Lockheed Martin Corporation (LMT)

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Lockheed Martin (LMT)

Q3 2012 Earnings Call

October 24, 2012 3:00 pm ET

Executives

Jerry F. Kircher - Vice President of Investor Relations

Robert J. Stevens - Chairman, Chief Executive Officer and Chairman of Executive Committee

Christopher Eugene Kubasik - Vice Chairman, President, Chief Operating Officer and Member of Executive Office of the Chairman

Bruce L. Tanner - Chief Financial Officer and Executive Vice President

Analysts

Douglas S. Harned - Sanford C. Bernstein & Co., LLC., Research Division

Heidi Rolande Wood - Morgan Stanley, Research Division

William R. Loomis - Stifel, Nicolaus & Co., Inc., Research Division

Joseph B. Nadol - JP Morgan Chase & Co, Research Division

Michael S. Lewis - Lazard Capital Markets LLC, Research Division

Jason M. Gursky - Citigroup Inc, Research Division

Robert Stallard - RBC Capital Markets, LLC, Research Division

Cai Von Rumohr - Cowen and Company, LLC, Research Division

Samuel J. Pearlstein - Wells Fargo Securities, LLC, Research Division

Carter Copeland - Barclays Capital, Research Division

Richard Tobie Safran - The Buckingham Research Group Incorporated

David E. Strauss - UBS Investment Bank, Research Division

Robert Spingarn - Crédit Suisse AG, Research Division

Myles A. Walton - Deutsche Bank AG, Research Division

Peter J. Arment - Sterne Agee & Leach Inc., Research Division

Noah Poponak - Goldman Sachs Group Inc., Research Division

Presentation

Operator

Good day, and welcome, everyone, to the Lockheed Martin Third Quarter 2012 Earnings Results Conference Call. Today's call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Mr. Jerry Kircher, Vice President of Investor Relations. Please go ahead, sir.

Jerry F. Kircher

Thank you, Ally, and good afternoon, everyone. I'd like to welcome you to our third quarter 2012 earnings conference call. Joining me today on the call are Bob Stevens, our Chairman and Chief Executive Officer; Chris Kubasik, our Vice Chairman, President and Chief Operating Officer; and Bruce Tanner, our Executive Vice President and Chief Financial Officer.

Statements made in today's call that are not historical fact are considered forward-looking statements and are made pursuant to the Safe Harbor provisions of federal securities law. Actual results may differ. Please see today's press release and our SEC filings for a description of some of the factors that may cause actual results to vary materially from anticipated results. We have posted charts on our website today that we plan to address during the call to supplement our comments. Please access our website at www.lockheedmartin.com, and click on the Investor Relations link to view and follow the charts.

With that, I'd like to turn the call over to Bob.

Robert J. Stevens

Thanks, Jerry, and good afternoon, everyone. Thanks for joining the call today. We know most of you are having a really busy day, and we appreciate you being with us.

I want to begin with a brief summary of the third quarter, which I see as a continuation of the strong momentum and focus on execution we've been achieving throughout this year. In the third quarter, segment operating margin increased to 12.1%, a solid improvement over the prior year level of 11.2%. Cash generation was strong at $1.6 billion, and earnings per share from continuing operations expanded by 11%.

Our financial strength enabled a 15% increase in our quarterly dividend to $1.15 a share or $4.60 annually. This is the 10th consecutive year that we've raised the dividend by a double-digit percentage increase. We continue to implement our cash deployment strategy and returned over $600 million to shareholders in the quarter through dividend payments and share repurchases.

Strong year-to-date performance and execution also enabled us to increase our 2012 full year outlook for sales, operating profit, earnings per share and cash from operations. These results reflect the strength of our corporation and the focus we all have on delivering value to customers and shareholders. Thanks to everyone in the company for their many contributions in driving these strong results.

Turning to the external environment and budget status. Congress passed the continuing resolution to fund government fiscal year 2013 activities for 6 months through March 27, 2013. Under this continuing resolution, our key programs continue to be supported and funded at levels consistent with prior fiscal year appropriations.

Beyond the continuing resolution that's in place, the possibility of sequestration continues to be of great concern to us. As currently written, this law that requires approximately $55 billion in reductions to defense accounts and a like amount to non-defense discretionary accounts will take effect on January 2. We have petitioned Congress and the administration to stop sequestration and replace it with a more constructive process, a position we continue to support.

In parallel, we've also been asking the government for additional planning information so we can responsibly and properly prepare to act. On September 28, the Department of Defense provided additional planning guidance, indicating that no contract actions associated with sequestration would occur on January 2, the date sequestration is to be effective, and that no contract action would likely occur for several months beyond January 2.

On that same day, the Office of Management and Budget assured that any of our employees who would potentially be affected by a reduction in force necessitated by sequestration would be eligible for full coverage under the provisions of the WARN Act and that our company would be able to recover associated costs. With this new information, we adjusted the timing of our actions as it would have been improper for us to issue WARN notices in October or November when the timing of any potential sequestration-related events would likely not occur for at least 6 months or more.

Some reporting about our decision to move the timing of the release of WARN notices has been inaccurate, concluding that we either no longer intend to issue WARN notices if a sequestration-driven reduction in force is necessary or that employees potentially affected by reduction in force would not have the full coverage of the WARN Act, or that our actions may have been taken to achieve some political objectives. These conclusions are not only inaccurate, they are absolutely wrong.

The additional planning guidance we received from the Department of Defense on September 28 moved the likely timing of sequestration-related actions by the government by about 3 months into 2013, and we adjusted our schedule accordingly. So let me be very clear. We will issue WARN notices at the appropriate time if sequestration actions meet the required conditions in full compliance with the law, as we always have. We will work to assure that our employees are treated fully and fairly under the law, receiving protection under the WARN Act which, for us, has been and remains a high and nonnegotiable priority. And our sole interest and motivation throughout all the discussions about sequestration has been to understand the complex issues arising from this unprecedented circumstance, to be fully compliant with law and regulation and to take actions in the best interest of our company and our employees. We have done so, and we will continue to work to stop sequestration.

So while I can't precisely forecast the impacts of sequestration or events that will unfold in a dynamic global security environment, there is one thing I know for certain. Every one of our 120,000 employees stands ready to take on whatever challenges will emerge. We worked hard over many years to build a culture based on ethics and integrity and high performance.

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