Source: Lockheed Martin Corp. via Bloomberg

Lockheed Raises 2016 Forecast in Clue to Post-Merger Operations

Updated on
  • Full-year earnings expected to reach $11.50-$11.80 a share
  • CEO to provide update on Sikorsky purchase, IT division sale

Lockheed Martin Corp. raised its annual profit forecast, providing a glimpse into how the company will fare after a spate of dealmaking reshapes operations amid constrained defense spending.

Earnings will be $11.50 to $11.80 a share in 2016, compared with the $11.45 to $11.75 range forecast in January, Lockheed said in a statement Tuesday. The company raised its guidance for sales to between $49.6 billion and $51.1 billion from a range of $49.5 billion and $51 billion.

The positive outlook from the largest defense contractor, along with first-quarter profit that beat analysts’ estimates, sets the stage for Lockheed’s peers. Boeing Co., Northrop Grumman Corp., General Dynamics Corp. and Raytheon Co. all report later this week.

Investors are trying to figure out how Lockheed will fare longer term as it absorbs a $9 billion Sikorsky acquisition amid a depressed commercial helicopter market and prepares to spin off a low-margin information technology division, said Douglas Rothacker, a defense analyst with Bloomberg Intelligence. Compounding the challenge: first-quarter margins fell in every Lockheed business unit from from a year earlier, while total operating margin dipped to 11.1 percent from 13.4 percent.

“There’s still a lot of uncertainty about what is their core business for the full year,” Rothacker said in a telephone interview. Shedding the information technology business should help margins later in the year, he said. “We’d expect the cost-cutting initiatives that they announced for the aeronautics business to presumably have some profitability impact in the latter part of the year.”

Shrinking Workforce

Lockheed said last month it was culling about 1,000 jobs from the aeronautics unit, its largest division and the source of about one-third of revenue. Costs for job cuts decreased first-quarter earnings by $64 million, or 21 cents a share.

Profit margins have been squeezed as the company resolved technical issues that delayed the F-35, the Pentagon’s most expensive weapons system, then worked to speed production at factories. The company plans to deliver 53 of the advanced fighter jets this year, doubling output to about 100 of the stealth aircraft by 2018.

Lockheed rose 1.6 percent to $229.89 at 9:32 a.m. in New York.

Quarterly Results

First-quarter earnings of $2.79 a share, excluding a one-time accounting loss, exceeded the $2.60 average of 17 analysts’ estimates compiled by Bloomberg. Revenue of $11.7 billion exceeded the $11.4 billion analysts anticipated.

“We’re particularly encouraged by the revenue performance, which is a sign of things to come as its customer end markets improve,” Robert Stallard, an aerospace analyst with RBC Capital Markets, said in a note to clients. “We had not expected a guidance increase at this early stage of the year, so that is another bonus -- more than offsetting the cost of redundancies.”

Chief Executive Officer Marillyn Hewson is set to discuss results and provide an update on the planned spinoff of the information technology and services division to Leidos Holdings Inc. during a conference call with analysts at 11 a.m. in New York.

(An earlier version of this story corrected the first-quarter earnings.)

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