Lockheed forecasts higher 2015 profit as aircraft margins improve

Lockheed Martin raised its annual profit forecast as improving margins for its Fort Worth-based aircraft unit, led by its marquee F-35 fighter jet, help ease pressure from U.S. defense-spending cuts.

First-quarter profit fell 5.9 percent to $878 million, or $2.74 a share, but exceeded the $2.50 average of 16 analysts’ estimates compiled by Bloomberg. Revenue of $10.1 billion was less than the $10.3 billion analysts expected.

Lockheed’s $391.1 billion F-35 program has come under scrutiny because it’s the Pentagon’s most expensive and has suffered some technological setbacks, while its development costs have squeezed profits.

The company has said it intends to deliver 40 to 45 of the advanced fighter jets this year though it’s late delivering fully-functioning software for the first F-35s due to be declared combat-ready. Smoothing production of the jet is crucial as deliveries fall for Lockheed’s higher-margin F-16 fighter and C-130J cargo transport, said Doug Rothacker, a defense analyst with Bloomberg Intelligence.

“That indicates to me that F-35 margins are picking up nicely to offset margin pressure from other aircraft,” Rothacker said in a phone interview after the results.

Earnings will be $10.85 to $11.15 a share in 2015, up from the range of $10.80 to $11.10 forecast in January, Lockheed said in a statement. Bethesda, Maryland-based Lockheed reaffirmed its forecast for revenue of $43.5 billion to $45 billion.

On a conference call with analysts, Lockheed’s CEO Marillyn Hewson said the company is making progress on fixing the F-35’s technical issues in areas such as the high-tech helmet and software, as well as bringing down costs.

“By the time we move into full-rate production, the cost of the F-35 will be comparable or lower than a fourth-generation fighter with much more capability,” she said.

First-quarter operating profit for aeronautics was $371 million, down about 5 percent, as net sales declined 7 percent to $3.13 billion. But operating margins rose to 11.8 percent in the first quarter from 11.6 percent a year earlier.

Lockheed delivered one fewer F-16 fighter, its most profitable aircraft, in the period and eight F-35s, the same as last year.

Lockheed employs about 13,600 workers in west Fort Worth, with about 8,800 involved in the F-35 program. Lockheed’s Missiles and Fire Control unit has about 2,700 people in Grand Prairie.

Lockheed shares (ticker: LMT) lost 51 cents to $196.29.

Lockheed repurchased 3 million shares for $604 million, down from the 7 million shares it bought back for $1.1 billion a year earlier.

This story was originally published April 21, 2015 at 9:34 AM with the headline "Lockheed forecasts higher 2015 profit as aircraft margins improve."