Will Aeronautics Unit Drive Lockheed's (LMT) Q2 Earnings?

Lockheed Martin Corporation LMT is expected to release second-quarter 2019 results on Jul 23, before the opening bell.

Solid revenue growth trends across Lockheed Martin’s major segments are expected to boost the company’s upcoming quarterly results. In three of the trailing four quarters, the company outperformed the Zacks Consensus Estimate, the average beat being 17.35%.

Let's see how things are shaping up prior to this announcement.

Aeronautics Unit: A Key Catalyst

Lockheed Martin’s Aeronautics segment continues to be a major growth catalyst for the defense contractor. It primarily manufactures advanced, combat-proven jets, and comprises 40% of the company’s top line. In the to-be-reported quarter, the Aeronautics business area is expected to reflect solid sales growth as Lockheed Martin continues to increase the production of its F-35 Joint Strike Fighter jets.

Lockheed Martin Corporation Price and EPS Surprise

Lockheed Martin Corporation Price and EPS Surprise

Lockheed Martin Corporation price-eps-surprise | Lockheed Martin Corporation Quote

Space & MFC Units: Other Growth Drivers

Lockheed Martin’s Space business segment develops satellites, space transportation systems and strategic systems that help the U.S. Department of Defense to collect, analyze and securely distribute critical intelligence data. Of late, this unit has been witnessing significant growth with the U.S. government’s increased focus and funding on enriching the nation’s space and satellite communication systems. In particular, higher sales volumes for this unit’s renowned programs like Next Generation Overhead Persistent Infrared (Next Gen OPIR), Global Positioning System (GPS) III, Advanced Extremely High Frequency (AEHF), and the Orion program has been providing a boost to this unit.

Backed by government support, the Space segment is anticipated to reflect similar growth trends in the soon-to-be-reported quarter. In line with this, the Zacks Consensus Estimate for the segment’s second-quarter revenues is pegged at $2,495 million, implying a 2.8% increase from year-ago quarter’s reported figure.  

Meanwhile, Missiles and Fire Control (MFC) segment, which provides critical missile defense support to the United States and its foreign allies, delivered outstanding operational performance over multiple programs in the first quarter. This allowed the unit to complete the retirement of risk items planned for later this year.

With the current U.S. administration in favor of spending abundantly on defense products as is evident from the last couple of budget provisions, we may expect these achievements of MFC unit to significantly boost Lockheed Martin’s top line in the second quarter.  

The Zacks Consensus Estimate for MFC segment’s revenues in the second quarter is pegged at $2,391 million, implying a 14.7% increase from revenues reported in the year-ago quarter.  

Operating Profit to Boost Earnings

Considering the aforementioned discussions, it is quite obvious that solid revenue growth trends reflected by Lockheed Martin’s major business segments are likely to boost its overall top line in the upcoming quarterly result. In line with this, the Zacks Consensus Estimate for the company’s second-quarter revenues stands at $14.2 billion, indicating a 5.7% increase from the year-earlier quarter's reported figure.

In terms of profitability, the company has been witnessing solid segment operating profit over the past couple of quarters, courtesy of strong segmental performance. In the first quarter, Lockheed Martin’s government satellites team, producing the fifth and sixth spacecraft in the advanced extremely high-frequency constellation, was able to complete crucial testing milestones ahead of schedule and achieve program efficiencies.

This, in turn, boosted the company’s operating profit and thereby margins significantly.

Such improved segment operating profit and solid revenue growth trends should drive earnings in the to-be-reported quarter. The Zacks Consensus Estimate for this defense giant’s second-quarter earnings is pegged at $4.74, mirroring a solid 10% improvement from the prior-year quarter's reported number.

What the Zacks Model Unveils

Our proven model shows that Lockheed Martin is likely to beat on earnings in second-quarter 2019. This is because a stock needs to have both — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. Zacks Rank #4 (Sell) or 5 (Strong Sell) stocks are best avoided, especially if they have a negative Earnings ESP. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Lockheed Martin has an Earnings ESP of +0.14% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Other Key Picks

In addition to Lockheed Martin, investors can consider the following players from the same sector that have the right combination of elements to post an earnings beat this quarter.

The Boeing Company BA is scheduled to report second-quarter 2019 results on Jul 24. The company has an Earnings ESP of +2.72% and a Zacks Rank #3.

Moog Inc. MOG.A is scheduled to report second-quarter 2019 results on Jul 24. The company has an Earnings ESP of +0.76% and a Zacks Rank #3.

Recent Defense Release

Textron Inc. TXT reported second-quarter 2019 earnings from continuing operations of 93 cents per share, which surpassed the Zacks Consensus Estimate of 85 cents by 9.4%.

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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.

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