By Calvin Bisecker
Defense Daily
Lockheed Martin this week reported solid first-quarter financial results with strong sales and cash flow, but flat earnings, results it said were not impacted by the COVID-19 pandemic.
But the outlook for the rest of the year is “uncertain” and is dependent in part on the “duration and spread” of the crisis, and the resulting actions by the federal, state, local and international governments, the company said Tuesday. The pandemic has disrupted supply chains and financial markets, and restricted travel and transport, all signs of significant impacts on the U.S. and global economy, the company said.
Sales in the quarter increased 9% to $15.7 billion from $14.3 billion a year ago, while net income was level at $1.7 billion. The company’s per-share earnings were up slightly to $6.08 in the quarter, versus $5.99 a year ago due to a lower share count. The figure easily topped the consensus estimate of $5.81.
Higher taxes in the quarter pressured net income. The company’s operating margin slid 2.3% to 13.6%. Free cash flow was a strong $2 billion.
The sales outlook for 2020 was trimmed less than a percent due to expected COVID-19 impacts “as production and supply chain activities have recently slowed in the Aeronautics business area,” the company said. Sales are now forecast to be between $62.3 billion and $64 billion versus the prior outlook of between $62.8 billion and $64.3 billion.
Guidance for segment operating profit, per share earnings, pension adjustments, and cash flow remain intact, but Lockheed Martin cautioned that the road ahead is unclear.
“The corporation’s 2020 outlook assumes, among other things, that its production facilities continue to operate and it does not experience significant work stoppages or closures, it’s is able to mitigate any supply chain disruptions and these do not worsen, and it is able to recover its costs under contracts and government funding priorities do not change,” the company said.
Last week, the Air Force said Lockheed had not been selected as the prime to build the service’s next-generation nuclear cruise missile, the Long-Range Standoff Weapon (LRSO). The work instead went to Raytheon.
At the operating level, Lockheed Martin’s sales gains were driven by F-35 production, sustainment and development and classified development programs in the Aeronautics segment, hypersonic development programs, fleet ballistic missiles and the Next Generation Overhead Persistent Infrared satellite program in the Space group, and High-Mobility Artillery Rocket System, Guided Multiple Launch Rocket Systems, hypersonic development programs, and the Terminal High Altitude Area Defense and Patriot Advanced Capability-3 missile defense programs in the Missiles and Fire Control segment.
Orders in the quarter were above $15 billion, driving backlog to a record $144.1 billion at the end of the quarter, up $139 million from the end of 2019. That marked seven straight quarters of backlog growth.
Lockheed book keeps its work maintaining the Titan II D5 submarine-launched ballistic missiles that carry W76-1, W76-2, and W88 nuclear warheads within fleet ballistic missiles. The LRSO work, a portion of which continues after the Pentagon’s de facto down-select to Raytheon, is in Missiles and Fire Control.
Lockheed remains a partner on the Northrop Grumman-led team that has practically sewn up the contract to build the Air Force’s next-generation intercontinental ballistic missile, the Ground-Based Strategic Deterrent. The Air Force said this month it wants to award that potentially $25 billion contract even earlier than this summer, when the service previously planned to end a competition that is that in name only. Boeing, which dropped out of the Ground-Based Strategic Deterrent competition last year, was Northrop’s only rival to prime the new sil0-based ballistic missiles. Boeing, which is not a part of Northrop’s team at any level, could still slow the program with a protest.
Ken Possenriede, Lockheed Martin’s chief financial officer, said on the company’s earnings call that it expects to rake in more than $3 billion in bookings above plan this year due to an acceleration of customer orders for the PAC-3.
The earnings call was the last for Chairman, President, and CEO Marillyn Hewson, who will retire as president and CEO on June 15. She will be succeeded by James Taiclet, chairman, president, and CEO of American Tower Corp. Hewson said the company’s outlook remains bright for Taiclet given the company’s performance, strategy, and strong backlog.
She also highlighted Taiclet’s experience in the defense industry with Honeywell and Raytheon Technologies’ Pratt & Whitney division, his two years on Lockheed Martin’s board and 17 years running AMT, and his business acumen. The company’s focus on its customers, profitable growth, execution, and its employees won’t change, Hewson said.
This story first appeared in Nuclear Security & Deterrence Monitor affiliate publication Defense Daily.
