Lockheed Martin [LMT] on Tuesday posted lower sales and earnings in its first quarter driven by a number of programs, but the company increased its earnings guidance for the year due to a combination of better expectations for business segment profit and higher share repurchase activity.
Net income dipped 6 percent to $878 million, $2.74 earnings per share (EPS), from $933 million ($2.87 EPS) a year ago, still topping consensus estimates by 24 cents EPS. Segment operating margins slipped 50 basis points to 12.9 percent. Free cash flow in the quarter was $839 million.
The company’s Information Systems and Global Solutions (IS&GS), Missiles and Fire Control, Mission Systems and Training (MS&T) and Aeronautics segments all reported lower operating profits. IS&GS was dinged for a $70 million charge related to an international command and control program that was developed in-house but has proven difficult to integrate, Bruce Tanner, Lockheed Martin’s chief financial officer, said on the earnings call.
Tanner said the program has “great” potential in the market once it is installed and able to demonstrate its capabilities.
Sales fell 6 percent to $10.1 billion from $10.7 billion a year ago, but in line with the company’s expectations.
Lockheed Martin’s Space Systems segment was the only operating sector to post a gain in profit, which was up 13 percent on risk retirement on government satellite programs and NASA’s Orion space crew vehicle, and on higher profit booking rates. Sales at Space Systems also increased, up 5 percent, on the Orion program and revenue from acquisitions.
The MS&T segment also posted a scant 1 percent gain in sales aided by the start of the Space Fence radar program and Aegis and other radar surveillance programs.
The higher sales at Space Systems and MS&T were more than offset by declines at the company’s other segments, due to fewer deliveries and sustainment of the C-130, C-5, F-16 and F-22 aircraft programs, fewer deliveries of tactical missile, PAC-3 missile, and fire control systems, lower funding for command and control systems, and increased competition on the basis of price for contracts that the (IS&GS) segment competes for.
Lockheed Martin officials said that the performance across most of its segments was better than expected, part of the reason the company raised the earnings forecast for 2015 even though sales are still expected to be in the $43.5 billion to $45 billion range. The per share earnings outlook is up a nickel on the low and high end of the guidance range to between $10.85 and $11.15. The other reason for the uptick in the earnings forecast is a lower share count, due to ongoing share repurchases.
Total backlog in the quarter stood at $76.9 billion, down 4 percent from $80.5 billion at the end of 2014. Tanner said the company believes it is on track to get its backlog back to the $80 billion-plus level.