Lockheed Martin Corporation (LMT, Financial) today reported second quarter 2014 net sales of $11.3 billion, compared to $11.4 billion in the second quarter of 2013. Net earnings in the second quarter of 2014 were $889 million, or $2.76 per diluted share, compared to $859 million, or $2.64 per diluted share, in the second quarter of 2013. Cash from operations in the second quarter of 2014 was $977 million, compared to cash from operations of $623 million in the second quarter of 2013.
Second quarter 2014 net earnings included FAS/CAS pension income of $85 million, which increased net earnings by $53 million, or $0.16 per diluted share, compared to FAS/CAS pension expense of $120 million, which reduced net earnings by $74 million, or $0.23 per diluted share, during the second quarter of 2013. "Based on our solid program execution and operational performance through the first half of the year, we increased our 2014 financial guidance for profit, earnings, and cash flow," said Lockheed Martin Chairman, President and CEO Marillyn Hewson. "Our sound strategy, diverse portfolio and focus on affordability are yielding results and delivering value to our customers and shareholders."
| The Corporation made contributions to its defined benefit pension trust of $515 million and $750 million during the second quarter of 2014 and 2013, respectively. Additionally, the Corporation made net tax payments of approximately $760 million during the second quarter of 2014 compared to about $680 million during the second quarter of 2013. |
Individual Segment Performance:
The Corporation operates in five business segments: Aeronautics, Information Systems & Global Solutions (IS&GS), Missiles and Fire Control (MFC), Mission Systems and Training (MST), and Space Systems. The Corporation organizes its business segments based on the nature of the products and services offered.
Operating profit for the business segments includes the Corporation’s share of earnings or losses from equity method investees because the operating activities of the equity method investees are closely aligned with the operations of the Corporation’s business segments. United Launch Alliance (ULA), which is part of the Space Systems business segment, is the Corporation’s primary equity method investee. Operating profit of the Corporation’s business segments excludes the FAS/CAS pension adjustment, which represents the difference between total pension expense recorded in accordance with GAAP (FAS) and pension costs recoverable on U.S. Government contracts as determined in accordance with U.S. Government Cost Accounting Standards (CAS); expense for stock-based compensation; the effects of items not considered part of management’s evaluation of segment operating performance, such as charges related to significant severance actions and goodwill impairments; gains or losses from divestitures; the effects of certain legal settlements; corporate costs not allocated to the Corporation’s business segments; and other miscellaneous corporate activities.
Changes in net sales and operating profit generally are expressed in terms of volume. Changes in volume refer to increases or decreases in sales or operating profit resulting from varying production activity levels, deliveries, or service levels on individual contracts. Volume changes in segment operating profit are typically based on the current profit booking rate for a particular contract.
In addition, comparability of the Corporation’s segment sales, operating profit, and operating margins may be impacted by changes in profit booking rates on the Corporation’s contracts accounted for using the percentage-of-completion method of accounting. Increases in the profit booking rates, typically referred to as risk retirements, usually relate to revisions in the estimated total costs that reflect improved conditions on a particular contract. Conversely, conditions on a particular contract may deteriorate resulting in an increase in the estimated total costs to complete and a reduction of the profit booking rate. Increases or decreases in profit booking rates are recognized in the current period and reflect the inception-to-date effect of such changes. Segment operating profit and margins may also be impacted, favorably or unfavorably, by other items. Favorable items may include the positive resolution of contractual matters, cost recoveries on restructuring charges, and insurance recoveries. Unfavorable items may include the adverse resolution of contractual matters; restructuring charges, except for significant severance actions which are excluded from segment operating results; reserves for disputes; and significant asset impairments. Segment operating profit and items such as risk retirements, reductions of profit booking rates, or other matters are presented net of state income taxes.
Aeronautics’ net sales for the second quarter of 2014 increased $448 million, or 13 percent, compared to the same period in 2013. The increase was primarily attributable to higher net sales of about $210 million for F-35 production contracts due to increased volume; approximately $85 million for the F-35 development contract due to an adjustment recorded during the second quarter of 2013 to reflect the inception-to-date impact of the downward revision to the profit booking rate that was not repeated in 2014; about $75 million for the C-130 program due to increased aircraft deliveries (six aircraft delivered in the second quarter of 2014 compared to five delivered during the same period in 2013) and aircraft contract mix, partially offset by decreased sustainment activities; approximately $45 million for the C-5 program due to increased aircraft deliveries (two aircraft delivered in the second quarter of 2014 compared to one delivered during the same period in 2013), partially offset by decreased support and spares activities; and approximately $40 million for the F-22 program due to increased risk retirements and volume. Net sales for the F-16 program were comparable as aircraft contract mix was offset by increased sustainment activities.
Aeronautics’ operating profit for the second quarter of 2014 increased $46 million, or 11 percent, compared to the same period in 2013. The increase was primarily attributable to higher operating profit of about $35 million for the F-22 program due to increased risk retirements; approximately $25 million for the C-130 program due primarily to aircraft contract mix; and about $85 million for the F-35 development contract due to the adjustment mentioned above recorded during the second quarter of 2013. The increases were partially offset by lower operating profit of approximately $80 million for the F-16 program due to decreased risk retirements and aircraft contract mix; and about $15 million for various other programs due to lower risk retirements. Operating profit was comparable for F-35 production contracts, as increased volume was offset by lower risk retirements. Adjustments not related to volume, including net profit booking rate adjustments, for the second quarter of 2014 were comparable to the same period in 2013.
