Lockheed reports higher profit, will merge IT units with Leidos

Lockheed Martin said Tuesday that growing sales of the F-35 fighter jet boosted financial results in the fourth quarter as it announced a deal to merge its information technology and services division with Leidos Holdings.

The defense giant, which builds fighter jets in west Fort Worth, reported a profit of $933 million, or $3.01 a share, up from $904 million, or $2.82 per share, a year earlier. That beat the $2.94 a share average of 19 analyst estimates compiled by Bloomberg. Net sales increased to $12.9 billion from $12.5 billion

The Fort Worth-based aeronautics unit, the corporation’s largest division, reported operating profit of $448 million in the fourth quarter, about even with last year’s $441 milllion. Net sales increased about 6 percent to $4.38 billion, thanks to higher net sales of approximately $475 million for F-35 production, which has been ramping up.

The deal to merge its IT services unit with Leidos, which will create a business with $5 billion in enterprise value, helps Lockheed shed lower-margin businesses amid growing competition from Silicon Valley firms. It also will help ease the debt load from the company’s $9 billion purchase of Sikorsky Aircraft from United Technologies late last year.

“This strategic transaction is an important milestone in the portfolio reshaping strategy we announced in July 2015 and allows us to focus on our core business in aerospace and defense,” Marillyn Hewson, Lockheed’s chairman and chief executive officer, said in a statement.

The tax-free transaction, known as a Reverse Morris Trust, will result in a $1.8 billion special cash payment to Lockheed Martin, which will be used to repay debt, pay dividends and potentially buy back stock, the company said.

On a conference call with analysts, Hewson said that the F-35 program “is getting much more stable” as reflected by the Pentagon’s growing purchases of the aircraft. She said Lockheed expects to deliver 53 F-35s in 2016, up from 45 in 2015, and then 59 or 60 in 2017 and up to about 100 by 2018.

Lockheed’s mile-long Fort Worth plant is in the midst of a $1.2 billion reconfiguration. The plant expects to hire 1,000 additional employees for its assembly line alone to handle the increased production.

In December, Lockheed hit its annual production goal when it delivered its 45th F-35 fighter of the year. At year’s end, the company had delivered 154 operational aircraft to the U.S. government and its partner nations since the program’s inception.

The delivery came immediately after Congress approved a $1.1 trillion omnibus funding bill that included orders for 11 more aircraft than expected for the 2016 budget year. Lockheed is scheduled to build 3,170 F-35s by the time the program ends in 2039, but company officials said that number could climb, particularly with the involvement of its foreign partners.

This story was originally published January 26, 2016 at 8:13 AM with the headline "Lockheed reports higher profit, will merge IT units with Leidos."