Lockheed Martin Rides New Wave of Military Spending -- Update
October 25 2016 - 3:42PM
Dow Jones News
By Doug Cameron
Lockheed Martin Corp. expects sales next year to grow at the
fastest clip in a decade as the reshaped company rides a new wave
of military spending at home and abroad.
The world's largest defense contractor said orders for its F-35
jet fighters, missile defense systems and Sikorsky helicopter
business will boost revenue by 7% to around $50 billion in 2017, a
welcome boon after seven years of broadly flat sales.
The F-35 still faces production and funding challenges. But
orders from U.S. allies such as the U.K. and Japan are expected to
push exports to around 30% of company sales in the next few years,
double the level four years ago.
The bullish outlook combined with forecast-beating quarterly
earnings and assurances that pension payments are under control
helped to drive Lockheed shares up 7% on Tuesday.
Chief Executive Marillyn Hewson has reshaped the company over
the past year, buying Sikorsky for $9 billion and selling its
low-margin government information-technology business to Leidos
Holdings Inc.
Lockheed's fortunes remain closely tied to the F-35 fighter,
which already accounts for a fifth of sales and continues to run
into problems even after its long-delayed entry into service with
the U.S. Air Force and Marine Corps.
Problems with the fuel tanks have grounded some planes and
slowed deliveries. Chief Financial Officer Bruce Tanner said on an
investor call that Lockheed wouldn't catch up with fixes on the
production line until well into next year.
A bigger issue is whether expected global orders for around
3,000 of the jets will materialize while the Pentagon and other
militaries juggle budget pressures such as replacing much of the
U.S. nuclear deterrent.
Lockheed is due to end production of its F-16 jet fighter next
year unless it wins fresh orders. The F-35 is less profitable than
the older jet, and the Pentagon is pushing for better deals.
The Pentagon said it may split a $14 billion order for the next
two batches of F-35s after months of talks that have left the two
sides unable to agree on price and other terms. It may now award a
deal for just the next batch, leaving Lockheed to shoulder more of
the cost of paying suppliers.
The F-35 is an important contributor to sales and earnings at
other contractors, including Northrop Grumman Corp and BAE Systems
PLC.
Lockheed's third-quarter profit of $2.4 billion was up from $865
million a year earlier as per-share earnings rose to $7.93 from
$2.77, and sales climbed 15% to $11.55 billion. For the full year,
it boosted earnings expectations to about $12.10 a share and
revenue to $46.5 billion.
Lockheed shares were recently up 7% at $248.38, erasing half
their losses since hitting an all-time high in August.
Rivals Boeing Co, Northrop and General Dynamics Corp. report
quarterly earnings on Wednesday.
Write to Doug Cameron at doug.cameron@wsj.com
(END) Dow Jones Newswires
October 25, 2016 15:27 ET (19:27 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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