022.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

VGM Scores

Currently, Lockheed has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Lockheed has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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