Lockheed Martin (NYSE:LMT) has been under pressure from the declining defense budgets of the U.S. government as over 80% of the company’s sales come from the government, including around 60% from the Department of Defense (DoD). The passage of the Budget Control Act of 2011 first reduced the government’s defense spending by around $500 billion over 2011-2021, and then sequestrations – which took effect from March earlier this year – reduced the government’s defense spending over the next decade by another $500 billion approximately. Even though Lockheed is a prime contractor in many major government defense projects like F-35 Joint Strike Fighter (JSF) that are viewed in line with defense priorities, the lower overall defense budget has weighed on the company’s top line in the recent quarters.
A key counter measure adopted by Lockheed to offset the impact from lower U.S. defense spending is expansion of its international business. Accordingly, in July the company launched a new organization – Lockheed Martin International – headquartered in London and Washington, with corporate and regional offices in capitals of major defense spending countries which include Canada, Saudi Arabia, UAE, Singapore, Australia, Israel, India, Japan and South Korea. Lockheed made this move in order to engage directly and spend more time listening to the needs of these major international defense spenders. This closer engagement with the defense establishments of these countries will help Lockheed forge stronger relationships and maintain and grow its international defense business.
Here we take a quick look at some of the major international orders received by Lockheed Martin and the deliveries it made in recent months. We currently have a stock price estimate of $101 for Lockheed, around 15% below its current market price.
Lockheed’s Recent International Orders And Deliveries
In May, Lockheed received an order for 18 F-16 fighter jets worth $830 million from Iraq.  This order ensured that the company will be able to extend its F-16 production line to 2017, and thus avoid some layoffs out of the many it has been forced to make in recent months due to the government’s defense spending cuts. The company’s Mission Systems And Training segment received a modernization contract for its Aegis weapons system from Japan. Lockheed also received a $90 million contract from Saudi Arabia for fire control radars for attack helicopters.  The company also received a $34 million contract from Finland for integration of Joint-Air-to-Surface Standoff Missile (JASSM) onto the Finnish Air Force’s F-18 fighter jets. 
On the international shipments side, Lockheed delivered the first C-130J military transport aircraft to both Israel and Tunisia in the previous quarter. The delivery to Tunisia marks the entry of Lockheed’s C-130J Super Hercules to Africa, and thus opens up potentially another set of customers for the company. As evident from this brief summary of recent orders and deliveries, Lockheed has a very wide international customer base purchasing a variety of defense systems and equipment. Looking ahead, we believe that in addition to these programs the company’s agreements with 10 countries to supply around 600 F-35 JSFs will provide a crucial push to its international defense sales. Lockheed says that it is focused on raising the percentage of international defense sales from 17% of its total sales last year to at least 20% of its total sales over the next few years.  We believe the establishment of a dedicated organization – Lockheed Martin International – focused at developing the company’s international business and contribution from some major international defense partner programs like F-35 JSF will help the company achieve its target.Notes:
- Iraq to buy 18 more F-16 fighters, May 2 2013, www.stripes.com [↩]
- LONGBOW LLC Receives $90 Million Contract for Saudi Arabia Apache Radar Systems, June 13 2013, www.lockheedmartin.com [↩]
- Lockheed Martin Receives $34 Million JASSM® Contract for Additional Integration onto Finnish Air Force F-18, June 10 2013, www.lockheedmartin.com [↩]
- Lockheed’s second quarter 2013 podcast, August 22 2013, www.lockheedmartin.com [↩]