IS&GS’ net sales for the second quarter of 2014 decreased $160 million, or 8 percent, compared to the same period in 2013. The decrease was primarily attributable to lower net sales of approximately $175 million due to the wind-down or completion of certain programs (primarily command and control programs); and about $150 million due to a decline in volume for various programs, which reflects lower funding levels and programs impacted by in-theater force reductions (such as Persistent Threat Detection System). The decreases were partially offset by higher net sales of about $165 million due to the start-up of new programs, growth in recently awarded programs and integration of recently acquired companies.
IS&GS’ operating profit for the second quarter of 2014 decreased $19 million, or 10 percent, compared to the same period in 2013. The decrease was primarily attributable to the activities mentioned above for sales. Adjustments not related to volume, including net profit booking rate adjustments, for the second quarter of 2014 were comparable to the same period in 2013.
MFC’s net sales for the second quarter of 2014 decreased $152 million, or 7 percent, compared to the same period in 2013. The decrease was primarily attributable to lower net sales of approximately $125 million for various technical services programs due to lower volume; and approximately $125 million for tactical missiles programs due to fewer deliveries (including High Mobility Artillery Rocket System). These decreases were partially offset by higher net sales of about $55 million for fire control programs (primarily Apache due to increased deliveries and Special Operations Forces Contractor Logistical Support Services due to higher volume); and approximately $25 million for air and missile defense programs (primarily Terminal High-Altitude Area Defense due to higher volume, partially offset by Patriot Advanced Capability-3 due to fewer deliveries).
MFC’s operating profit for the second quarter of 2014 decreased $36 million, or 9 percent, compared to the same period in 2013. The decrease was primarily attributable to lower operating profit of approximately $35 million for tactical missile programs due to fewer deliveries and net warranty reserve adjustments for various programs (including Joint Air-to-Surface Standoff Missile and Guided Multiple Launch Rocket System). Adjustments not related to volume, including net profit booking rate adjustments and other matters, were approximately $35 million lower for the second quarter of 2014 compared to the same period in 2013.
Space Systems’ net sales for the second quarter of 2014 decreased $239 million, or 11 percent, compared to the same period in 2013. The decrease was primarily attributable to lower net sales of about $205 million for government satellite programs due to lower volume (primarily Advanced Extremely High Frequency and Mobile User Objective System (MUOS)).
Space Systems’ operating profit for the second quarter of 2014 decreased $28million, or 10 percent, compared to the same period in 2013. The decrease was primarily attributable to lower operating profit of approximately $30 million for government satellite programs due to lower risk retirements and volume (primarily Space Based Infrared System and MUOS). The decrease was partially offset by higher operating profit of about $10 million due to higher equity earnings and other program activities. Adjustments not related to volume, including net profit booking rate adjustments, were approximately $25 million lower for the second quarter of 2014 compared to the same period in 2013.
Total equity earnings (primarily ULA) recognized by Space Systems represented approximately $80 million, or 32 percent, of this business segment’s operating profit for the second quarter of 2014, compared to approximately $75 million, or 27 percent, for the second quarter of 2013.
To Conclude:
Lockheed Martin was upgraded by Zacks from a neutral rating to an outperform rating in a report released on Thursday. The firm currently has a $204.00 target price on the stock.
Zacks’ analyst wrote, “We are upgrading our recommendation on Lockheed Martin Corp. to Outperform from Neutral. Considering that the U.S. military budget is increasingly under pressure, Lockheed Martin’s better-than-expected second quarter results are commendable, and more so is its raising of the full-year guidance. Also, the company continued to generate strong cash from operations while maintaining its cash deployment strategy. Lockheed also got a boost from its recent decision to freeze its defined benefit pension plan, which will aid earnings over the long term. The healthy dividend yield and stable cash flow will likely keep the stock defensive in spite of the budget uncertainties. Lockheed Martin boosted its bottom-line forecast for 2014.”
Lockheed Martin traded down 1.69% on Thursday, hitting $167.30. The stock had a trading volume of 1,467,406 shares. Lockheed Martin has a 1-year low of $119.32 and a 1-year high of $171.36. The stock has a 50-day moving average of $163.4 and a 200-day moving average of $160.9. The company has a market cap of $52.700 billion and a price-to-earnings ratio of 17.38.
Lockheed Martin (NYSE:LMT) last posted its quarterly earnings results on Tuesday, July 22nd. The company reported $2.76 earnings per share (EPS) for the quarter, beating the consensus estimate of $2.66 by $0.10. The company had revenue of $11.31 billion for the quarter, compared to the consensus estimate of $11.14 billion. During the same quarter in the previous year, the company posted $2.64 earnings per share. The company’s revenue for the quarter was down .9% on a year-over-year basis. On average, analysts predict that Lockheed Martin will post $11.22 earnings per share for the current fiscal year.
The company also recently announced a quarterly dividend, which is scheduled for Friday, September 26th. Shareholders of record on Tuesday, September 2nd will be paid a dividend of $1.33 per share. This represents a $5.32 annualized dividend and a dividend yield of 3.13%. The ex-dividend date is Thursday, August 28th.
