Despite Lockheed Martin’s dogfight with President Donald Trump in recent weeks over the cost of the F-35 Lightning II, increased sales and profits from the stealth fighter boosted the company’s bottom line in the final quarter of the year.
During a Tuesday conference call to discuss financial results, Lockheed’s CEO Marillyn Hewson said the company is “very close” to reaching a contract with the Pentagon that will reduce the price of the F-35 below $100 million for the first time, heeding Trump’s desire to produce the plane at an affordable price.
“President Trump realizes it’s a very large program. … He wants to make sure the American taxpayer is getting the lowest possible cost,” Hewson said of her multiple meetings with the president. She called their talks “very productive” and a “good dialogue.”
In December, Trump tweeted that the cost of the F-35 program was “out of control,” and he pledged to trim billions of dollars on military contracts after he took office. Last week, officials at BAE Systems, said Lockheed had told them that the Trump administration wanted to cut F-35 program costs by 10 percent.
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Trump met with Hewson at the Trump Tower before his inauguration where they discussed the F-35, which is being built in Fort Worth. At the time, Hewson pledged to cut the Lightning II’s costs and hire an additional 1,800 workers at the Fort Worth plant. Hiring of additional workers would begin later this year and stretch out through 2020.
Lockheed, the nation’s largest defense contractor, reported net sales in 2016 were $47.2 billion compared with $40.5 billion the previous year and that net earnings were $3.8 billion, or $12.38 per share, compared with $3.1 billion, or $9.93 per share in 2015.
Similar improvements were shown in the fourth quarter with net sales of $13.8 billion, up from $11.5 billion. Earnings from continuing operations were $959 million, or $3.25 per share, compared with $817 million, or $2.63 per share, in 2015.
Still, even with those positive numbers, Lockheed, based in Bethesda, Maryland, saw its stock (ticker: LMT) drop 1.77 percent to $252.91. Partly to blame may be Lockheed’s admission that it has found “material weakness” in financial reporting at Sikorsky, the helicopter company Lockheed bought in 2015. The company also lowered its outlook for return on pension assets from 8 percent to 7.5 percent.
Helping Lockheed’s finances was the aeronautics division, which employs about 14,000 people in Fort Worth, including 8,800 who work on the stealth fighter.
Net sales and profits at the aeronautics unit jumped 23 percent in the fourth quarter. Sales jumped by $1 billion, to $5.4 billion, in part because of $640 million from the F-35 program. Profits increased by $104 million compared with 2015.
For the year, aeronautics’ operating profit in 2016 increased $206 million, or 12 percent, and sales increased $2.2 billion, or 14 percent.
During the conference call Tuesday, Hewson said Lockheed has reduced the cost of the F-35 by more than 60 percent since the first batch of planes were produced and said the price would drop to $85 million by 2019.
Hewson said that reduction “demonstrates a learning curve as efficient as any achieved on any modern tactical fighter aircraft.”