The world's largest stand-alone defense contractor,
Lockheed Martin Corporation
) exited full year 2012 with mixed fortunes. The company posted
fourth-quarter 2012 operating earnings of $1.73 per share versus
the Zacks Consensus Estimate of $1.79.
This was also lower than the year-ago quarterly earnings of
$2.14. The downcast in earnings year over year was mainly due to
lower government spending on defense.
On a reported basis per share earnings were $1.73 versus $2.09 in
the year-ago quarter. Full year 2012 operating earnings came in
at $8.36 per share, falling short of the Zacks Consensus Estimate
of $8.41 but ahead of the full year 2011 earnings of $7.85.
On the revenue front, Lockheed Martin reported quarterly net
sales of $12.1 billion, beating the Zacks Consensus Estimate of
$11.2 billion by $888 million. However the company came short of
the year-ago quarterly revenue of $12.2 billion by $112
Full year 2012 revenue was $47.2 billion versus the Zacks
Consensus Estimate of $46.3 billion. However, revenue for the
reported fiscal was lower than the full year 2011 number of $46.5
Earnings from continuing operations for the fourth quarter of
2012 were $569 million versus $698 million a year ago. Lockheed's
reported quarterly earnings were affected by a pension expense
adjustment, higher income tax expense from reduced U.S.
manufacturing deductions, and a charge related to workforce
reductions at the Corporation's Aeronautics business segment.
Overall, Lockheed Martin's quarterly net earnings fell to $569
million from $683 million in the year-ago period.
Lockheed Martin finished 2012 with $82.3 billion of backlog,
including $19.8 billion of new orders booked in the fourth
quarter. Of this $30.1 billion belonged to the Aeronautics
segment and $18.1 billion to the Space Systems segment. The rest
is made up of $14.7 billion for the Missiles and Fire Control
segment; $10.7 billion for Mission Systems and Training; and $8.7
billion for the Information Systems & Global Solutions.
Earlier in October, Lockheed had announced the restructuring of
the organization in order to streamline its operations while
enhancing customer alignment. In the process, the Electronic
Systems business segment was reorganized into two new business
segments: Missiles and Fire Control (MFC) and Mission Systems and
Training (MST). Electronic Systems' corporate management
layer was removed and the Global Training and Logistics business
was split between the two new business segments.
Moreover, the business reporting relationship for the Sandia
National Laboratories and the U.K. Atomic Weapons Establishment
joint venture was transferred from Electronic Systems to Space
Systems. The re-organization became effective from Dec 31, 2012.
Post-restructuring, the company now operates through the below
mentioned five business segments.
Aeronautics' quarterly sales increased 7% year over year to $4.1
billion in the reported quarter due to higher volume from C-5 and
C-130 programs primarily due to higher aircraft deliveries.
Partially offsetting the increases were lower sales from F-16
Net sales from F-35 contracts and the F-22 program were
comparable to the same period in 2011. Segmental operating profit
fell 3% to $445 million while operating margin shrunk by 130
basis points to 10.7% in the reported quarter.
Information Systems & Global Solutions
Information Systems & Global Solutions segment's quarterly
sales decreased 14% to $2.2 billion. In the reported quarter
sales decreased due to lower volume on numerous programs
(primarily Warfighter Information Network-Tactical; Information
Technology Agency Enterprise Transport Management; Command,
Control, Battle Management and Communications; and Hanford
Mission Support contract); and due to the substantial completion
of certain programs during 2011 (primarily Outsourcing Desktop
Initiative for NASA; Airborne Maritime Fixed Station Joint
Tactical Radio System; and U.K. Census). Segmental operating
profit fell by 20% to $203 million while operating margin shrunk
by 80 basis points to 9.2% in the reported quarter.
Missiles and Fire Control
Missiles and Fire Control segment's quarterly sales rose 4% to
$1.9 billion. In the reported quarter the upward spike in sales
came from higher volume for air and missile defense programs
(primarily Terminal High Altitude Area Defense and Patriot
Advanced Capability-3). This was partially offset by lower volume
sales from tactical missile programs. Segmental operating profit
rose by 18% to $272 million while operating margin rose by 160
basis points to 14.3% in the reported quarter.
Mission Systems and Training
Mission Systems and Training segment's quarterly sales remained
flat year over year at close to $1.9 billion. Higher top line
from training and logistics solutions programs were offset by
lower top line from various undersea systems programs due to
lower volume. Segmental operating profit rose by 9% to $187
million while operating margin rose by 90 basis points to 10.1%
in the reported quarter.
Space Systems' segmental sales decreased by 6% to approximately
$2.0 billion. In the reported quarter sales declined in certain
government satellite programs (primarily Space Based Infrared
System and Mobile User Objective System) due to lower volume and
a decline in risk retirements. Segmental operating profit fell by
19% to $232 million while operating margin fell by 190 basis
points to 11.6%.
Cash and cash equivalents of Lockheed Martin were $1.9 billion
versus $3.6 billion at year-end 2011. Long-term debt fell by $302
million to approximately $6.2 billion versus year-end 2011. The
company repurchased 3.1 million shares at a cost of $286 million
in the fourth quarter and 11.3 million shares at a cost of $1.0
billion in full year 2012. The company disbursed $373 million as
dividends in the reported quarter and $1.4 billion in full year
Lockheed Martin affirmed its full year 2013 earnings per share in
the range of $8.80-$9.10, on net revenues in the range of
Lockheed Martin is the largest U.S. defense contractor with a
platform-centric focus and a steady inflow of follow-on orders
due to its leveraged presence in the Army, Air Force, Navy and IT
programs. However, the ongoing trend of governmental delays in
program decisions coupled with program cancellations has affected
the fortunes of the defense industry in general and Lockheed
Martin in particular.
Shares of the company are currently at their 52-week peak.
Furthermore, it is Zacks Rank #2 (Buy) stock. The past 30 days
have seen none of the 17 earnings estimates for full year 2013
move either up or down despite an industry-wide threat of budget
cutbacks and effects of sequestration.
The cautious outlook is reflected across the board in the defense
and aerospace industry. Of Lockheed Martin's major peers,
General Dynamics Corporation
) affected by defense budget cutbacks missed market expectations
) surpassed mainly on capital deployment actions and operational
Another major aerospace player,
) is bullish about near-term prospects solely due to its
anticipated double-digit growth at its Cessna business jets
segment. Nonetheless there is a general air of pessimism in the
market about lackluster prospects for the defense business in
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