Lockheed Earnings Increase 2 Percent

Lockheed Martin aircraft sales were down and it hasn't fully ramped up its production of the F-35 fighter, above.
Lockheed Martin aircraft sales were down and it hasn't fully ramped up its production of the F-35 fighter, above. (Lockheed Martin And U.s. Air Force Via Bloomberg News)
By Dana Hedgpeth
Washington Post Staff Writer
Wednesday, October 22, 2008

Lockheed Martin, the world's largest defense company, reported yesterday that its third-quarter profit was up slightly but warned that it may miss analysts' estimates for 2009 in part because of declining performance in its pension fund.

The Bethesda-based company reported profit of $782 million, or $1.92 per share, up 2 percent from $766 million ($1.80) for the same period a year earlier. Sales were down 5 percent to $10.58 billion from $11.10 billion in the third quarter of 2007.

Lockheed's chief financial officer, Bruce L. Tanner, called the quarter a "rock-solid performance."

But sales of some of its biggest aircraft were down, and Lockheed now estimates that its 2009 profit will be cut by about 30 cents a share as it goes from a projected $125 million gain on its pension this year to a $60 million expense next year.

"They have a mature workforce and a lot of retirees and a defined-benefit plan for them," said Robert Stallard, a director at Macquarie Research in New York. "The equity market goes down and the pension becomes more underfunded. As a result of pension accounting, they have to increase the expense they report.

"Going from a $125 million gain to a $60 million expense is quite a big switch and obviously that flows through to earnings," Stallard said.

The company's shares fell $9.03, or 10 percent, to close at $84.19.

Profits in Lockheed's aeronautics division fell 9 percent in the third quarter to $375 million, from $414 million in the year-ago period, as revenue decreased 13 percent to $2.92 billion in part from lower sales volume of its C-130J, from four aircraft deliveries to three. It also had lower sales of its F-16 fighter jets to international customers and it hasn't fully ramped up its production of the F-35 Joint Strike Fighter.

In its electronic systems division, which makes missiles, radar systems and other equipment, earnings were up 5 percent to $364 million, from $346 million, and its revenue was virtually unchanged at $2.80 billion.

Lockheed, which is the biggest suppler of information technology services to the federal government, posted a 9 percent rise in earnings in its information systems and global services unit, to $267 million from $245 million. Revenue rose 8.7 percent to $2.95 billion.

Earnings at the company's space systems division, which makes satellites and missiles for submarines, were up 10 percent to $244 million, from $221 million in the year-ago period, though revenue fell 14 percent to $1.91 billion because of a decrease in its satellite volume.

In a conference call yesterday, analysts said Lockheed's space program could be affected as the Pentagon is expected to announce today that it is shelving a competition between Lockheed and Boeing to build a roughly $6 billion satellite communications system known as TSAT, the Transformational Satellite Communications System. The satellite system is a crucial part of some of the Pentagon's biggest future weapons programs, including the Army's Future Combat Systems, a new generation of weapons, combat vehicles, robots and sensors whose systems can communicate with one another through a wireless network.

"It's clear this program is slipping away," Loren B. Thompson, a defense consultant at the Lexington Institute, said of TSAT. "It is obvious this program is gradually dying."

Many big-dollar weapons programs are expected to be under close review in a new administration, as the defense budget is expected to shrink after eight years of steady increases.

Looking forward, Lockheed boosted its expectations for 2008 earnings by 10 cents to $7.55 to $7.70 a share. It reiterated its revenue target of $41.9 billion to $42.9 billion.

Lockheed is one of the first major defense contractors to report earnings. General Dynamics of Falls Church is expected to report its earnings today.

© 2008 The Washington Post Company