July 23, 2013 12:25 pm

Lockheed Martin raises guidance despite US defence spending cuts

Lockheedmartin

Lockheed Martin makes the F35 joint strike fighter

Lockheed Martin underlined the continued robust health of many large US defence contractors when it announced a 10 per cent increase in second-quarter net earnings and increased its guidance for the full year despite sequestration spending cuts.

Lockheed, the world’s biggest military contractor by sales, announced that net earnings for the three months to June 30 rose to $859m from $781m in the second quarter last year, despite a 4 per cent decline in net sales to $11.4bn.

The company also increased its forecast for full-year earnings per share, to a range of $9.20-$9.50 from $8.80-$9.10 when the company reported first-quarter figures in April.

The figures showed how the biggest contractors working on the largest contracts continue to be largely shielded from the effects of the sequestration spending cuts that came into force on March 1. The legislation demands that the US defence department slash all budgets by about 10 per cent each – but the biggest, most complex projects continue to run from funding allocated as long as eight years ago, meaning the effects so far have been muted.

Lockheed Martin is the main contractor building the F35, the fighter due to become the mainstay of the US air force, navy and marines, which is expected eventually to cost $1.5tn.

Marillyn Hewson, chief executive, said the company’s strong operational performance and programme execution across all its business areas in the quarter had enabled it to increase its financial guidance.

“Even in an uncertain budget environment, our portfolio of products and capabilities, robust cash generation, and outstanding performance by our 116,000 employees, continue to deliver value to our customers and shareholders,” she said.

Lockheed said in April when it announced first-quarter figures that it expected sequestration to reduce its sales for the year by $825m – but it left its profit forecasts unchanged.

Operating profits in the key aeronautics division – which builds the F35 and other military aircraft – fell 10 per cent to $407m, on barely changed sales of $3.41bn. The division benefited from increasing sales of the F35 but suffered from lower sales of older, better established aircraft, particularly the F22.

Operating profits in information systems and global solutions also fell by 6.7 per cent to $194m, on sales down 7 per cent to $2.1bn. Services businesses such as those the division operates – which are funded out of short-term budgets – have tended to suffer most heavily from sequestration.

In missiles systems and fire control, operating profit jumped 22 per cent to $381m, on sales up 11 per cent to $2.04bn, boosted by increased demand for its Patriot and Terminal High Altitude Area Defence missile defence products.

Earnings per diluted share increased 11 per cent to $2.64.

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