Lockheed Martin, the nation's largest defense contractor, is seeing an upbeat outlook abroad for its defense systems amid rising global threats and the need for allies to replace aging equipment.
"The threats are not diminishing; they are increasing and so the defensive systems that we can provide are what we hear from countries around the world that they want," Lockheed Chairwoman and CEO Marillyn Hewson said during the company's third-quarter earnings call Tuesday.
The Bethesda, Maryland-based company said it is seeing increased demand for equipment ranging from the C-130J cargo aircraft in France and Germany to Blackhawk helicopters in Poland, to missile defense systems in the Asia-Pacific, Europe and Middle East theaters. Also, Lockheed is seeing progress on its F-35 Joint Strike Fighter program both domestically and internationally.
Lockheed indicated that aging military hardware from foreign allies also is helping to drive sales growth.
"The aging of equipment in allied countries, coupled with an expanding level of global security needs, are creating significant demand for our portfolio of products in multiple regions around the world," said Hewson.
Lockheed previously had a stated goal for 25 percent of its total revenue to come from international customers, but the company now expects to reach "at least 30 percent" in the next few years, Hewson said. She added, the new goal comes "as our international portfolio is growing at faster rate than the [Department of Defense] budget."
Overall, Hewson said the biggest growth area for the company remains the F-35 followed by missile defense.
"We've seen a lot of demand expanding from missile defense in the Asia-Pacific and the Middle East as well as in Europe," the CEO said.
Lockheed indicated that about 30 percent of its backlog is international today.
"We've got a lot of already booked business that will come in toward those international sales," said Hewson."So I think our portfolio is really well positioned for growth."
She added, "We continue to have a pull for not only missile defense, but munitions and other things in the market, particularly in the Middle East. And we are seeing growing interest... in markets that we hadn't been before like France and Germany, so we expect that we will continue to have a pull for international growth."
Overall, Lockheed on Tuesday reported quarterly earnings from continuing operations were $3.61 per share in the three months ending Sept. 25, up 49 percent from $2.42 per share a year ago. Net sales in the quarter rose about 15 percent to $11.55 billion, slightly ahead of analysts' average estimate of $11.45 billion.
At the same time, Lockheed also announced it increased the share repurchase program by $2 billion and lifted the quarterly dividend rate 10 percent to $1.82 per share.
Lockheed operates four business segments, and all but the Missiles and Fire Control segment reported higher sales in the third quarter.
Lockheed's Missiles and Fire Control segment produced a 2 percent decrease in quarter sales to $1.73 billion from the year-ago period and operating profits fell by 9 percent to $289 million. The company said the shortfall in the sales was due to lower volumes on certain fire control programs although it said the segment did produce higher sales within the tactical missile programs due to increased delivery of primarily the Hellfire missiles.
The Aeronautics segment, which includes the F-35 business, posted a 7 percent increase in quarterly sales to $4.18 billion while operating profits increased 5 percent to $437 million. This is Lockheed's largest business in terms of revenue and represented 36 percent of total sales in the latest quarter and 31 percent of the company's operating income.
Lockheed said the Aeronautics' top-line performance was primarily due to higher net sales of about $300 million for the F-35 program due to increased volume on aircraft production and sustainment activities. However, it said the increase was partly offset by lower sales of about $50 million for the C-5 Galaxy airlifter program.
Elsewhere, the Rotary and Mission Systems segment, which includes Sikorsky operation, produced a sales increase of 55 percent in the third quarter to $3.34 billion compared with the year ago period and operating profit was up less than 1 percent to $247 million. The company's Space Systems segment's sales were up 3 percent to $2.28 billion from the same period in 2015, with segment operating profits soaring 70 percent to $450 million from the year-ago period.
Meantime, Lockheed on Tuesday provided a slight lift to its full-year 2016 adjusted sales and profit forecast and provided an upbeat sales projection for next year, which is above Street consensus.
As for profits, Lockheed is looking for full-year 2016 diluted earnings per share from continuing operations of about $12.10 a share, which is above its prior range guidance of $11.15 to $11.45 per share. The per-share results are adjusted for the IS&GS divestiture.
In terms of full-year 2016 sales, the company forecast $46.5 billion, which is adjusted to reflect the August 16 divestiture of Lockheed's Information Systems & Global Solutions (IS&GS) business segment. Previously, Lockheed had forecast back in July that it expected the sales to be a range between $45 billion and $46.2 billion.
In terms of the 2017 outlook, Lockheed said it expects sales to increase about 7 percent compared with 2016. That is slightly above analysts' average estimate for full-year sales to rise 3 percent. Lockheed said its total business segment operating margin for full-year 2017 is expected to be in the 10 percent to 10.5 percent range.
Depending on the timing of F-35 collections, the company said it expects cash from operations next year to be "greater than or equal to $5 billion or greater than or equal to $5.7 billion. The preliminary outlook for 2017 assumes the U.S. Government continues to support and fund the corporation's key programs."
Finally, Lockheed said it had about $950 million of potential cash exposure and $2.3 billion in termination liability exposure as a result of the F-35's Lot 9 and 10 low-rate initial production contracts. The F-35 contract negotiations for the F-35 remain unresolved, although in August the Pentagon did approve around $1 billion in funding as part of a partial reimbursement of the production costs to Lockheed.