Aerospace & Defense

Lockheed Martin profit up but forecasts lower cash flow in 2020; shares slip

Key Points
  • Lockheed Martin raised its forecast for 2019 earnings as it reported a 9.2% rise in quarterly profit.
  • Results were helped by increased sales in its aeronautics business, which makes F-35 fighter jets.
  • The company raised its per-share profit estimate for the year by 1.9% to $21.55 from $21.15, the high point of a previous guidance.
A F-35 fighter jet is seen as Turkey takes delivery of its first F-35 fighter jet with a ceremony at the Lockheed Martin in Forth Worth, Texas, United States on June 21, 2018.
Atilgan Ozdil | Anadolu Agency | Getty Images

Lockheed Martin raised its estimate for 2019 earnings on Tuesday as quarterly profit climbed 9.2% amid improved sales of its F-35 fighter jets, sending shares higher even as it forecast lower cash flow for next year.

The company also said the "preliminary outlook for 2020 assumes there is no impact from U.S. Government actions related to Turkey." The U.S. and Turkey are embroiled in a dispute over a Russian missile defense system and its impact on Turkish defense purchases.

Lockheed estimated 2020 cash flow of $7.2 billion, lower than its 2019 year-end estimate of $7.6 billion, which disappointed investors. That had sent the stock down about 3% in premarket trading, but shares recovered those losses after the market opened and were up 0.8% at $377.16.

Lockheed raised its profit estimate for 2019 by 1.9% to $21.55 per share from $21.15, the high point of its previous guidance, amid improved performance in its aeronautics business.

The Bethesda, Maryland-based company said 2020 sales would climb 5% to $62 billion from an estimated $59.1 billion at the end of 2019.

The results were "impressive" and driven by better operations, while the guidance was "conservative, as expected," Jefferies analyst Sheila Kahyaoglu said in a note to investors.

Business unit profit margins in 2020 were estimated to be between a range of 10.5% and 10.8%, lower than the 11.2% margin so far this year.

Turkey had agreed to buy 100 stealthy F-35 jets, Lockheed's biggest program, but the Pentagon removed the NATO ally from the program and from the jet's supply chain.

To be sure, other countries have expressed an interest in buying the F-35, and in September, the U.S. State Department approved a proposed sale of 32 F-35 fighter jets worth as much as $6.5 billion to Poland.

The Pentagon has said the U.S. is spending between $500 million and $600 million in non-recurring engineering in order to shift the supply chain away from Turkey.

There was some operating segment wins for Lockheed during the quarter.

Lockheed's space unit was awarded a NASA contract worth up to $4.6 billion to build Orion astronaut capsules to help NASA build a sustainable presence on the moon. Though sales at the unit were up 5%, the 11.5% profit margin at the space unit was unchanged from last year.

The missiles and fire control unit, which makes missile defenses like the Terminal High Altitude Area Defense (THAAD), was one of its best-performing units. Sales grew 14% to $2.6 billion during the quarter.

The aeronautics division which makes the F-35 received some bad news last week when the Pentagon said it could delay its decision to move into a full-rate production of the F-35 jet by as many as 13 months, or until 2021, because of issues integrating the jet with its testing facilities.

Full-rate production contracts are more lucrative for defense, and the news from the Pentagon suggests larger payments for F-35 deliveries to Lockheed from the U.S. government and its allies could be delayed by as much as a year.

The company delivered 28 F-35 combat jets in the quarter, compared with 20 a year earlier.

During the second quarter, Lockheed delivered 29 F-35s. So far this year, the company has delivered 83 of the jets, out of a total expected for the year of 131.

Lockheed's net income rose to $1.61 billion, or $5.66 per share, in the third quarter ended Sept. 29, from $1.47 billion, or $5.14 per share, a year earlier.

Net sales rose to $15.17 billion from $14.32 billion.

Lockheed's income tax rate was 9.7% in the third quarter, compared to 6.5% in the third quarter of 2018.

Read Lockheed's earnings release here.

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