Lockheed sales jump in rocky year
LOCKHEED Martin said sales jumped 20 percent higher in the fourth quarter of 2016 compared to a year ago, as new business from big-ticket military hardware items boosted the Bethesda-based defence giant’s financial performance.
Lockheed has been moving to lessen its dependence on lower-margin government services in favour of bread-and-butter military hardware programs like the F-35 Joint Strike Fighter. In 2015 Lockheed bought helicopter manufacturer Sikorsky for $9 billion and later spun off the core of its IT services business in a $5 billion deal with Leidos Holdings.
The strategy has paid dividends in the short term. On Tuesday morning Lockheed reported net sales of $13.8 billion in the fourth quarter of 2016, up from $11.8 billion in the fourth quarter of 2015. Profits reached $959 million, or $3.25 per share, compared with $933 million, or $3.01 per share, a year earlier. The company had a contract backlog of $96.2 billion at the end of 2016, a common measure of future revenue slated to come from the government.
For all of 2016, sales jumped more than 16 percent to $47.2 billion. Profits rose 47 percent to $5.3 billion, or $17.49 a share, in part because of the sale of the IT services unit.
Last year “was truly an extraordinary year of transition and success”, Lockheed Martin chief executive Marillyn Hewson said in a call with investors.
As a result of the realignment, Sikorsky now accounts for about a 10th of Lockheed’s annual sales. But the acquisition also saddled the company with new debt. Concerns about risk related to the acquisition were renewed on Tuesday when the company reported a “material weakness” related to certain financial reporting procedures at Sikorsky.
“Sikorsky did not adequately identify, design and implement appropriate process-level controls for its processes and appropriate information technology controls for its information technology systems,” the earnings report stated.
The company is reviewing Sikorsky’s books to determine whether any of its past financial statements were inaccurate.
Defence companies like Lockheed are generally valued by investors for their stability, as government spending tends to continue in good times and bad. But the Trump presidential transition has roiled defence stocks and injected new uncertainty into the market.
In recent months, the president has departed sharply from how his predecessors have publicly interacted with the defence industry, taking to social media to criticise or praise individual companies over costs. A December 6 tweet bashed Chicago-based Boeing for what thenpresident-elect Trump referred to as the “out of control” cost of the Air Force One presidential airplane. Weeks later he turned to Lockheed, tweeting that he had asked Boeing to “price out a comparable F-18 Super Hornet” because of the F-35’s high costs.
In his first press conference since winning the election President Trump promised to “do some big things” with the program. Weeks later Hewson emerged from a meeting at Trump tower and told reporters that she and the incoming administration were “close to a deal” that will decrease costs and also create jobs. She did not offer specifics on how the company intends to do this.
In subsequent statements, Hewson has touted the costsavings her company is already achieving, and has sought to downplay the president’s mar- ket-rattling tweets. The government’s continued reliance on the F-35, the single largest military program, is critical to Lockheed Martin’s status as one of the world’s largest defence companies.
“The meetings we’ve had have been very productive, we’ve had very good dialogue and he asked excellent questions,” she said of her meetings with the president, noting that the cost of the F-35 is already predicted to drop from just over $100 million to about $85 million per plane as production ramps up. “His focus is on how do we drive the cost down aggressively.”
Hewson described efforts to “take costs out of the supply chain and take costs out of manufacturing”, but did not offer specifics on the contract deal announced last week.
Echoing comments made last week by Boeing chief executive Dennis Muilenburg, Hewson said she had suggested certain changes to the way the Pentagon buys the plane, suggesting both CEOs are lobbying the president for changes to procurement regulations.
Hewson also made a point to note that the company would be only minimally impacted by any border taxes levied by the Trump administration because the company’s production process occurs primarily inside the United States.
Lockheed Martin bested analysts expectations on its earnings per share. Still, the company’s stock was down 2.8 percent from Monday’s close.