By Dana Hedgpeth
Washington Post Staff Writer
Wednesday, July 23, 2008
Not all sectors of the economy are suffering these days. Lockheed Martin, the world's biggest defense contractor, reported a strong second quarter yesterday, with profit up 13 percent compared with the corresponding period last year.
The Bethesda company said its net earnings were $882 million ($2.15 per share) for the period ended June 29, up from $778 million ($1.82) in the second quarter of 2007. Revenue rose 3.6 percent, to $11.04 billion.
The company's one weak spot was aeronautics, in which it traditionally has been strongest. A shifting market for fighter jets caused revenue to fall 8 percent, to $2.88 billion.
Sales rose in the other three major business divisions. Its information systems and global services business jumped 13.4 percent, to $2.86 billion. Electronic systems, which makes missiles, radar systems and other equipment, was up 5.7 percent, to $3.1 billion. Space systems, which makes satellites and missiles for submarines, was up 6.5 percent, to $2.2 billion. "We had near flawless execution across all four business areas," said Bruce Tanner, Lockheed's chief financial officer. "We're executing very well on our current contracts and winning new, strategic programs."
The defense sector has suffered little in the economic downturn, instead benefiting from government spending on the occupations of Iraq and Afghanistan. General Dynamics of Falls Church is to report its earnings today.
The drop in Lockheed's aeronautics sales was driven in part because the company delivered fewer F-16 fighter jets. F-16 sales are expected to dip next year as Lockheed shifts production to the new F-35 fighter, which will eventually be used by the Marines, Air Force and several foreign countries.
"They went through a strong surge of F-16 deliveries, but it is definitely ramping down as it is being replaced gradually by the F-35," said Richard Aboulafia, a vice president and aeronautics analyst at Teal Group in Fairfax. He said the company is expected to produce 30 to 35 F-16 aircraft this year, down from 70 a year over the last two years. "It's nothing like its great old days," he said. "It's not going away, but it is going to be eclipsed by the F-35."
Lockheed's declining F-16 sales are offset in part, analysts said, by two other large contracts. One, a NASA contract to replace the space shuttle, starts in 2010, and another is a deal to build the Air Force's next-generation satellite.
Lockheed's revenue from its F-22 fighter jet could also be hurt when it delivers the last batch of those fighters to the Air Force in 2011, analysts said. The company is working on the premier fighter, which costs about $150 million each, but senior military leaders, including Defense Secretary Robert M. Gates, have questioned whether more are needed.
"You've got Gates suggesting that it should be canceled," said Cai von Rumohr, a managing director and aerospace analyst at Cowen and Co. in Boston. "You've got a new administration coming in, and they're going to make their own mark. How it plays out is an important issue for Lockheed. The fighter jet is a profitable earnings contributor that could start to drop off."