Lockheed Martin Corp. (NYSE: LMT) is the first of the defense contractors to acknowledge how badly it has been gored by the federal government’s slowdown in military spending. Its layoff of 4,000 workers is only the beginning of a trend. Lockheed’s major competitors are likely no better off, and the industry will shed thousands of more jobs in the short term.
The big defense company announced:
[I]t will close and consolidate several of its U.S. facilities and reduce its workforce by 4,000 positions as part of its effort to increase the efficiency of its operations and improve the affordability of its products and services. These actions are in response to continued declines in U.S. government spending.
While the decision is painful for the people who will lose their jobs, it is a clever one on behalf of investors. Lockheed Martin’s shares do not trade like ones of a company that is wounded. Its stock sits near a 52-week high at $138, up 62% from the period low. That makes the stock one of the best performers among large caps over the course of the past year. Lockheed management has convinced investors that it can cut costs at a pace more rapidly than its revenue fall off.
Northrop Grumman Corp. (NYSE: NOC) is no better off than Lockheed because among its core products are manned aircraft. It does have an edge over other contractors because it also produces unmanned drones and smart systems for a number of weapons. Its management has to worry that at some point Washington’s desire to manage the deficit and debt ceiling may threaten these programs as well.
The other two companies that will face cuts in sales of their products to the federal government are General Dynamics and Raytheon.
Among them, the four large contractors employ more than 300,000 people. That pool, coupled with what is likely to happen to defense spending over the next decade, means that tens of thousands of jobs are at risk.