Lockheed Martin Corp. shocked shareholders and Wall Street analysts for the second time in seven months yesterday, warning of a loss for the second quarter and drastically reducing profit estimates for this year and 2000.
Lockheed's chairman and chief executive, Vance D. Coffman, attributed the dramatic shift in the company's fortunes to a variety of causes, including fewer deliveries than projected of the C-130J cargo plane, fewer orders for commercial satellites, and delays and problems with space launches.
"Clearly our forecasts about some key programs have not been realized, and we have not executed consistently across the corporation to our expectations," Coffman said in a statement.
The news sent shares of the Bethesda-based company tumbling more than 16 percent, to a 52-week low of $33.75. The stock closed at $34.87 1/2, down $5.56 1/4, on the New York Stock Exchange. Lockheed shares have lost more than one-third of their value in the past year, including those held by employees who collectively own about 18 percent of the company.
Coffman told industry analysts the company would likely lose between 10 cents and 15 cents a share for the three months ending June 30. The consensus forecast of analysts surveyed by First Call Corp. was for profit of 72 cents a share.
Coffman also said the company was cutting in half its earnings forecast for 1999 to $1.50 a share and shaving estimates for 2000 by about one third.
Although some Wall Street analysts had anticipated the earnings revision, none had forecast a loss. Analysts peppered Coffman with a questions during a meeting yesterday at the Waldorf-Astoria hotel in New York, with some questioning Coffman's fitness to remain in his job.
"It's not the type of performance you would like to see," said Cowen & Co. analyst Cai von Rumohr, a longtime industry follower who said it was "too early to say" whether Coffman's position was imperiled.
In some instances, the company's problems are not of its making, such as the April explosion of a Titan rocket that was blamed on a defective part manufactured by Boeing Co. But Coffman indicated some of the problems were the result of Lockheed overestimating demand for its products or not accurately tracking costs on key programs.
"We find ourselves in the position of not having had, I would say, realistic disclosures by some of our people," he said.
Coffman, who was contentious and testy at times during the news conference, said the bad news resulted from a "bottoms-up" review of the company instituted by him, which reflects the $26 billion company's new attitude toward dealing with problems.
"I am instilling a culture of accountability, which is very much different from the past in this corporation," Coffman said. He pointed to recent management changes in key Lockheed units, where senior executives were encouraged to retire or shifted to new duties, and he promised a thorough appraisal of the company's businesses with an eye toward selling some and revamping others.
Later, in a phone interview, Coffman said he faced tough questioning during a five-hour board meeting Tuesday evening. But he did not indicate whether directors specifically questioned his performance as chairman.
"I would say the board members were not happy, they were very concerned -- just as I am -- about the implications of these kind of disclosures," Coffman said.
Some analysts said they gained little comfort with the presentation by Coffman, with Prudential Securities Inc. analyst Todd Ernst saying he still doesn't have full faith in Lockheed's ability to meet even its sharply discounted earnings estimates.
Ernst and other analysts questioned whether Lockheed should continue in its attempt to acquire Comsat Corp., a Bethesda-based satellite services company, for $2.7 billion. The purchase requires regulatory approval and congressional action. Either company can walk away from the deal if it is not consummated by Sept. 18.
Although Coffman said he remains committed to buying Comsat, whose satellite services would mesh with Lockheed's satellite manufacturing and launch capabilities, Ernst said Lockheed executives "could do themselves a big favor if they could get out of the deal."
For Coffman, who replaced industry legend Norman Augustine as chairman in April 1998, the announcement was the second time the company has recently had to revise its earnings forecasts. In November, Coffman surprised analysts by announcing that the company's 1998 earnings would be well below expectations. Since then, Coffman has made restoring Lockheed shattered credibility on Wall Street a priority.
"I don't think credibility is going to be restored until we have several quarters here where we meet or exceed expectations," he said.
Company sources say Coffman inherited an extremely complex corporation, the result of a half-decade of mergers orchestrated by his predecessor, and also has been caught off guard by a string of unanticipated events including the rocket failures and dramatic changes in the satellite business.
But others are less charitable and wonder why Lockheed's senior management seems incapable of accurately forecasting demand for key weaponry such as the C-130J and why it had not taken quicker action to rein in cost overruns on military programs. Last week, the company said it would lay off 2,000 workers at its Marietta, Ga., factory where both the C-130J and the F-22 fighter plane are manufactured.
The problems at the company have led to an atmosphere of uncertainty. Some employees have taken to publicly criticizing Coffman and other top executives on the financial Web sites, where one posting yesterday on Yahoo Finance had the title "Vance Must Go."
It may be a while before Lockheed can restore its credibility with both employees and investors, analysts said. Included in Lockheed's announcement yesterday were warnings that "expectations for sales growth and margin expansion in all sectors are generally being reduced across the board." And the company added it would no longer count on projected future gains from the sale of assets, such as real estate and stock in other companies owned by Lockheed.
CAPTION: Stock Shock (This graphic was not available)
CAPTION: "I am instilling a culture of accountability," says Lockheed chief executive Vance D. Coffman.