Lockheed beats earnings estimates with caution on forecast

Posted Tuesday, Apr. 23, 2013  comments  Print Reprints

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Lockheed Martin said first-quarter earnings beat analysts' estimates while cautioning that 2013 sales may fall at the low end of its prior forecast because of automatic U.S. budget cuts.

Shares of Lockheed, which makes the F-35 and F-16 fighter jets in west Fort Worth, rose as much as 3.2 percent to $98.79 a share in morning trading after reporting net income from continuing operations increased 14 percent to $761 million, or $2.33 a share. The average estimate of 20 analysts surveyed by Bloomberg was $2.04 a share. Sales declined 2 percent to $11.1 billion, Lockheed said today in a statement.

Revenue from the F-35 fighter jet, the Pentagon's most expensive weapons system, was "up slightly" compared with the same quarter a year ago, according to the statement. The F-35 accounted for 14 percent of Lockheed's sales last year, according to a Securities and Exchange Commission filing.

The Bethesda, Maryland-based company said the budget cuts known as sequestration, which began March 1, may trim full-year sales by about $825 million, holding 2013 revenue to the low end of the range from $44.5 billion to $46 billion forecast in January. It maintained its forecast for a profit of $8.80 to $9.10 a share.

"While the impact of sequestration on our business has been limited to date, we continue to work closely with our customers to better understand the future impact sequestration may have on our programs," Marillyn Hewson, Lockheed's chief executive officer, said in the statement.

The company's decision not to revise its profit forecast may be a good sign for other defense contractors, Brian Ruttenbur, an analyst with CRT Capital Group LLC in Stamford, Conn., said in a phone interview.

"If Lockheed has this small an impact because of sequestration, that probably bodes well for the rest of the group," said Ruttenbur, who rates Lockheed as "fairly valued." "I don't think that everybody is going to fare as well as Lockheed, but it gives you an indication that things aren't that bad."

Lockheed's reduction in first-quarter sales stemmed mostly from fewer deliveries of F-16 jets and C-130 transport planes, according to the statement.

Even with the decline in the quarter's revenue, sales of $11.1 billion beat the average analyst estimate of $10.3 billion by 7 percent. The higher-than-expected revenue stemmed partly from increased orders from the government before the automatic cuts began, Bruce Tanner, Lockheed's chief financial officer, said on a conference call with reporters.

"We had some acceleration" prior to the reductions taking effect, Tanner said. It's "a little hard to figure out if that's going to last throughout the year now or not."

The automatic cuts will have the biggest effect this year on Lockheed's Information Systems & Global Solutions unit and the company's Mission Systems and Training division, according to Tanner. About two-thirds of the $825 million reduction in sales that Lockheed expects this year from sequestration will come from those business segments, while the units that produce fighter jets, missiles and space systems will be less affected, Tanner said.

Lockheed Martin has nearly 20,000 employees in North Texas, at its Fort Worth-based aeronautics unit and the Missiles and Fire Control unit based in Grand Prairie.

Hewson denied that Lockheed had exaggerated the effects that automatic reductions would have on the defense industry. Robert Stevens, her predecessor as CEO, last year predicted the reductions might lead to 10,000 layoffs at the company. Job cuts on that scale haven't materialized.

The effects of sequestration "will be significant if sequestration stays in place," Hewson said during the conference call. "That's why we've been so vocal with our lawmakers to look at how we could reverse sequestration and have a more reasonable approach to spending cuts."

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