Lockheed Profit Up 47% As It Plans to Diversify

Lockheed Martin Corp. reported yesterday that third-quarter profit jumped 47 percent as the Bethesda weapons maker continued to benefit from a growing defense budget, even as it outlined plans to pursue new lines of business should government spending slow.

In a conference call with reporters and analysts, Christopher E. Kubasik, Lockheed's chief financial officer, touted a diversification plan that will take the company into new markets -- from making trucks to building embassies -- at a time when many analysts expect spending on the Iraq war effort to force cuts in other defense programs.

"The benefit of having a broad range of products and solutions is that it allows us to continue to grow despite perturbations in any one area," Kubasick said.

For example, Lockheed is competing to provide search-and-rescue helicopters to the Air Force, a $13 billion opportunity. It also wants to produce a replacement for the Army's Humvee, which could be worth $5 billion to $10 billion, Kubasick said.

The company's acquisition this year of Pacific Architects and Engineers Inc., a California logistics firm, will push it into the business of building and maintaining embassies and overseas military bases, Kubasick said. In 2001, PAE assisted United Nations operations in East Timor, building and operating airports, company officials said.

PAE gets about half its revenue from the State Department, where Lockheed has not had a large presence, he said.

"Infrastructure support, peacekeeping, base construction are relatively new areas for us," Kubasick said.

For the third quarter, the company reported a profit of $629 million ($1.46 a share), compared with $427 million (96 cents) in the corresponding quarter a year ago. The results were helped by some one-time events, such as a $31 million boost from the sale of some land. Revenue increased 4 percent, to $9.6 billion.

The company said it would report revenue of at least $39 billion this year, up from its previous estimate of at least $38.5 billion. The difference is due in part to production lines maturing for some of the company's largest aircraft programs, the F-22 and F-16 fighters, and the C-130J cargo aircraft, Kubasick said.

Lockheed's space business and systems and information technology group both reported a 10 percent increase in revenue in the third quarter. The space unit is getting increasing demand for military commercial satellites, delivering one in the quarter, compared with none last year. Revenue in that unit increased to $1.85 billion, up from $1.68 billion.

The systems and information technology group, which includes programs as diverse as Patriot missiles, mail-sorting operations and updates to computer networks, reported $4.97 billion in revenue, up from $4.53 billion.

But the aeronautics unit reported a 7 percent drop in revenue, to $2.78 billion, for the quarter. The drop was expected, company officials said, as demand for the F-16 fighter jet begins to wane. That was partly offset by more revenue for the F-16's replacement, the F-35, which Lockheed has begun producing in Fort Worth.

"We believe that this nicely illustrates the shape of spending in U.S. defense," Charles Armitage, industry analyst for Merrill Lynch & Co., wrote in a research note. "Platforms are under pressure, while defense electronics, communications and IT systems should grow significantly."

Lockheed's stock price rose 92 cents yesterday, to $89.11 a share.