Growing F-35 sales boost Lockheed Martin profits

Lockheed Martin reported Tuesday that its third-quarter financial results were boosted by robust sales of its F-35 stealth fighter jet, the nation’s most expensive weapons program.

Sales in its Fort Worth-based aeronautics division increased by $377 million, or 11 percent, to $3.9 billion, and comes as the once-troubled F-35 has crossed some critical thresholds and is being readied for increased production.

Over the summer, the Marine Corps declared that its version of the advanced fighter jet, the F-35B, which can land vertically like a helicopter, was ready for combat. And a recent test of the Navy’s version on an aircraft carrier off the Virginia coast showed progress as well, officials said.

In west Fort Worth, Lockheed’s manufacturing complex is in the midst of a $1.2 billion upgrade to prepare for ramped up production of the F-35. The plant is expected to turn out 45 F-35s this year, triple that number by 2017 and hit almost 200 by the end of the decade.

But the strong financial report also came a day after Canada’s Liberal Party made a strong showing in national elections, delivering a victory to Justin Trudeau, who has vowed to back away from the country’s plans to buy as many as 60 F-35s.

With the Liberal Party in power, Canada is expected to now buy a lower-priced aircraft, such as the F/A-18 Super Hornet made by Boeing.

In the short-term, the decision to walk away from the F-35 should not have significant consequences for Lockheed, analysts said. But keeping the per-plane price low requires strong sales to international customers. So there could be long-term consequences if Canada’s decision spooks other countries.

“The [F-35] could face more competition from the F/A-18 and Dassault Rafale, both of which could be in production longer based on international orders,” defense analyst Byron Callan wrote in a note Tuesday morning. “While neither is comparable to the F-35, both represent good-enough alternatives for some countries.”

Lockheed remains confident that more countries will sign on to the program, particularly as it continues to make strides. It already has commitments from the United Kingdom, Japan, Australia and Israel, and recently delivered its first plane to Norway.

The next-generation fighter jet makes up about 20 percent of annual corporate revenues, and that is “expected to grow as production rates increase,” Lockheed CEO Marillyn Hewson said in a call with analysts.

Net sales for the quarter were $11.5 billion, compared to $11.1 billion during the same period last year, a 3.6 percent increase, and cash from operations jumped to $1.5 billion from $990 billion in the third quarter last year. Profits did not get the same lift.

The company reported $865 million in earnings for the quarter, or $2.77 a share, compared to $888 million, or $2.76 a share, a year earlier.

This story was originally published October 20, 2015 at 10:47 AM with the headline "Growing F-35 sales boost Lockheed Martin profits."