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Lockheed Beats Q4 Earnings, Gives View - Analyst Blog

Posted
1/23/2014 2:13:00 PM
By: Zacks.com
Referenced Stocks:BA;GD;LMT;NOC

The world's largest stand-alone defense contractor, Lockheed Martin Corporation ( LMT ), posted fourth quarter 2013 earnings before the opening bell. The company reported fourth quarter 2013 adjusted earnings from continuing operations of $2.38 per share, comfortably surpassing the Zacks Consensus Estimate of $2.00 by 19.0%.

Earnings in the reported quarter also surged almost 21.4% from the year-ago adjusted profit level of $1.96 per share. The upcast in earnings was mainly attributable to its strong operational performance.

Full year 2013 adjusted earnings from continuing operations came in at $9.98 per share, compared with the year-earlier adjusted profit level of $8.63 per share.

Though this premier defense contractor registered charges related to U.S. defense budget cuts and workforce reduction, it still remains optimistic about 2014 and expects higher earnings this year.

Operational Highlights

In the reported quarter, total revenue was $11,533 million, higher than the Zacks Consensus Estimate of $11,345 million. However, the quarterly figure dropped 4.7% from the year-earlier level of $12,099 million.

In 2013, the top line slipped 3.9% year over year to $45,358 million. All segments (except Missiles and Fire Control) experienced a year-over-year decline in revenue.

Lockheed Martin ended the year with $82,600 million of backlog. Of this, $28,000 million belonged to the Aeronautics segment and $20,500 million to the Space Systems segment. The rest is made up of $15,000 million for the Missiles and Fire Control segment, $10,800 million for Mission Systems and Training and $8,300 million for Information Systems & Global Solutions.

Segmental Performance

Aeronautics

Aeronautics' quarterly sales decreased 5.9% year over year to $3,898 million. The decline reflects weak sales related to C-130, F-22 and F-16 programs, partially offset by higher net sales for the C-5 program and F-35 production contracts.

Segmental operating profit fell 7% to $414 million, and operating margin decreased 10 basis points ("bps") to 10.6%.

Information Systems & Global Solutions

Information Systems & Global Solutions' quarterly sales decreased 4.5% to $2,101 million. The decline reflects lower net sales and completion of certain programs like the Transportation Worker Identification Credential program. These negatives were however partially offset by the initiation of certain programs like Global Information Grid Services Management Operations.

Segmental operating profit came in at $189 million, down 6.9% year over year while operating margin was at 9.0%, down 20 bps year over year.

Missiles and Fire Control

Missiles and Fire Control segment's quarterly sales dropped 9.2% to $1,723 million. The decrease reflects lower nets sales for various technical services programs and for tactical missiles programs. However, these negatives were partially offset by higher net sales for fire control programs, primarily Sniper, LANTIRN and Apache.

Segmental operating profit surged 28.7% to $350 million and operating margin expanded 60 bps year over year to 20.3% in the reported quarter.

Mission Systems and Training

Mission Systems and Training segment's quarterly sales declined marginally year over year to $1,855 million from $1,860 million in the year-ago period. The decline reflects lower sales for integrated warfare systems and sensors programs as well as various training and logistics programs. These decreases were partially offset by higher sales for the Littoral Combat Ship program and for the AEGIS program.

Segmental operating profit rose 13.9% to $213 million while operating margin expanded to 11.5% from 10.1%.

Space Systems

Space Systems' segmental sales decreased to $1,956 million in the fourth quarter from $2,000 million in the comparable period last year. The decline reflects lower net sales for Orion Multi-Purpose Crew Vehicle program. The decrease was partially offset by an increase in sales for the government satellite programs.

However, segmental operating profit improved 9.9% to $255 million and operating margin climbed to 13.0% from 11.6%.

Financial Condition

Cash and cash equivalents of Lockheed Martin were $2,617 million at year-end 2013 versus $1,898 million at year-end 2012. Long-term debt marginally fell to $6,152 million from $6,158 million at year-end 2012.

The company repurchased 16.2 million shares at a cost of $1.8 billion during 2013. The company disbursed $428 million and $1.5 billion as dividends in the reported quarter and 2013, respectively.

Guidance

Lockheed Martin expects its 2014 revenue to be in the range of $44,000 million to $45,000 million (compared with $45,358 million last year), with orders in the $41,500-$43,000 million range.

The company forecasts earnings per share in the range of $10.25 to $10.55 for 2014.

The preliminary guidance from the defense behemoth assumes a steady outlook for U.S. military spending over the next two years. However, the strength of the overseas business is not guaranteed in spite of the defense behemoths continuing to chase international contracts.

Outlook

Lockheed Martin has succeeded in beating the top as well as the bottom line. Also, the company continued to grow its backlog and generate strong cash from operations while maintaining its cash deployment strategy.

The company has received a series of contracts from the U.S. Department of Defense, ranging from big to small tickets. These defense deals are a testimony to the wide range of products at the disposal of Lockheed Martin.

Apart from the big wins, the company received small contracts, which kept the order book ticking amidst harsh budget austerities. Again, the company seems confident of selling F-35 fighter jets to foreign clients, which would to some extent compensate for lower defense spending at home.

Despite the uncertainty plaguing the industry, the company has been able to generate $15.4 billion in orders in the fourth quarter of 2013. Going forward, varied product offerings, strong program execution and cost reduction measures will help the company to sustain its profitability.

Lockheed Martin has a Zacks Rank #2 (Buy). Other defense stocks also worth considering are The Boeing Co. ( BA ), General Dynamics Corp. ( GD ) and Northrop Grumman Corp. ( NOC ), all with a comparable Zacks Rank #2 (Buy).



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