By Calvin Biesecker
Defense Daily
Lockheed Martin blew open the door in its first quarter financials with a strong showing across all of its operating segments and the company increased its guidance for earnings, sales and cash this year.
Net income jumped a whopping 42 percent to $1.7 billion, $5.99 earnings per share (EPS), from $1.2 billion ($4.02 EPS) a year ago, smashing consensus estimates of $4.34 EPS. Strong gains in operating income at the segment level combined with a pension tailwind, lower taxes, and a deferred gain from the sale of properties in 2015 drove the earnings result.
Sales increased 23 percent to $14.3 billion from $11.6 billion a year ago, with all four of the company’s segments up double digits. The company also benefited from having an extra week in the accounting period.
Overall operating margin increased around 2 percent to nearly 12 percent.
The company was able to pull-forward some risk retirements in programs that it had planned for later in the year, Kenneth Possenriede, Lockheed Martin’s chief financial officer, said during the earnings call.
Top line growth drivers were also broad-based. Sales were up on the F-35, classified development work in the Aeronautics segment, F-22 fighter modernization and sustainment, precision fires, and Next Generation Persistent Overhead Infrared, among others.
The Air Force is reducing its buy of planned F-35s in FY ’20 in favor of a new Boeing variant of the F-15 strike fighter, the F-15EX. The F35 will eventually be certified to carry nuclear weapons, according to current Pentagon budgeting plans.
The strong first quarter results combined with expectations led Lockheed Martin to increases its financial guidance. Sales are now forecast to be between $56.8 billion and $58.3 billion, up a billion from the prior outlook, and earnings are projected to be between $20.05 and $20.35 EPS, 90 cents per share higher than guidance given in January. The top and bottom line guidance is higher across the company’s segments than the prior outlook.
Strong order intake drove backlog to a record $133.5 billion at the end of the quarter, which Hewson said sets the company very well for the next few years. An $800 million Navy award for work on hypersonic weapons in the quarter increased the company’s overall awards to date in this space to more than $2.5 billion across the corporation, Hewson said.
Threats are driving the market for hypersonic weapons and countermeasures, she said.
Free cash flow in the quarter was $1.4 billion and the company increased its guidance for operating cash flow for the year by $100 million to greater than or equal to $7.5 billion.
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.
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. The department is seeking another big increase for 2020, to nearly $900 million: more than 35% above the 2019 appropriation.
This story first appeared in Nuclear Security & Deterrence Monitor affiliate publication Defense Daily. NS&D Monitor staff contributed to this report from Washington.
