AJRD Aerojet Rocketdyne Holdings Inc

By Doug Cameron 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (July 24, 2019).

Lockheed Martin Corp. said its sales and profit got a boost from stepped-up Pentagon spending on hypersonic missiles, with production slated to start in two years if the advanced weapons prove workable.

Lockheed has won the largest share of new U.S. hypersonics contracts, and the world's largest defense company by revenue expects to book $600 million in sales this year on its prototype missiles, which can travel more than five times the speed of sound.

The Pentagon has identified hypersonic missiles -- capable of striking any target on the planet in as little as 15 minutes -- and systems to defend against them as one of its highest priorities, citing development of similar technology by China and Russia.

"That's an area we've been investing in for a number of years," Lockheed Chief Executive Marillyn Hewson told analysts Tuesday after the company reported forecast-beating quarterly profit and raised its full-year financial guidance. She said Lockheed would have more than $3.5 billion in hypersonics contracts by the end of the year.

The segment remains small relative to a record company backlog of $137 billion, but analysts at Credit Suisse estimate hypersonics could be worth $35 billion to the industry over the next 20 years, with Lockheed and rivals Raytheon Co., Northrop Grumman Corp. and Aerojet Rocketdyne Holdings Inc. all chasing Pentagon work in the area.

Lockheed expects test flights of its prototype missiles to be conducted next year, with potential production in the early 2020s.

The company is also benefiting from higher sales of more conventional missiles to the U.S. and allies, notably in the Middle East, as well as higher production of the F-35 stealth fighter, the world's largest military program. Lockheed expects to book the Pentagon's richest-ever contract -- a $34 billion deal for 438 of the jets -- in the third quarter.

Ms. Hewson said Lockheed would be compensated for any costs incurred by the U.S. administration's decision to eject Turkey from the F-35 program because of the country's purchase of a Russian-made missile defense system.

The F-35 and hypersonic systems will be competing for Pentagon dollars under a new U.S. budget deal. The White House and Congress agreed late Monday on a proposal that would lift the national debt ceiling and end the threat of automatic spending cuts.

The pact should clear the way for lawmakers to finalize a fiscal 2020 defense budget that would boost spending by around 3% over 2019 levels. However, the 2021 budget could be lower in real terms, and defense stocks were weak Tuesday. Lockheed was off slightly in afternoon trading.

Lockheed, which is based in Bethesda, Md., reported a second-quarter profit of $1.42 billion, compared with $1.16 billion a year earlier. Earnings per share rose to $5 from $4.05, well above the $4.77 consensus among analysts polled by FactSet. Sales rose 7.7% to $14.43 billion.

The company lifted the midpoint of its guidance for 2019 per-share profit by 4% to a range of $20.85 to $21.15, with sales and free cash flow also guided higher for the full year.

Write to Doug Cameron at doug.cameron@wsj.com

(END) Dow Jones Newswires

July 24, 2019 02:47 ET (06:47 GMT)

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