Lockheed Starts 2018 Strong; Optimism Toward US Omnibus Bill

By Calvin Biesecker | April 25, 2018
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Sikorsky King Stallion CH-53K

Photo courtesy of Lockheed Martin

Lockheed Martin posted strong financial results in its first quarter buoyed by operating performance, a lower tax rate and a pension tailwind, and the company raised the outlook for its top and bottom lines in 2018.

Net income soared 47% to $1.2 billion, $4.02 earnings per share (EPS), from $789 million ($2.69 EPS) a year ago, with per share estimates soundly beating consensus estimates by 60 cents. Sales were up nearly 4% to $11.6 billion from $11.2 billion a year ago.


Segment operating margin jumped 160 basis points to 11.3%, with three of the company’s four business segments reporting gains, led by Rotary and Mission Systems due to the absence of a charge on an international air missile defense C4I system that hit the segment a year ago, as well as better cost performance on helicopter programs and higher sales related to training and logistics solutions. Last year’s first quarter earnings were also dented by a charge related to an international joint venture that did not recur this year.

Other program contributors to the company’s strong bottom line were the sensors and global sustainment, air and missile defense, the F-35 fighter, and combat aircraft.

Sales were also higher in three of the business segments, with Missiles and Fire Control leading the way followed by Aeronautics, and Rotary and Mission Systems. Revenue drivers included classified programs, the Long Range Stand Off and Joint Air-to-Surface Standoff Missile programs, F-35 production and sustainment, modernization activities on the F-16 and F-22 fighter programs, training and logistics solutions, integrated warfare systems and sensors, and the Aegis Combat System.

Based on the first quarter results and expectations for the rest of the year, Lockheed Martin increased its earnings and sales guidance for 2018. Earnings are now expected to range between $15.80 and $16.10 per share, up 60 EPS from the prior outlook based on stronger operating performance at Aeronautics, Missiles & Fire Control, and Rotary & Mission Systems, and a lower than expected tax rate.

At Rotary and Mission Systems, the higher profits stem in large part from performance at the Sikorsky aircraft division, which is benefiting from cost controls, Bruce Tanner, Lockheed Martin’s CFO, said on the company’s earnings call.

Projected cash flow from operations still remains at greater than or equal to $3 billion this year.

Lockheed Martin Chairman, President and CEO Marillyn Hewson speaking at the company's annual media day on March 21. Photo: Lockheed Martin

Lockheed Martin Chairman, President and CEO Marillyn Hewson speaking at the company's annual media day March 21. Photo courtesy of Lockheed Martin

Marillyn Hewson, Lockheed Martin’s chairman, president and CEO, said during the call that the fiscal year 2018 omnibus appropriations bill approved by U.S. Congress in March adds more than $7 billion to the company’s programs above what was requested. The spending bill includes additional Black Hawk, Seahawk and CH-53K helicopters, she said.

Tanner said the timing is unclear at the moment for when the additional appropriations will find their way into the company’s financial results, but said it will likely filter through during the 2019 to 2021 timeframe.

In response to an investment analyst’s question about the F-35 program, Hewson said progress is being made negotiating the Block 11 low-rate initial production contract with the Defense Department’s Joint Program Executive Office and she believes a deal will be struck in the near-term. Hewson also said that an ongoing halt of deliveries of the aircraft to the Air Force hasn’t affected production and the company is “confident” it will deliver more than 90 F-35s this year as planned.

The suspension relates to a contract dispute on which Hewson said she expects a “resolution soon." Tanner said later in the call in response to another question that the number of aircraft on hold due to the dispute is between the mid- to upper-single digits and that so far the suspension has had only a “slight impact” on cash. The hope is for the issue to be resolved during the second quarter and there not be any impact to cash collection, he added.

Backlog at the end of the first quarter stood at $104.8 billion, down from $105.5 billion at the end of 2017. Free cash flow was $416 million in the quarter.

Read more at sister publication Defense Daily.

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