 |
A U.S. Air Force F-35A Lightning II fighter
aircraft lands on the flight line Oct. 12, 2017, at Eielson Air Force Base,
Alaska. The F-35 is here to conduct cold weather testing to ensure the fifth
generation multi-role fighter aircraft performs optimally in Alaska's harsh
weather conditions.
ERIC M. FISHER/U.S. AIR FORCE
|
By JULIE JOHNSSON | Bloomberg | Published:
October 24, 2017
Lockheed Martin dropped the most in nine months after its
first hint at a 2018 outlook suggested that the company won't reap rewards from
a record $104 billion order backlog just yet.
Sales will increase about 2 percent next year as a new
rule is adopted that changes the timing of when revenue is booked, the world's
largest defense company said in a statement Tuesday. That fell short of the 2.8
percent average of analysts' estimates compiled by Bloomberg.
The longer term picture, which includes higher cash
generation than the company had previously forecast over the next three years,
had some analysts urging patience to jittery investors.
Quarterly earnings results that came in below
expectations added to the sluggish near-term growth to disappoint investors,
who had lofty expectations for a stock trading near historic highs. The shares
declined 2.5 percent to $312.60 at 2:40 p.m. in New York, after earlier
dropping as much as 3.2 percent, the biggest intraday decline since Jan. 24.
Shareholders are focused on sales growth and cash flow as
barometers of the company's ability to wring greater rewards from the F-35
fighter jet, the Pentagon's most expensive weapons system, and other defense
products, said Douglas Rothacker, an aerospace and defense analyst with
Bloomberg Intelligence. Analysts expect Lockheed's earnings per share to climb
almost 50 percent by 2020 as F-35 deliveries rise.
While the F-35 program's operating margin is poised to
exceed 10 percent next year, Lockheed will still need to counter dwindling
profit from its F-16 fighter and C-5 cargo aircraft, Bruce Tanner, Lockheed's
chief financial officer said during a conference call with analysts. Recent
contract wins like an F-16 sale to Bahrain and missile defense sale to Saudi
Arabia won't be felt until the end of the decade.
"Although a headline EPS miss for a highly valued
company like Lockheed Martin is normally bad news, especially when it has come
from a shortfall on revenues, we think investors should not get carried
away," Robert Stallard, an analyst with Vertical Research Partners, said
in a note to clients Tuesday. "Operating guidance for the full year has
actually ticked a bit higher, and the increase in the three-year cash guide is
also encouraging."
As the first major U.S. defense company to report
earnings, Lockheed sets the tone for competitors such as Boeing, General
Dynamics and Northrop Grumman, which are due to unveil results Wednesday.
Lockheed provided the first glimpse of the impact of a new accounting standard
requiring companies to book revenue as costs are incurred, rather than when
products are delivered to the Pentagon.
The earnings release provided fodder for both bullish and
bearish investors. Lockheed's quarterly profit missed estimates for the
second-time this year, while its 2017 forecast surprised analysts -- hinting at
a stronger close to the year.
The new accounting practice will clip net sales about 2
percent next year, compared to what they would have been under the old
standard, the company said. The contractor doesn't expect the change to affect
its 2018 cash from operations, which it predicts will be $5 billion or more
even after a $1.6 billion pension contribution. The company is typically
conservative with its preliminary outlook for the year ahead.
Third quarter earnings slid to $3.24 a share, trailing
the $3.26 average of analysts' estimates compiled by Bloomberg. Revenue of
$12.2 billion fell well short of the $12.8 billion expected by analysts, the
largest sales miss in at least a decade, according to data compiled by
Bloomberg.
Both measures dipped from a year ago, when Lockheed
booked one-time gains from an investment in AWE, a partnership providing
warheads for the U.K.'s Trident nuclear defense system. Tanner, the finance
chief, attributed the sales miss to a "timing-related shortfall" that
"will be more than made up for during the fourth quarter."
Lockheed expects a strong close to the year as it boosted
its forecast for this year's earnings by 55 cents a share to a range of $12.85
to $13.15. Analysts had expected profit of $12.63 a share. In slides posted to
its website, Lockheed also boosted its three-year cash forecast to $16.2
billion, up from an earlier prediction of $15 billion.
The contractor's fortunes largely rest on the F-35, the
first fighter designed to meet the vastly different missions of the U.S. Air
Force, Marines and Navy -- a program with a $406.5 billion price tag.
After development issues ranging from software glitches
to engine fires, the stealthy jet is moving closer to full production. Flight
testing is 98 percent completed, Chief Executive Officer Marillyn Hewson said
during the earnings call. "We remain on track to complete all of the
system development and demonstration flight testing in the next few
months."
Lockheed plans to deliver 66 of the aircraft this year,
rising to about 80 planes next year, by Rothacker's estimate, and then to 160
jets a year a decade from now.
As tensions rise from Europe to Asia, Lockheed is also
seeing renewed interested in its sophisticated Terminal High Altitude Area
Defense against short- and medium-range ballistic missiles. South Korea is
deploying the system, known as THAAD, and Saudi Arabia recently received
approval to buy the weapons system valued at as much as $15 billion.
Original post: stripes.com
Related articles:
No comments:
Post a Comment