Lockheed's 3Q profit rises; outlook weak in 2010

By DONNA BORAK

posted: 36 DAYS 20 HOURS AGO

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WASHINGTON -Lockheed Martin Corp. said Tuesday its third-quarter earnings rose amid a flurry of sales of military aircraft, including the C-130J transport plane and Joint Strike Fighter, and delivery of one commercial satellite.

But its shares tumbled more than 6 percent as the nation's largest defense contractor warned that trend may not last as sales of fighter jets dwindle and pension costs rise next year. The Bethesda, Md., company issued weak 2010 earnings guidance, as had been predicted by Wall Street in recent weeks.

Lockheed and its suppliers are feeling the pinch of Defense Secretary Robert Gates' decision earlier this year to cap production of the F-22, a Cold War fighter jet at a cost of $140 million each, at 187 jets, said Bruce Tanner, Lockheed's chief financial officer, in an interview with The Associated Press. Cancellation of the F-22 is part of the Pentagon's plan to shift military spending to programs more suitable to modern warfare.

The Pentagon also terminated the Bethesda, Md., company's contract to build new helicopters to carry the president and a communications satellite earlier this year.

"These customer actions have resulted in a loss of revenue and profitability that cannot be made up in the near term," said Lockheed CEO Bob Stevens on a call with analysts.

In afternoon trading, shares of Lockheed fell $4.69, or 6.1 percent, to $72.30, after hitting an earlier low of $72.10.

Lockheed, the first of the major defense contractors to report results, is bracing for restrained U.S. defense spending as the Obama administration cuts traditional weapons programs and puts more money toward fighting insurgents and beefing up security networks.

The company expects a 2010 profit between $7.05 and $7.25 per share on sales between $46.25 billion and $47.25 billion. Analysts surveyed by Thomson Reuters, on average, are predicting earnings per share of $7.89 on revenue of $47.60 billion.

"Near term we are seeing some pressure, but we still remain bullish about our outlook," said Tanner. He said Lockheed still expects revenue will grow next year, and even stronger revenue in excess of 5 percent in 2011 and 2012 led by strong expansion of the Joint Strike Fighter program.

While uncertainty has swept across the U.S. defense industry under the new administration, there are several long term opportunities that Lockheed is actively pursuing as it seeks to rebalance its portfolio to meet the new global security environment, said Stevens.

That includes a coveted multibillion-dollar hybrid tactical vehicle program for the Army, as well as a contract to build a fleet of small, speedy Littoral Combat Ships that operate in shallow waters for the Navy.

Stevens said Lockheed will be redoubling its efforts to make programs more affordable, reduce costs and deliver on schedule as the U.S. government is forced to work with tighter budgets during such difficult economic times.

Lockheed said earnings rose nearly 8 percent to $797 million, or $2.07 per share, for the period ended Sept. 27. That compares with $782 million, or $1.92 per share, last year. Revenue grew nearly 5 percent to $11.06 billion.

Pension expense was $113 million, which lowered earnings by 19 cents per share. The company said in January that pension expenses would be higher each quarter this year because of a drop in the retiree fund's value during the stock-market collapse last year.

Lockheed plans to contribute $1 billion to its pension trust during the fourth quarter, and another $1.4 billion in 2010 to address the shortfall.

Lockheed also increased its 2009 profit outlook, citing a 15-cent per share tax benefit but maintained its revenue forecast.

The company's aerospace unit, which makes the F-22 along with other fighters and cargo planes, has seen its sales dip in recent quarters as it shifts from making the aging F-16 to the F-35 Joint Strike Fighter. But the division posted a 6 percent sales increase in the third quarter, driven by higher volume on both the F-35 and C-130J, a military transport aircraft.

Sales were up 9 percent in its space-systems business, lifted by one commercial satellite delivery, amid higher volume on the Orion crew exploration vehicle program, a space system that sends astronauts to the moon, and beyond.

Separately, sales in its business, which sells government services such as mission and combat activities or soldier readiness, rose 1 percent to $2.98 billion, while sales in its electronic business edged higher by 4 percent to $2.92 billion.

2009-10-20 13:26:49