Lockheed Net Falls 28% on Retirement Plan, Unit Sale

Lockheed Martin Corp., the world’s largest defense company, posted a 28 percent decline in third- quarter profit and scaled back its 2010 earnings forecast because of retirement-plan costs and the sale of a unit.

Net income fell to $571 million, or $1.57 a share, from $797 million, or $2.07, a year earlier, the Bethesda, Maryland- based company said today in a statement. Profit from continuing operations of $1.55 a share beat the $1.53 average estimate of 21 analysts in a Bloomberg survey.

Full-year profit from continuing operations may be $6.75 to $6.95 a share, a reduction of 40 cents at both ends of the range from a July forecast, Lockheed said. The company cited costs from the sale of its Enterprise Integration Group business and expenses related to its voluntary retirement plan. The average estimate of analysts in a Bloomberg survey was $7.11.

Chief Executive Officer Robert Stevens has faced more Pentagon scrutiny on the F-35 Joint Strike Fighter, the most expensive U.S. weapon system, after the plane fell behind schedule and costs rose. He is unloading EIG and another unit and unveiled the retirement program for senior executives to cut expenses and improve profit margins.

Lockheed fell $1.83, or 2.6 percent, to $68.21 at 9:49 a.m. in New York Stock Exchange composite trading. The shares had declined 7 percent this year before today.

Sales rose 5.6 percent to $11.4 billion during the quarter.

Lockheed forecast 2011 sales growth in the “low single digit range” because of delays in program starts and cancellations. Lockheed’s sales have grown 84 percent to $45.2 billion in 2009 from $24.5 billion in 2000, boosted by U.S. defense spending and war-related costs.

‘Slower Buildup’

“The two most visible delays this year are the Navy’s Littoral Combat Ship and the THAAD” or Terminal High Altitude Area Defense anti-missile system, Bruce Tanner, Lockheed’s chief financial officer, said in a phone interview. “That has the effect of pushing out sales for half the year and causing a slower buildup in 2011,” he said.

The Navy had planned to pick a winner for the 55-vessel Littoral Combat Ship program in the summer and it has now been delayed to November, Tanner said. A team led by Lockheed is competing against a group including General Dynamics Corp. for the first stage of the program estimated to be about $6 billion.

Lockheed’s reduced profit forecast for 2010 compares with $7.78 in 2009.

Profit for 2011 will be little changed compared with 2010 “because while there’s some growth it’s lower than what we expected,” Tanner said. The profit margin on the F-35 program also is lower than the company expected, he said.

‘Potential Pricing Pressures’

The profit “guidance signals potential pricing pressures” in the defense industry as more projects move toward fixed-priced contracts, Joel Levington, a bond analyst at Brookfield Investment Management Inc. in New York, said in an e- mail. “The lack of growth may spur more aggressive capital allocation decisions in the industry, with a step-up in share repurchases and acquisitions.”

The company agreed on Oct. 13 to sell its EIG unit to New York-based Veritas Capital for $815 million, following a June decision to divest the division to avoid conflicts of interest. The planned sale of the Pacific Architects & Engineers unit is likely to be done by year’s end, Lockheed said in the statement.

The company said in September that more than 600 executives, or 25 percent of the total, took a voluntary retirement program designed to cut costs to match the growth of U.S. defense spending, which is projected to increase no more than the pace of inflation. That program will result in a one- time charge of $178 million, Lockheed said in the statement.

To contact the reporter on this story: Gopal Ratnam in Washington at gratnam1@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net

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