Lockheed Topples Estimate - Analyst Blog

Before markets opened today, Lockheed Martin Corporation (LMT) reported strong first quarter fiscal 2010 results and revised its fiscal outlook. In the reported quarter with an EPS of $1.45, the company topped the Zacks Consensus Estimate of $1.35. However, this was lower than the year-ago quarterly earnings of $1.68. In the reported quarter earnings were affected by the elimination of the tax deduction for Medicare benefit costs reimbursed. This charge decreased net earnings by $96 million, or 25 cents per share.

Lockheed Martin also fuelled its EPS growth through lower outstanding shares which decreased to 377.7 million from 397.5 million in the year-ago quarter. A pension accounting adjustment also negated $110 million in the quarter, $4 million less than the year-ago quarter.

On the revenue front, Lockheed Martin reported quarterly net sales of $10.6 billion, a 3% increase over $10.4 billion in the year-ago quarter. The upside in sales, year-over-year came from higher numbers from the Aeronautics and Information Systems & Global Services (IS&GS) segment, which grew by 5% and 4% respectively. Of the rest, Electronics Systems (ES) and Space Systems segment remained steady.

Operating profit however fell 7.1% year-over-year to $982 million in the reported quarter.Profits fell across the board barring the ES and SS segments which remained steady.

ES segmental performance was neutral due to growth in operating profit from air defense programs and tactical missile programs, which were offset by lower volume on fire control systems.

SS segment witnessed growth in operating profit in Space Transportation and Strategic & Defensive Missile Systems programs. But this was offset by a decline in Satellites programs.

Operating profit for Aeronautics segment decreased by 9% in the first quarter of 2010 compared to the first quarter of 2009. The decline in operating profit primarily was due to decreases in Combat Aircraft, which were partially offset by increases in Air Mobility and Other Aeronautics Programs.

Operating profit for IS&GS segment decreased by 4% in the reported quarter compared to the first quarter of 2009. During the quarter, operating profit declined in Intelligence and Defense programs, which have more than offset the growth in Civil programs. 

Lockheed Martin ended the first quarter of fiscal 2010 with cash and cash equivalents of $3.3 billion compared to $2.4 billion at the end of the year-ago quarter. The company generated $1.6 billion of cash in operating activities at the end of the reported quarter, compared to $1.2 billion in cash generated in the year-ago period. Long term debt remained stagnant year-over-year at $5.1 billion.

Lockheed Martin finished the first quarter of fiscal 2010 with $75 billion of backlog, of which $26 billion belonged to the Aeronautics segment and $21.1 billion to the ES segment.

Lockheed Martin has however, revised downward its fiscal 2010 earnings range to $7.00 – $7.20 from the earlier guidance range of $7.15 – $7.35. For fiscal 2010, the current Zacks Consensus EPS Estimate is $7.22, with estimates clearly on the far side of the ridge. Overall, 10 of the 17 analysts covering the stock have revised their estimates downward for fiscal 2010 in the last 30 days.

Lockheed Martin is the largest U.S. defense contractor and will continue to benefit from higher defense spending. The core defense budget for fiscal years 2010 and 2011 outlined a ceiling of $531 billion and $549 billion, respectively, or growth of approximately 4% above the fiscal 2009 budget. We maintain out market Neutral recommendation on the Zacks #3 Rank stock.