Lockheed Raises 2011 Profit Outlook, Sees 2012 Sales Flat

Lockheed Martin Corp. (LMT), the world’s largest defense company, forecast higher profit for the year and said 2012 sales may remain the same as this year after announcing a 19 percent increase in third-quarter earnings.

Lockheed said 2011 profit would be between $7.40 and $7.60 a share, an increase of 5 cents at both ends of the range from the forecast made in July. The outlook for sales remained unchanged at $46 billion to $47 billion. Revenue in 2012 will be “flattish as compared to 2011,” the Bethesda, Maryland-based company said today in a statement.

Profit from continuing operations increased to $665 million, or $1.99 a share, from $557 million, or $1.53, a year earlier, Lockheed said. That beat the $1.81 average estimate of 22 analysts surveyed by Bloomberg. Sales increased 6.8 percent to $12.1 billion.

Chief Executive Officer Robert Stevens faces the task of containing cost growth and delays in the F-35 Joint Strike Fighter program, the company’s single largest program and the Pentagon’s costliest weapon in history. The $382 billion program is facing additional scrutiny as the U.S. Defense Department prepares to cut $450 billion from planned defense spending in the next decade.

Stevens has eliminated 3,850 jobs since last year to match the projected defense spending decline. In July, Lockheed offered voluntary retirement plans to an additional 6,500 employees.

$1.2 Billion Liability

Lockheed and the Pentagon are still negotiating the fifth production lot of F-35 jets. The company and its suppliers are continuing work without a contract, Stevens said on a conference call with reporters today.

Lockheed received advance parts funds for the fifth lot in April 2010 and used up the money by February of this year, Stevens said. Since then, the company and its suppliers have been continuing work on their own without a firm Pentagon order, he said. In the absence of an order, Lockheed will have a cash exposure of about $150 million by the end of 2011, Bruce Tanner, Lockheed’s chief financial officer, said on the conference call.

If the Pentagon cancels the F-35 program, Lockheed could face termination liability of as much as $1.2 billion by the end of the year, Tanner said.

Negotiations on the fifth production lot are delayed in part because the Pentagon this month sought a new cost-sharing formula for so-called concurrency costs, Stevens said. Those costs are incurred when retrofitting improvements to planes from earlier lots, based on findings from the test program, he said.

‘Essential’ Funds

“I think it’s essential for the continuity of the program” to keep the negotiations on the next production lot and concurrency cost-sharing formula separate from getting funds to keep the production line moving, Stevens said.

“At issue is the Government’s ability to secure an agreement to share concurrency modification costs with Lockheed Martin,” Joseph DellaVedova, a spokesman for the Joint Strike Fighter program, said in an e-mail response to questions.

The F-35 production aircraft are being built concurrently with ongoing development. Because of that, airplanes in the fifth production lot “may evolve or change as the design matures and systems are tested and qualified,” he wrote. The Pentagon will negotiate a “fair agreement” with Lockheed on such sharing “in advance of the negotiated final contract.”

2012 Trend

Lockheed said sales for 2012 would be “flattish” compared with 2011 if the 2012 defense budget is approved at the level requested by the Pentagon. The profit margin for the next year will remain at about 11 percent, the company said in the statement.

The company’s pension liabilities may increase in 2012 and affect earnings next year because of the continuing decline in discount rates that are used to measure obligations, the company said.

Lockheed declined $2.54, or 3.2 percent, to $76.35. Shares have gained 9.2 percent this year.

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

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

Bloomberg reserves the right to edit or remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.