What Can We Expect From Lockheed Martin’s Q3 Earnings?

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

Lockheed Martin (NYSE: LMT) is expected to report Q3 earnings on Tuesday, October 25th. In the first two quarters of the year, the company posted stellar results, beating consensus estimates in both revenues and earnings. With additional F-35 sales and Sikorsky’s inclusion, we expect this momentum to continue into Q3 as well. That said, earnings could suffer slightly due to Lockheed’s divestiture of its Information Systems and Global Solutions (IS&GS) business.

Screen Shot 2016-10-19 at 2.20.21 PM

Analysts at Wells Fargo expect Lockheed to grow its third-quarter revenue by about 3% year-on-year on the back of a 57% increase in its newly created Rotary and Mission Systems business, sparked entirely by its Sikorsky acquisition last November. Additionally, Wells Fargo expects to see a 7% increase in the company’s Aeronautics segment as a result of high F-35 orders. For the quarter, Wall Street anticipates earnings per share to come in around $3.09. ((Wells Fargo: Expect ‘Messy’ Third Quarter Earnings For Lockheed Martin, bizjournals.com))

Relevant Articles
  1. Should You Pick Lockheed Martin Stock At $430 After Q4 Beat?
  2. Down 20% This Year Is RTX A Better Pick Over Lockheed Martin Stock?
  3. After An 8% Rise In A Month What’s Next For Lockheed Martin Stock
  4. Which Is A Better Pick – Lockheed Martin Stock Or Starbucks?
  5. Why The Space Theme Is Underperforming This Year
  6. Here’s What We Expect From Lockheed Martin’s Q2

Furthermore, last quarter, management revised full year guidance upwards, with revenues expected to come in between $50.0-$51.5 billion and EPS to fall within the $12.15-$12.45 range.

Divestitures and Acquisitions:

Lockheed Martin concluded the divestiture of its Information Systems and Global Solutions (IS&GS) business, which was spun off and merged with Leidos Holdings Inc, officially on August 16. The divestiture could impact earnings adversely, which in turn may lead to a reduction in the 2016 earnings guidance. However, one must keep in mind that this will be a one time expense and will not plague the company’s books.

As a part of this deal with Leidos, the company received a special cash payment of about $1.8 billion. The company stated that it intends to use this cash to repay its debt, issue dividends and repurchase stock. The business generated about $5 billion in revenues every year.

Screen Shot 2016-10-19 at 1.46.05 PM

Source: Investor Presentation, Q2 2016

Furthermore, it was announced in the earnings call last quarter that LMT has increased its stake in Atomic Weapons Establishment (AWE). AWE is a joint venture with Serco and Jacobs Engineering Group to help the U.K. manage its atomic weapons. This could result in a gain within the company’s Space Systems division. Further, with the increased stake, Lockheed now has control of the joint venture.

 

Sikorsky Immune To Helicopter Market Slump Overall, But Could Suffer In Aftermarket Sales:

The helicopter manufacturing industry has been in quite a slump recently as the depressed oil industry continues to have a domino effect across other sectors. Helicopters are the primary mode of transportation used to ferry workers and cargo to oil platforms. Almost 25% of the helicopter fleet are deployed in the oil and gas sector.

According to research at Wood Mackenzie, more than $1 trillion worth of investment cuts have been planned worldwide for the remainder of the decade, and hence, fleets of helicopters are being idled. Sikorsky has the largest backlog amongst its competitors. That said, almost 75% of its orders are from military customers and only 7% are from the oil industry. This makes the helicopter manufacturer relatively immune to the order deferrals.

Screen Shot 2016-10-19 at 2.03.22 PM

Source: Market Realist

However, with fleets of helicopters getting parked, manufacturers are losing out on lucrative aftermarket sales. Unfortunately for Sikorsky, it faces a larger aftermarket risk than other players, with about 11% of Sikorsky’s in-service fleets exposed to the oil sector. [1] This could partially offset the growing top-line in the near future.

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

View Interactive Institutional Research (Powered by Trefis):
Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap
More Trefis Research

Notes:
  1. Helicopter Woes Could Have Hit Lockheed Martin’s Sikorsky Unit in 3Q16, marketrealist.com []