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Lockheed Martin Tops Q3 Earnings on Robust F-35 Contracts

The Pentagon's prime contractor, Lockheed Martin Corp.LMT , posted third-quarter 2015 earnings before the opening bell today. The company reported quarterly earnings of $2.77 per share, comfortably surpassing the Zacks Consensus Estimate of $2.70 by 2.6%. Earnings also increased 0.4% from $2.76 per share a year ago, as higher fighter jet demand led to increased revenues.

Lockheed Martin Corporation - Earnings Surprise | FindTheBest

Operational Highlights

In the reported quarter, total revenues came in at $11.5 billion, beating the Zacks Consensus Estimate of $11 billion by almost 4.5%.

The company's revenues also increased 3.1% from $11.1 billion a year ago. All segments, except Space Systems and Information Systems & Global Solutions, registered year-over-year sales growth.

Backlog

Lockheed Martin ended the third quarter (on Sep 27, 2015) with $71.7 billion in backlog, down 1.5% from $72.8 billion in the preceding quarter and 10.9% from $80.5 billion at 2014 end. Of this, a major $22.5 billion share went to the Aeronautics segment while Space Systems accounted for $16.6 billion. The rest comprised $14 billion for Missiles and Fire Control, $11.8 billion for Mission Systems and Training, and $6.8 billion for Information Systems & Global Solutions.

The company won $10.3 billion worth of orders during the quarter, up 8.4% year over year.

Segmental Performance

Aeronautics: Quarterly sales increased 11% year over year to $3.9 billion, mainly on higher sales from F-35 production contracts and sustainment activities during the quarter.

Operating profit also advanced 15% year over year to $418 million and operating margin increased 50 basis points (bps) to 10.7%.

Information Systems & Global Solutions: Quarterly sales decreased 4% to approximately $1.9 billion. The decline reflects the impact of in-theater force reductions (including Persistent Threat Detection System), lower volume on certain government IT support service programs and heightened competition.

Operating profit came in at $163 million, down 7% year over year while operating margin contracted 30 bps to 8.7%.

Missiles and Fire Control: Quarterly sales increased 2% year over year to $1.9 billion. The increase reflects higher net sales from fire control programs.

Operating profit remained almost on par with the year-ago level of $336 million while operating margin shrunk 30 bps to 17.3%.

Mission Systems and Training: Quarterly sales of $1.8 billion increased 7% from the prior-year quarter. The growth primarily reflects higher revenues from integrated warfare systems and sensors programs along with the start-up of new programs.

Operating profit improved 14% year over year to $220 million and operating margin expanded 70 bps to 12.2%.

Space Systems: Sales decreased 5% year over year to about $1.9 billion in the third quarter. The decrease reflects lower sales from commercial space transportation programs and from various government satellite programs.

Operating profit decreased to $232 million from $281 million a year ago. Operating margin declined 180 bps to 12.0% from 13.8% in the year-ago quarter.

Financial Condition

Cash and cash equivalents were $3.30 billion at third-quarter end compared with $1.44 billion at year-end 2014. Long-term debt rose to $7.46 billion from $6.17 million at 2014 end.

During the quarter, the company repurchased 4.1 million shares for $823 million compared with 2.6 million shares repurchased for $446 million a year ago. The stock buyback program was boosted by $3 billion in Sep 2015 and now totals $4.7 billion. The company expects to repurchase at least $2 billion in shares during 2016 and expects to lower the outstanding share count to less than 300 million by the end of 2017.

Guidance

Lockheed Martin now expects 2015 revenues to be approximately $45 billion ($43.5 billion to $45 billion expected earlier) with orders in the $43.5-$45 billion range.

The company now projects 2015 earnings of about $11.30 per share, at the high end of the prior guidance range of $11.00−$11.30 per share.

Lockheed expects cash from operations of approximately $5 billion for the year.

Upcoming Peer Releases

The Boeing Co. BA is slated to report third-quarter 2015 results on Oct 21, before the opening bell.

General Dynamics Corp. GD is slated to report third-quarter 2015 results on Oct 28, before the opening bell.

Northrop Grumman Corp. NOC is also expected to report third-quarter 2015 results on Oct 28, before the opening bell.

Outlook

Considering the constant stress that the U.S. military budget is under, Lockheed Martin's better-than-expected third-quarter earnings are commendable.

The company is also registering higher foreign sales that will likely offset a lower defense budget scenario at home. Again, the proposed takeover of Sikorsky is a strategic fit for Lockheed Martin. The move could prove to be a revenue booster for the prime defense contractor.

However, the threat of sequestration still lurks over this defense major, negatively impacting its backlog.

Lockheed Martin carries a Zacks Rank #3 (Hold).

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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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