Lockheed Martin first-quarter sales miss estimates; shares drop
26 April 2017
Lockheed Martin Corp, which makes the F-35 jets that U.S. President Donald Trump criticized for being too expensive, posted weaker-than-expected sales and lower profitability in three of its four divisions, sending its stock down more than 2 percent.
The Pentagon's No. 1 weapons supplier cut its full-year earnings forecast by 10 cents to $12.15 to $12.45 per share, from $12.25 to $12.55. This was the first cut Lockheed has made to earnings per share estimates in seven years.
Operating margins fell and Lockheed executives cited a variety of reasons on Tuesday, including fewer deliveries and "performance matters" on certain international contracts. The company took a total of $114 million, or 39 cents a share, in one-time charges.
Higher development costs for a United Arab Emirates' missile defense system were partly to blame for the charges, Lockheed Chief Financial Officer Bruce Tanner told analysts on a conference call.
Meanwhile, Lockheed said it is pursuing international expansion with a goal of growing the international customer base to 30 percent of total sales.
Helped by heightened geopolitical instability and a pro-defense Trump administration, Lockheed's stock has hit new highs half a dozen times since Trump was elected president last year.
Up to Monday's close, Lockheed's stock had risen 21.8 percent in the past 12 months, compared with a 13.51 percent decline in the S&P 500 index .SPX.
Analysts said without the one-time charge, results would have beaten expectations, and they reiterated a positive outlook.
"We keep our 12-month target price of $302 ... above peers and above LMT's five-year average to reflect our positive view of defense spending dynamics and demand for the F-35," wrote Jim Corridore, airlines and logistics analyst at CFRA.
Lockheed executives said they expanded profit margins in the F-35 jet fighter program, which Trump has attacked for being too expensive.
During Lockheed's January earnings call Chief Executive Officer Marillyn Hewson, who has met with Trump in the White House, said the president was focused "on making sure that the cost comes down" for the F-35 jet program and "not about slashing our profit" margins.
The F-35 program is in Lockheed's aeronautics division, the company's largest. The unit's overall operating margins declined to 10.6 percent in the quarter, from 11.1 percent a year earlier.
Operating margins at Lockheed's rotary and missions systems business, which makes Sikorsky helicopters, fell by more than half to 3.5 percent.
Revenue from its aeronautics business increased 8 percent to $4.11 billion, led by higher sales of the F-35 fighter jet. The business accounted for about 37 percent of the company's total revenue in the quarter.
Lockheed would be one of the biggest beneficiaries of Trump's $30 billion supplemental defense budget proposal, which seeks additional F-35 warplanes and THAAD missile defense systems as well as more Army Blackhawk helicopters made by Sikorsky.
Though the estimate for earnings per share was cut, Lockheed raised its forecast for 2017 net sales to a range of $49.5 billion to $50.7 billion, from $49.4 billion to $50.6 billion.
Net sales rose 6.6 percent to $11.06 billion in the quarter ended March 26, but missed the average analyst estimate of $11.23 billion.
Net earnings from continuing operations fell to $763 million from $806 million. Per-share earnings were unchanged at $2.61.
The company's adjusted earnings were $3.00 per share, topping the average estimate of $2.79, according to Thomson Reuters I/B/E/S.
The stock dropped 2.3 percent, or $6.19, to $269.95 in late trading.