Aerospace & Defense

Why Investors Are Not Crazy About Lockheed Martin Earnings or Forecast

Lockheed Martin Corp. (NYSE: LMT) reported third-quarter results before markets opened Tuesday. The country’s largest defense contractor reported earnings per share (EPS) of $6.25 on sales of $16.5 billion. In the year-ago quarter, Lockheed reported EPS of $5.66 and sales of $15.2 billion. Analysts had forecast EPS of $6.09 and sales of $16.12 billion for the quarter.

Cash from operations fell from $2.5 billion in 2019 to $1.9 billion in the quarter and for the first three quarters of the year, and operating cash flow rose from $5.8 billion a year ago to $6.4 billion.

In its financial outlook for the current fiscal year, Lockheed raised its revenue guidance from a range of $63.5 billion to $65 billion to a new estimate of $65.3 billion. The company also increased its profit estimate from a range of $6.9 billion to $7.05 billion to a new estimate of $7.13 billion. Diluted EPS, previously forecast in a range of $23.75 to $24.05, is now expected to be $24.45. Cash flow from operations continues to be forecast at $8 billion.

Looking ahead to fiscal 2021, Lockheed expects full-year sales of at least $67 billion and operating margin of 10.9% to 11.1%. Cash flow from operations is forecast at $8.1 billion, net of a planned $1 billion contribution to the company’s pension fund.

Analysts had forecast fourth-quarter EPS at $6.24 on revenue of $16.64 billion. Full-year EPS had been estimated at $24.17 on sales of $64.6 billion. Fiscal 2021 estimates called for EPS of $26.66 and sales of $68 billion.

Lockheed paid cash dividends of $672 million in the third quarter and repurchased 200,000 shares of stock for $85 million. The company increased its quarterly dividend by 20 cents a share to $2.60 beginning in the fourth quarter. Lockheed increased its share buyback authority by $1.3 billion and now has $3 billion available to repurchase shares.

All four of the company’s operating segments posted year-over-year sales increases and only the space segment showed a decline in profit. Total operating profit for the quarter totaled $2.15 billion, up from $2.11 billion a year ago, but operating profit for the year through the end of the quarter is down from $6.4 billion to $6.36 billion.

Sales of the company’s F-35 rose to about $325 million in the quarter, and classified development contract payments rose by around $130 million. Sales of tactical and strike missiles rose by about $250 million, and revenue was up about $200 million for integrated air and missile defense programs.

The decline in the space segment’s operating profit was attributed to a $50 million decrease in equity earnings from the company’s investment in the United Launch Alliance and other declines totaling around $65 million.

Overall, the quarterly numbers were good, but Lockheed’s outlook for the full 2020 fiscal year is a bit short of analysts’ estimates and the company’s 2021 forecast is also short of expectations.

Shares traded down fractionally early Tuesday at $381.19, in a 52-week range of $266.11 to $442.53. The consensus 12-month price target on the stock is $435.95. Lockheed pays a dividend yield of 2.71%.