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Lockheed Martin (LMT) Beats on Q4 Earnings, Backlog Rises

The Pentagon's prime contractor, Lockheed Martin Corp.LMT , reported fourth-quarter 2016 earnings from continuing operations of $3.25 per share, surpassing the Zacks Consensus Estimate of $3.04 by 6.9%. Earnings also increased 23.6% from the year-ago level, courtesy of strong revenue and operating margin growth.

Full-year 2016 earnings from continuing operations of $12.38 per share also beat the consensus estimate of $12.18 and improved 24.7% from the year-ago level.

Operational Highlights

In the reported quarter, total revenues came in at $13.75 billion, beating the Zacks Consensus Estimate of $13.09 billion by 5%.

The company's revenues increased 19.4% from $11.52 billion a year ago. All segments, except for Missiles and Fire Control, registered year-over-year growth in sales.

Total revenues in 2016 were $47.25 billion, up 16.6% year over year and also above the Zacks Consensus Estimate of $46.49 billion.

Lockheed Martin Corporation Price, Consensus and EPS Surprise

Lockheed Martin Corporation Price, Consensus and EPS Surprise | Lockheed Martin Corporation Quote

Backlog

Lockheed Martin ended 2016 (on Dec 31, 2016) with $96.2 billion in backlog, up 3.6% from $94.8 billion at 2015-end. Of this, the Aeronautics segment accounted for $34.2 billion while Rotary and Mission Systems contributed $28.4 billion. Also, $18.9 billion came for Space Systems and $14.7 billion from Missiles and Fire Control.

Segmental Performance

Aeronautics: Sales increased 23% year over year to $5.4 billion, mainly on production contracts of F-35, F-16, C-5 as well as C-130 models of aircraft and increased sustainment activities during the quarter.

Operating profit also advanced 23% year over year to $552 million, while operating margin remained flat at 10.2%.

Missiles and Fire Control: Quarterly sales dropped 11% year over year to $1.8 billion due to lower volume in certain fire control programs as well as air and missile defense programs.

Operating profit also decreased 34% year over year to $255 million and operating margin contracted 520 basis points (bps) to 14.5%.

Rotary and Mission Systems : Quarterly sales of $3.8 billion increased 37% from the prior-year quarter on higher revenues from Sikorsky.

Operating profit rose 45% year over year to $228 million, while operating margin expanded 40 bps to 6%.

Space Systems : Sales increased 17% year over year to about $2.8 billion in the fourth quarter, driven by sales improvement owing to the company's increased interest in Atomic Weapons Establishment Venture as well as that from commercial space transportation programs.

Operating profit dropped 11% to $255 million while operating margin declined 290 bps to 9.2% in the quarter.

Financial Condition

Cash and cash equivalents were $1.84 billion at the end of 2016, compared with $1.09 billion at 2015-end. Long-term debt was $14.282 billion compared to the 2015-end level of $14.305 billion.

Cash from operations at the end of the fourth quarter dropped 47.8% to $729 million, compared with the year-ago figure of $1.4 billion. In 2016, the company generated cash from operations of $5.2 billion, compared with $5.1 billion at 2015-end.

During the quarter, the company repurchased 3.2 million shares for $816 million compared with the buyback of 3.2 million shares for $707 million a year ago. During 2016, the company repurchased 8.9 million shares for $2.1 billion compared with the buyback of 15.2 million shares for $3.1 billion a year ago.

Guidance

For 2017, Lockheed Martin expects to generate revenues in the range of $49.4-$50.6 billion. On the bottom-line front, the company expects its earnings per share to be in the range of $12.25-$12.55 during 2017.

The company expects cash from operations to remain more than $5.7 billion for the year.

Price Movement

Lockheed Martin gained about 3.3% in the last three months, underperforming the Zacks categorized Aerospace-Defense industry's gain of 11.5%. The underperformance is probably due to the company's overdependence on the F-35 program as well as intensifying competition.

Upcoming Peer Releases

General Dynamics Corp. GD has an Earnings ESP of +1.18% and a Zacks Rank #3 (Hold). The company is scheduled to report quarterly results on Jan 27.

Huntington Ingalls Industries, Inc. HII , slated to report on Feb 16, has an Earnings ESP of +2.82% and a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

Northrop Grumman Corp. NOC has an Earnings ESP of +0.80% and a Zacks Rank #2 (Buy). The company is expected to release results on Jan 26.

Zacks Rank

Lockheed Martin sports a Zacks Rank #1.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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