How Is Lockheed Martin Turning Around Its Business?

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Lockheed Martin

Over the past year or so, the management of Lockheed Martin (NYSE: LMT) has been involved in restructuring the company in an effort to best adhere to the long-term growth prospects of the business. In 2013, the company suffered from lower deliveries in a number of programs, and thereby experienced a decrease in revenues and earnings. Since then, the management has been actively working to aid the recovery process. In this regard, the company has decided to not only consolidate its business through key acquisitions and divestitures, but also to undertake a program to manage its operating costs. In the following note, we discuss certain initiatives employed by the company to turn its business around and their expected impacts on revenues:

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  • In November 2015, Lockheed Martin acquired Sikorsky for about $9 billion. The latter is a helicopter manufacturer that supplies military grade rotor aircraft to all five branches of the U.S. military, along with military services and commercial operators in over 40 nations.
  • The management decided to divest the government IT part of the business to Leidos, so as to focus on systems businesses. By swapping its IT services for helicopter manufacturing, Lockheed was eyeing the long-term. It seems likely that the company didn’t want to shoulder an IT services division in a market with increasing price competition, especially when the company was preparing to increase its F-35’s production.

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  • According to the regulatory filings, the company’s current size (in terms of revenues) is pegged to be approximately $40.5 billion as opposed to $46.1 billion in 2015. That said, the figure fails to account for the revenues earned from Sikorsky. According to Lockheed Martin, Sikorsky’s total revenues from the first nine months of 2016 stand at $4.35 billion. Furthermore, the company has revealed that, from the time of the acquisition until the end of the financial year (November-December), the helicopter manufacturer has added $400 million in revenues to Lockheed’s total revenues, bringing the total up to about $4.75 billion. Although, this doesn’t take the month of October into consideration, we can roughly estimate the pro forma size to be just slightly north of $45 billion.
  • Furthermore, in an attempt to reduce costs, the company has decided to lay off employees across the board, specifically in the F-35 program. Since the beginning of the year, the board has decided to lay off more than 1,300 employees. This is bound to have a significant impact on labor costs, which in turn will help the bottom line.

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

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