Lockheed profits boosted by gains in aeronautics

07/22/2014 8:27 AM

07/22/2014 8:28 AM

Strong results at Lockheed Martin’s Fort Worth-based aeronautics unit helped the Bethesda, Md.-based defense giant post better-than-expected results in the second quarter.

Net income rose 3.5 percent to $889 million, or $2.76 a share, in part because of lower pension costs, the company said Tuesday. Lockheed also boosted its full-year profit outlook.

The maker of the F-35 fighter jet, the Pentagon’s most expensive weapon system, was the first of the five largest federal contractors to report earnings this week. Like other big Pentagon suppliers, Lockheed has been cutting costs to maintain profitability as government budget reductions and the wind-down of the U.S.-led military presence in Afghanistan hurt sales.

Overall sales declined less than 1 percent in the quarter to $11.3 billion as aeronautics division sales jumped 13 percent to $3.86 billion. Aeronautics was the only division to post a gain in operating profit, which increased 11 percent to $453 million.

The F-35 development contract had higher operating profit of $85 million because of an adjustment in the second quarter of 2013. Operating profit was comparable for F-35 production contracts.

Lockheed raised its full-year profit outlook to $10.85-$11.15 a share, from $10.50-$10.80 a share in April. The company affirmed its January estimate of $44 billion to $45.5 billion in sales for the year. Lockheed stock (ticker: LMT) gained $4.89 a share to close at $167.87.

Chairwoman and CEO Marillyn Hewson attributed the higher forecast in a statement to “solid program execution and operational performance.”

The positive news was welcome after a June 23 engine fire on an Air Force F-35 in Florida led the U.S. military to ground its fleet and cancel the plane’s highly anticipated appearance at the Farnborough International Airshow in England this month.

During a conference call with reporters, Lockheed Chief Financial Officer Bruce Tanner said investigators are getting close to determining the cause of the F-35 fire.

“We’re hopeful that gets resolved soon,” Tanner said. One possible reason for the fire is friction between blades and the cowl around them.

Lockheed is increasingly relying on revenues from the F-35 program. The program accounted for 18 percent of Lockheed’s second-quarter sales, and “that number will only continue to grow,” Tanner said.

“It’s a pretty significant piece of our business,” he said.

Two weeks ago, Lockheed and its corporate partners on the program, Northrop Grumman and BAE Systems, pledged to invest $170 million through 2016 to help reduce the F-35’s cost from more than $100 million to about $80 million. Lockheed is hoping to boost production from about 36 of the jet fighters this year to about 120 by the end of the decade.

The increased production could add more than 1,000 jobs in Fort Worth, where Lockheed employs more than 13,000.

This report includes material from the Star-Telegram archives.

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