Increased F-35 production driving Lockheed profits higher

Lockheed Martin raised its profit forecast Tuesday just weeks after a $5.58 billion down payment on the latest contract for more F-35 fighter jets signaled the jet’s money-making potential.

Revenue is poised to increase as F-35 production picks up in west Fort Worth and the Bethesda, Md.-based company benefits from getting past a contract impasse with the Defense Department. Investors have been fixated on margins for the plane since President Donald Trump said late last year that its costs were “out of control.”

Earnings will now be $12.30 to $12.60 a share this year, 15 cents more than previously forecast, the company said Tuesday as it reported that its second-quarter profit topped analysts’ estimates. In April, the world’s largest weapons maker lowered its outlook as profit fell short of expectations for just the third time this decade.

The news came as Lockheed held a job fair in downtown Fort Worth that attracted at least 2,000 to the Sheraton Fort Worth hotel. Lockheed’s top executive has said that the company plans to add about 1,800 workers at its Fort Worth aeronautics complex as it ramps up F-35 production by 2020.

Lockheed’s solid quarterly results did little to sway investors since shares were already at a record and the results were largely expected, said Seth Seifman, an analyst with JPMorgan Chase & Co. The shares (ticker: LMT) dropped $1.70 to close at $286.79.

The F-35, also known as the Joint Strike Fighter, is of “extreme interest” to investors as Lockheed’s largest source of profit and growth, said Douglas Rothacker, an analyst at Bloomberg Intelligence. “It’s definitely a revenue driver for the company right now,” with deliveries set to increase more than 40 percent this year, he said.

Aeronautics sales jumped 19 percent in the second quarter from a year earlier as Lockheed started to accelerate F-35 output. Rothacker said he expects similar double-digit growth to continue for the company’s largest division during the second half of the year.

Second-quarter profit from continuing operations rose to $3.23 a share. Analysts had predicted $3.11, according to the average of estimates compiled by Bloomberg. Revenue from continuing operations increased 9.6 percent to $12.7 billion, while analysts anticipated $12.4 billion.

Lockheed is likely to get a boost from “back-loaded” F-35 deliveries, Douglas Harned, an analyst at Sanford C. Bernstein & Co., said in a report Monday. The company has said it will deliver 66 of the jets this year, up from 46 last year. Lockheed this month was awarded the interim payment for the 11th contract for the jets to help defray costs until it reaches a final agreement with Defense Department negotiators.

Sales for the rotary and mission systems division rose 3 percent as Lockheed delivered three Sikorsky helicopters compared with none a year earlier. Missiles and fire control revenue dipped due to lower sales of the PAC-3 missile defense system, but the unit’s operating profit was “in-line” at $269 million, said Vertical Research’s Stallard.

This story was originally published July 18, 2017 at 10:47 AM with the headline "Increased F-35 production driving Lockheed profits higher."