Lockheed Martin [LMT] yesterday reported a drop in its fourth quarter earnings due to higher expenses and decreased operating margins while sales eased a bit from a year ago.
Net income slid 12 percent to $569 million, $1.73 earnings per share (EPS), from $683 million ($2.09 EPS) a year ago, missing consensus estimates by 9 cents. Earnings tumbled on higher expenses for the early retirement of debt and charge related to workforce reductions at the Aeronautics segment. The company’s operating margins fell 30 basis points to 8.8 percent.
Lower operating profits at the Aeronautics, Information Systems & Global Solutions (IS&GS), and Space Systems segments were partially offset by increases at Missiles and Fire Control (MFC) and Mission Systems and Training (MST).
Sales slipped just under a percent to $12.1 billion from $12.2 billion a year ago. Gains at Aeronautics and MFC were outweighed by declines at Space Systems and IS&GS. Sales at MST were stable.
The direction of Lockheed Martin’s top and bottom line financial results are generally in line with those of the other major defense companies that have also reported this week, General Dynamics [GD] and Raytheon [RTN], in that sales and earnings declined in the fourth quarter.
Overall, in 2013, net income increased 3 percent to just over $2.7 billion ($8.36 EPS) from just under $2.7 billion ($7.81 EPS) a year ago. Per share earnings were a record and marked the first time in company history they exceeded $8. The per share results increased at a higher rate than net income due to a reduced share count.
Sales for the year edged up a percent to $47.2 billion from $46.5 billion. About 17 percent of Lockheed Martin’s sales are from international customers and the company continues to work toward increasing this to at least 20 percent in the next few years.
Backlog at the end of 2012 stood at a record $82.3 billion, up from $80.7 billion a year ago, as new orders were around $49 billion for a book-to-bill ration just above one. The backlog at the end of 2013 is expected to hover around $80 billion, which will require about $45 billion in bookings, Bruce Tanner, the company’s chief financial officer, said.
The outlook for sales and earnings this year is somewhat mixed. Earnings per share from continuing operations are expected to rise to between $8.80 and $9.10 EPS due in part to recent legislation that retroactively extended the research and development tax credit from Jan. 1, 2012 through Dec. 31, 2013. Lockheed Martin plans to recognize the entire benefit, $75 million (23 cents EPS), in 2013.
The forecast for sales this is year is for a decline of between 3 and 6 percent to between $44.5 billion and $46 billion. The guidance assumes that dramatic budget cuts will not be triggered in March through sequestration and that Congress will eventually approve a defense appropriations bill consistent with the Obama administration’s proposed budget.
Tanner said the company’s cash deployment strategy remains unchanged going forward and that the company will continue to return 50 percent of free cash flow to shareholders through dividends and share repurchases.
Following award late in 2012 of the low-rate initial production (LRIP) contract for lot five of the F-35 multi-role fighter, the company expects to negotiate the LRIP awards for lots six and seven in the first half of 2013, Marillyn Hewson, Lockheed Martin’s president and CEO, said.