Lockheed Martin Corp. announced the resignation of its president and another senior executive yesterday and warned that next year's earnings would be sharply lower than expected because of setbacks across its $25 billion defense and aerospace operations.
The departures of Peter B. Teets, 57, president and chief operating officer, and James A. "Micky" Blackwell Jr., 58, the executive vice president of the aeronautics division, reflect the intense pressure on Bethesda-based Lockheed Martin to deal with its mounting competitive and management problems, according to financial and defense industry analysts.
In a statement, Teets said he felt obliged to "step up to being accountable for our disappointing financial outlook for 2000."
Lockheed Martin is the nation's biggest defense contractor, and its total order backlog is $44.2 billion. But it warned that a poorer outlook in satellite and space launch businesses, military sales and global telecommunications markets would cut next year's profit by more than half, to $1 a share from the earlier estimate of $2.15 a share.
In the three months ended in September, Lockheed earnings fell by more than 31 percent, to $217 million (57 cents a share), compared with $318 million (83 cents) a year ago. Its sales dropped to $6.16 billion, from $6.35 billion a year ago, as the company struggled with delayed orders for its military aircraft and evaporating demand for its satellite launch rockets.
Following yesterday morning's announcement, Lockheed stock dropped to $16.37 1/2 a share, but recovered to close at $20, down $2.93 3/4 from Thursday. The stock has lost almost two-thirds of its value over the past year.
Lockheed's chairman and chief executive, Vance D. Coffman, and its chief financial officer, Robert J. Stevens, promised that the company would act decisively to control costs, improve troubling quality problems in its space business and repair relations with its key customer--the Pentagon.
"We are deeply disappointed with this reduced outlook for our company," Coffman said in a conference call with financial analysts. "We have to get our plane back on an even keel and move this company forward with everything we've got."
Stevens added, "We are going to manage this business for cash. We're going to improve our performance . . . and we're going to restore our reputation."
To replace Blackwell, Lockheed named Dain M. Hancock, a former General Dynamics Corp. engineer who runs the F-16 manufacturing division in Fort Worth that Lockheed acquired from General Dynamics.
Lockheed intends to look outside for a new president to replace Teets--the first time that has happened at the insular company, where top managers have traditionally risen through the ranks of the old Lockheed or Martin Marietta companies, which merged in 1995.
Teets and Blackwell join a list of senior executives who have left or been demoted as the company's problems have accelerated. Some financial analysts predicted that the board's pressure will now be focused on Coffman.
Coffman will share the search for a new president with one of the most influential outside members of Lockheed's board of directors, Eugene F. Murphy, vice chairman and executive officer of General Electric Co., a major lender to Lockheed. Analysts called that another signal that key directors want something other than business as usual.
"You're seeing a whole new generation of management that's coming into place," said Loren Thompson at the Lexington Institute in Arlington.
It has been a nightmare year for Lockheed. After a series of failures of Lockheed Titan IV rockets used in satellite launches, and other mishaps, a review panel headed by former Lockheed president A. Thomas Young said the company was suffering from "systemic" quality control and management problems.
Last month, it lost a vital $4.5 billion-plus contract to supply the U.S. government with top-secret spy satellites to arch rival Boeing Co., a business Lockheed had dominated throughout the Cold War.
And according to industry analysts, relationships between top Lockheed officials and some key senior Pentagon procurement chiefs are badly strained.
"The crisis with this customer has been simmering for more than a year. It will take intensive effort to rebuild its credibility with [the] Defense [Department]," said James McAleese, a McLean attorney who specializes in defense issues.
According to Stevens, the per-share reduction of $1.15 in estimated earnings for 2000 includes cuts of 80 cents due to reduced profit margins, 20 cents because of increased tax rates and 15 cents due to higher interest costs.
In response to the reverses, Lockheed has announced plans to sell off $1.8 billion in businesses, with 9,000 employees, in hopes of controlling costs and rebuilding profitability.
Some Wall Street analysts, however, do not believe that organizational restructuring alone is enough to lift Lockheed's plummetting fortunes. "There are company-specific problems, leadership problems and general industry problems, which need to be tackled," said Joseph Campbell, a managing director at Lehman Brothers Inc.
Wall Street wants Lockheed to sell assets with inadequate growth and earnings opportunities. On top of the review list, some analysts said, should be the commercial space and global telecommunications businesses. "We have never liked the telecom foray and will continue to not like it," said Todd B. Ernst, aerospace and defense analyst at Prudential Securities Inc.