By Calvin Biesecker
Bolstered by its growing information technology and services business, Lockheed Martin [LMT] yesterday posted higher fourth quarter net income and sales although pension headwinds forced the company to lower its expected earnings for 2009.
Net income in the quarter rose 3 percent to $823 million, $2.05 earnings per share (EPS), from $799 million ($1.89 EPS), topping Wall Street estimates by 14 cents per share. A portion of the earnings increase was due to a deferred gain related to the 2006 sales of Lockheed Martin’s interest in two space related companies.
Sales for the quarter were up 3 percent to $11.1 billion from $10.8 billion a year ago. Free cash flow was $574 million.
For all of 2008, net income rose 6 percent to $3.2 billion ($7.86 EPS) from $3 billion ($7.10 EPS) on a 2 percent gain in sales to $42.7 billion from $41.9 billion in 2007.
In 2009 the company is expecting sales to increase about 6 percent to between $44.7 billion and $45.7 billion due to increased volume at its Information Systems & Global Services and Electronic Systems business segments as well as the closure of a recent acquisition. The sales forecast is $450 million higher than previous guidance.
Operating profits are also expected to increase in 2009, driven again by the IS&GS and Electronic Systems businesses. The company expects business segment operating profits to be around $5.2 billion to $5.3 billion, up from nearly $5 billion in 2008. However, $410 million in unexpected pension expenses that came about as part of a routine evaluation at the end of 2008 led the company to lower net earnings expectations for this year to between $7.05 and $7.25 EPS versus prior guidance of $7.65 to $7.90 EPS.
Bob Stevens, Lockheed Martin’s chairman, president and CEO, on yesterday’s earnings call offered a robust outlook for his company beyond the stated guidance. He expects the FY ’10 defense budget to seek between 2 and 3 percent more money than the current budget, with his company’s take exceeding the overall growth rate. Specifically, Stevens said ramping up of the F-35 Joint Strike Fighter and expansion of information technology projects will help drive the company’s growth next year.
Stevens said he expects the Obama administration to forward the FY ’10 defense budget request, likely with just top line amounts, to Congress on Feb. 13 and a more detailed request sometime in April.
Lockheed Martin expects to continue strengthening its position in adjacent markets, a strategy begun several years ago through a combination of acquisitions and partnerships that take advantage of the company’s systems integration capabilities, Stevens said. There are continued opportunities to improve customer performance in logistics and sustainment for better supply chain management and this is one area where the company will make a “decided effort” to expand, he said.
Stevens also said there are opportunities for more sophisticated use of information technology in the healthcare market and noted that there is much to be done in cyber security. The company is also looking at applying its analytical skills in the energy market to find better ways to conserve energy, he said.
Finally, Stevens said the continued success in the vehicle market, notably the Joint Light Tactical Vehicle program, could lead to substantial international opportunities. He also cited robust international opportunities for the company’s Littoral Combat Ship project it is building for the United States Navy.
The biggest challenges the company faces is executing on its customer commitments every day, Stevens said. Of course there will be pressure on budgets, which is why the company has to work on delivering affordable solutions that have value, he said.
In the fourth quarter the bulk of the higher sales and profits were due to results at IS&GS, which generated double-digit growth, most of it organic, and profits. The growth was due to programs at its Pacific Architect & Engineers unit, mission services and international activities.
The Electronic Systems segment posted modest sales and profit gains in line with overall fourth quarter results at the company. Both the Aeronautics and Space Systems segments experienced sales and profit declines.
Despite the mixed segment operating results, backlog at each segment increased, resulting in a combined backlog of $80.9 billion, a record for the company.