Lockheed To Use Savings from Tax Overhaul For Pensions
January 29 2018 - 10:14AM
Dow Jones News
By Doug Cameron and Allison Prang
Lockheed Martin Corp. said Monday that it plans to use the
savings from U.S. tax overhaul to make a big prepayment of its
pension obligations, and boosted its 2018 financial guidance.
Defense companies are among the biggest corporate winners from
the tax changes, with the expected benefits countering continuing
uncertainty over the path of a Pentagon budget process delayed by
disagreements among lawmakers.
Lockheed, the world's largest defense company by revenue,
expects to lag the sales growth of some peers this year but counter
this by paying $5 billion into its pension fund, boosting free cash
flow until 2021.
The maker of F-35 combat jets and Thaad missile-defense systems
reported forecast-beating quarterly earnings alongside a modest
boost to its 2018 guidance.
Rivals including Northrop Grumman Corp. and Raytheon Co. last
week said they would use part of the profit tailwind from lower tax
rates to boost investment in new weapons systems and take advantage
of rising U.S. and international military budgets increase.
Raytheon is also prefunding its pension.
Corporate tax rates for defense companies have dropped to around
19% from an average of 27%.
With profit margins in the sector already at historically high
levels, the prospective windfall from tax overhaul has also
triggered a debate about whether the Pentagon will try to claw back
some of the gains by demanding even lower-cost bids for
weapons.
Some executives, such as Northrop CEO Wes Bush, has said such a
move would remove incentives for industry to invest more, and the
subject is expected to come up on Lockheed's upcoming investor
call.
Lockheed reported a loss of $642 million for the December
quarter compared with a profit of $988 million a year earlier as it
booked a $1.9 billion charge for tax adjustments. On an adjusted
basis, the company said it made $1.2 billion, or $4.30 a share.
Analysts polled by Thomson Reuters were expecting adjusted earnings
per share of $4.07.
Sales rose 10% in the quarter to $15.1 billion and ended the
year just shy of $50 billion after adjustment for new accounting
rules. They are forecast to rise up to as much as $51.5 billion
this year.
Write to Doug Cameron at doug.cameron@wsj.com and Allison Prang
at allison.prang@wsj.com
(END) Dow Jones Newswires
January 29, 2018 09:59 ET (14:59 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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