LMT Q2 Earnings: Top Line Boosted By Higher F-35 Sales and Sikorsky Inclusion

+13.17%
Upside
433
Market
490
Trefis
LMT: Lockheed Martin logo
LMT
Lockheed Martin

Lockheed Martin (NYSE: LMT) beat analyst estimates by a large margin in the second quarter of the current financial year. Revenues came in at $12.9 billion beating estimates by a 3.2%, while earnings per share was recorded at $3.32 beating estimates by a healthy 13.7%. Additionally, full year guidance was revised upwards with revenues expected to come in between $50.0-$51.5 billion and EPS to fall within the $12.15-$12.45 range.

The company’s stock price reflected investor optimism after the earnings call as the price rose by 2.65%. Given the momentum, it seems likely that we could see further increases over the year.

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Key Highlights:

  • Revenues were boosted primarily due the inclusion of Sikorsky (an addition of about $1.2 billion) in the Mission Systems and Training’s results. Additionally, aeronautics posted an increase of about $250 million year over year due to higher F-35 sales in the quarter.
  • The F-35 is the backbone product for the company. The aircraft is poised to replace 2,447 legacy airplanes in the U.S. Air Force fleet (its most expensive weapons program). Apart from that, the aircraft is set to become the primary fighter jet in many international fleets as well. In the quarter, LMT managed to bag a contract from the Danish Parliament, while rolling out deliveries to Israel and the Netherlands.
  • As mentioned before, the defense contractor receives most of its funding for the F-35 program from the U.S. government (due to the sheer volume of orders). For this reason, protracted talks between the contractor and Pentagon regarding the next batch of F-35s is weighing on the company’s available cash (having fronted $900 million already). This could force the Lockheed to take more loans (mostly from commercial lenders) in order to keep paying their suppliers, which in turn will hurt the government as well. However, if the talks are successful and the LMT receives the appropriate funding, the company hopes to increase its cash from operations this year by $100 million.
  • The transaction closure of Information Systems and Global Solutions to Leidos is expected in Q3. Once the Reserve Morris Trust Transaction is concluded, Lockheed will receive a special cash payment of $1.8 billion, while reducing the current outstanding shares by about 10 million. Furthermore, the year end results of IS&GS will be moved to discontinued operations. Additionally, the book gain from the deal and the net pension gain (associated with the departure of employees from the division) will also be recorded in discontinued operations.
  • As mentioned previously, the IS&GS divesture is a step toward continued cost cutting measures that the company has implemented this year. In Q1, LMT decided to cut a chunk of its workforce in order to cull production inefficiencies.
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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment / ask questions on the comments section

2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis of Lockheed

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