A good 2019 keeps rolling for Lockheed Martin as the company reported strong increases in earnings and sales in its second quarter, building on handsome gains in the first quarter.
The strong results led the company to increase its guidance for sales, earnings, and cash this year.
Net income in the quarter increased 22% to just over $1.4 billion, $5 earnings per share (EPS), from just under $1.2 billion ($4.05 EPS) a year ago. Each of the company’s operating segments contributed to the gain and the results also benefited from a severance charge a year ago that didn’t recur.
The earnings results beat consensus estimates by $0.16 per share.
Sales increased 8% to $14.4 billion from $13.4 billion a year ago.
At the operating level, higher sales were driven by double-digit percentage gains at the Missiles and Fire Control (MFC) and Space segments, which were up on precision fires, new hypersonic missile programs, classified, work, a Special Operations Forces logistics contract, AH-64 Apache helicopter work, the Next Generation Overhead Persistent Infrared satellite, GPS III satellite, government satellite services, and hypersonic programs. Sales were up single digits at Rotary and Missions Systems, and Aeronautics on the Multi-Mission Surface Combatant, Littoral Combat Ship (LCS), Aegis combat system, training and logistics, and F-35 fighter production, development and sustainment.
All of the company’s operating segments posted higher operating income, led by MFC, which was hit a year ago by charges on the Warrior Capability Sustainment program.
Through the first two quarters of 2019, Lockheed Martin’s sales are up 15% to $28.8 billion and net income is up 35% to $3.1 billion, leading the company to again raise its guidance for the year. Sales this year are now forecast to be between $58.3 billion and $59.8 billion, a $1.5 billion increase from the prior guidance in April. Each of the company’s segments are contributing to the improved outlook.
The higher sales, combined in part with better than expected performance and to a lesser extent a lower tax rate, led the company to increase its segment operating income guidance by $225 million to between $6.3 billion and $6.5 billion. Per share earnings are now forecast to be $0.80 higher at between $20.85 and $21.15.
Operating cash flow is now projected to be $100 million higher to at least $7.6 billion.
Backlog at the end of the second quarter stood at a record $136.7 billion, up $6.2 billion from the start of the year, showing that the company is poised for “very strong performance in the next few years” with upside coming from new program wins, Lockheed Martin Chairman, President, and CEO Marillyn Hewson said on the company’s analyst call.
The budget deal approved by the House this week, which establishes ceilings for federal spending and increases the U.S. debt ceiling, is an “encouraging step” toward buying new military systems, Hewson said. The Senate is set to vote on the deal next week.
Hewson was asked during the analyst call about revenue visibility due to the budget deal and she replied that it’s still too early for the company to forecast its growth expectations in 2020. That outline will come in the third quarter earnings call in October.
“Talking about budgets maybe gives us a better sense of what our customers will have in terms of where they would make their decisions,” Hewson said. “We will have to see how it plays out in terms of what that means for Lockheed Martin. I mean for the current budget negotiations, it appears that our programs are well supported but again we’ll just have to wait until Congress gets through its process and closes on that.”
The strong backlog has been driven by strong order flow, and the company is about $11 billion ahead of its expected bookings, Ken Possenriede, the company’s chief financial officer, said on the call.
Free cash flow in the quarter was $1.4 billion and segment operating margin dipped 10 basis points to 10.8 percent. Total operating margin was up a half-percent to 13.9 percent.
Lockheed Martin and Raytheon are maturing competing designs for the Pentagon’s next nuclear-tipped, air-launched cruise missile, the Long-Range Standoff Weapon (LRSO), under four-and-a-half-year contracts awarded in 2017 and worth about $900 million each. The Air Force has said it plans to buy roughly 1,000 LRSO missiles, which it plans to start deploying in the late 2020s.
The LRSO will carry the W80-4 warhead provided by the National Nuclear Security Administration. To keep the W80-4 life-extension program on pace with LRSO missile development, Congress sharply increased funding for DOE’s warhead refurbishment in fiscal 2019 and plans to do so again in 2020. In appropriations and authorizations bills approved this year, Congress approved another big increase for W80-4 in the budget year that begins Oct. 1, to nearly $900 million. That is more than 35% above the 2019 appropriation.
This story first appeared in Nuclear Security & Deterrence Monitor affiliate publication Defense Daily.
