Lockheed Makes Contingency Plans For Budget Cuts, Strike

Date : 04/26/2012 @ 11:43AM
Source : Dow Jones News
Stock : Lockheed Martin Corp. (LMT)
Quote : 269.45  -1.69 (-0.62%) @ 4:05PM

Lockheed Makes Contingency Plans For Budget Cuts, Strike

Lockheed Martin (NYSE:LMT)
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Lockheed Martin Corp. (LMT) said Thursday it is preparing for what it has warned would be a devastating impact on the industry from steep cuts in Pentagon spending under the so-called budget sequestration process.

The world's largest defense contractor by sales also warned that the outlook for temporary spending fixes remained uncertain, and it is also contending with a potential strike by workers at its main fighter jet plant in Texas.

The multiple headwinds facing Lockheed were highlighted as Chief Executive Bob Stevens announced he would step down from the role next January, though planned to remain chairman for a further year.

Stevens, 60, said on a call with reporters that the challenges facing the sector would last far beyond any tenure that continued to the company's mandatory retirement age of 65, encouraging him to launch a transition that will see President Chris Kubasik assume the CEO role.

U.S. defense contractors have struggled to define the future size and shape of their businesses due to uncertainty over Pentagon budget cuts. Lockheed is viewed as one of the most vulnerable to cuts because of its role in large projects such as the Joint Strike Fighter, or JSF. Lockheed last year said it would shed thousands of jobs amid the expected belt-tightening cuts.

Stevens said Lockheed has started to sketch out its response to sequestration, which would trigger $500 billion in spending cuts, though the company expects Pentagon funding to continue under a continuing resolution mechanism that involves less drastic trimming.

U.S. contractors are focusing more resources on winning overseas contracts. A contest to provide fighter jets to South Korea is expected to open in the next few weeks, and Lockheed expects a final decision by the end of the year.

Lockheed reported a 20% rise in first-quarter profit Thursday and left its full-year guidance unchanged as the world's largest defense contractor focused on cost and efficiency measures to counter the uncertain outlook for military budgets.

Three of the U.S. group's four business units generated higher sales and profits in what had already been flagged as a quarter lacking big contract awards.

The aerospace unit provided the largest contribution, as group net profit rose to $668 million in the quarter to March 31 from $556 million a year earlier, beating analysts' expectations, with per-share profit rising to $2.03 from $1.50.

Higher jet and cargo aircraft sales pushed aerospace revenue up 18% in the quarter, with profit rising 17%. Group margins remained stable at 10.4%.

"Throughout the remainder of 2012, we will focus on reducing costs and improving program execution to remain competitive and deliver value," said Stevens said in a prepared statement.

Full-year guidance was left unchanged, with profit seen between $7.70 to $7.90 a share on sales of $45 billion to $46 billion.

Lockheed shares were recently up 1.1% at $91.94, having reached a four-year high earlier in the session.

-By Doug Cameron, Dow Jones Newswires; 312-750-4135; doug.cameron@dowjones.com




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