Lockheed Martin Q4 Earnings: Ending The Year With A Bang
Lockheed Martin reported a stellar quarter this time around. The company posted a quarterly sales increase of about 19% year over year, driven primarily by increased F-35 sales and the Sikorsky helicopters business. In terms of annual revenues, 2016 witnessed an approximate 16% increase in sales in comparison to 2015. The recent restructuring of operations seems to be showing some results.
That said, the world’s largest defense contractor said it expected 2017 net sales to grow by about 4.6% to 7.1%, compared to its previous forecast of an increase of 7%.
The F-35 Program To Drive Future Growth
- Should You Pick Lockheed Martin Stock At $430 After Q4 Beat?
- Down 20% This Year Is RTX A Better Pick Over Lockheed Martin Stock?
- After An 8% Rise In A Month What’s Next For Lockheed Martin Stock
- Which Is A Better Pick – Lockheed Martin Stock Or Starbucks?
- Why The Space Theme Is Underperforming This Year
- Here’s What We Expect From Lockheed Martin’s Q2
The F-35 is a fifth-generation fighter, designed with the sole purpose of combating advanced 21st century enemies capable of superior air defense. However, despite the F-35’s benefits, the program has had its fair share of teething issues. At present, the program has run up almost $379 billion in costs. Since the beginning, critics have argued that the plane has many design flaws that have led to heavy additional costs and significant delays in the development process.
That said, Lockheed Martin is working hard to bring the cost of the plane down. Previously, the Air Force had asked the company to bring the cost each unit down to about $85 million. In May, Lockheed managed to bring the cost per plane down to just under $100 million (not including the engines), which represents a significant drop. The latest order from the Pentagon shows further promise in this direction. Last month, the Pentagon ordered 90 aircraft at the price of about $7.2 billion. This brings the cost per plane down to an impressive $80 million. However, this is again exclusive of engines. Presently, an engine costs about $16 million, bringing the total cost of the plane to about $96 million in total. Regardless, this is a major accomplishment by the company. What it essentially means is that Lockheed Martin has managed to shave off about 20% of the airplane’s cost in just six months. The company expects to bring the cost per plane down to $85 million by 2019.
Defense Environment Could Flourish In Future
Lockheed Martin earns almost 80% of its revenues from the U.S. Government. Hence, the Department of Defense (DoD) budget is directly indicative of the company’s health going forward.
At the moment, the DoD budget is operating under a continuing resolution through April 28th for FY 2017 with funding limited to prior 2016 levels. While this could cause delays and problems in certain DoD programs, it seems unlikely that the company’s 2017 sales, earnings or cash flows will be affected much by the delay in receiving the full appropriations bill. Furthermore, the 2017 Nation Defense Authorization Act was introduced last month and reflected bipartisan agreement that defense budgets should not return to amounts defined by the Budget Control Act or sequestration levels.
Additionally, Trump is good news for all defense companies in general. He has constantly campaigned to raise the defense budget when he takes office. It is likely that military spending will increase significantly under his term, benefiting many programs at Lockheed Martin.
View Interactive Institutional Research (Powered by Trefis):
Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap
More Trefis Research