Lockheed Martin’s (LMT) profit fell 17% on pension-related charges and delays (due to protests) to three of its largest new information contracts. The quarterly profit decline is Lockheed’s largest since a 25% drop in the third quarter of 2003. Despite challenges, Lockheed remains on track to meet sales and earnings targets for 2009.
Revenues posted a slight gain of 1.8% to $11.24, but higher costs caused gross margins to decrease by 180 basis points. Sales increased at two of Lockheed’s four businesses, information systems and aircraft, and declined at the other two, electronics and space.
Lockheed is the first of the five largest U.S. defense companies to report earnings this quarter. The defense industry is coping with changes in the U.S. defense budget, with some programs still up in the air. Lockheed has already gotten backing for its biggest program, the F-35 Joint Strike Fighter, which will account for 10% of sales this year and could make up 15% to 20% of revenue in the next five to seven years.
These results were not what the market was looking for, but at least Lockheed was able to maintain its financial guidance, primarily because of the size and breadth of their portfolio.
Another positive is that Lockheed continues to generate strong cash flows, $2.4 billion in the second quarter, which the company expects to continue using for repurchasing shares, paying dividends, and making acquisitions.
Lockheed has a bit more expensive valuation relative to its peers, but this pull back may present a nice opportunity to invest in the largest defense company in the U.S. Check out my March 5 post, which has many of the reasons I like Lockheed as a long-term investment.
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Peter J. Lazaroff
Tuesday, July 21, 2009
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