Lockheed Profit Falls as Pentagon Shifts Priorities
Wednesday, July 22, 2009
Lockheed Martin, the world's largest defense contractor, on Tuesday posted its second straight quarter of year-over-year profit declines, just as the Senate voted to end one of the company's marquee fighter-jet programs.
The Bethesda company said it earned $734 million ($1.88 per share), compared with $882 million ($2.15) in the second quarter a year earlier. Its pension expense was $115 million, which lowered earnings by $75 million. Sales were up slightly, to $11.24 billion.
The company's second-quarter earnings beat analysts' expectations, which averaged $1.81 per share.
Lockheed's weapons programs have come under scrutiny this spring as the Pentagon has made a shift in spending priorities to fight insurgencies in places like Iraq instead of pumping more money into weapons for conventional wars.
Lockheed executives said the cancellation of a satellite program and the halting of a lucrative deal to build a fleet of presidential helicopters have taken $2.5 billion out of the company's about $80 billion backlog of orders.
The company's stock closed down $6.98 on Tuesday, closing at $75.13.
Shortly after a company conference call with Wall Street analysts, the Senate voted to cancel Lockheed's production of its F-22 Raptor fighter plane. The program employs about 25,000 people at 1,000 suppliers in 44 states.
Bruce Tanner, Lockheed's chief financial officer, said any of the F-22 cancellation wouldn't be seen in the company's financials until 2012, when the last batch of F-22s is delivered. "There are no instantaneous impacts," he said, though he added that he expects suppliers to be hit first.
Tanner said he hopes the slowdown at the Marietta, Ga., plant where the F-22 is assembled could be softened by an increase in other aircraft business. "In a perfect world, you're hoping the acceleration of the C-130J and an increase with the C-5 dovetail and offset the F-22," he said, referring to a pair of cargo planes.
Howard Rubel, an analyst at Jefferies & Co., said that "from an investor point of view, no one had an extension of the F-22 in their expectations."
"It's a parochial issue," he said, noting that the fighter jet accounts for a small portion of Lockheed's annual revenue of more than $40 billion. Rubel said the more important issue for Lockheed will be to get good performance from its newer F-35 fighter jet, which the Pentagon wants, because sales of it would "more than offset the loss of the F-22."