Can Lockheed Martin Maintain The Momentum In Q2?

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Lockheed Martin (NYSE: LMT) is all set to report earnings for the second quarter of FY 2017 on July 18. In the first quarter, the company managed to beat the earnings estimate by a significant margin, while falling short on the revenue estimate marginally. In fact, the company has managed to post an average earnings surprise of about 14% in the trailing four quarters. That said, the world’s largest defense contractor incurred heavy one time charges on some of its major programs in Q1. These charges are expected to weigh on earnings over the remainder of the year. Full year earnings are now expected to come in lower than expected at $12.15–$12.45.

However, all is not lost. During the quarter, Lockheed managed to win several high yielding contracts, including an estimated $28 billion contract with Saudi Arabia, which is bound to push revenues higher than expected over the next five years. In terms of sales, the company hopes to take in around $49.5–$50.7 billion, higher than the earlier provided projection of $49.4–$50.6 billion.

It would also be worth mentioning that the company’s stock price has jumped by nearly 7% since the last earnings call. This goes to show that investors are confident about the company’s management and financial health.

Key Happenings:

  • Due to its varied product offerings, Lockheed Martin continues to enjoy its position as the world’s largest defense contractor. In this respect, the company managed to receive a number of important deals in the quarter, from the DoD as well as other foreign allies. Locally, Lockheed managed to sign contracts with the U.S. Navy, the Army, and the Air Force, in deals jointly worth over $1.5 billion. Additionally, the company won two significant deals from the Pentagon. Both of which are jointly worth over $700 million.
  • Probably the most exciting news to come from the quarter was the signing of a major $110 billion arms deal between the U.S. and Saudi Arabia. Due to its position in the market, Lockheed seems to have garnered the majority of this deal. The middle-eastern giant is expected to procure the company’s integrated air and missile defense, combat ship, tactical aircraft, and rotary wing technologies and programs for an estimated $28 billion. This deal is expected to add significant value to the company over the next decade.
  • Additionally, at the end of the quarter, the company signed a landmark deal with Tata Advanced Systems Limited (TASL) in India, to jointly manufacture the former’s F-16 Block 70 fighter jets in India. Lockheed has expressed its intentions to expand its foothold in the Indian market, the world’s largest defense importer, for quite some time now. This move marks a step in the right direction.
  • In terms of the F-35, the company is ready to ramp up production as orders continue to roll in. In this respect, deliveries from the ninth batch began in Q1 and have continued through Q2 as expected. Earlier in the year, Lockheed signed a deal to begin production of the tenth batch and was awarded an additional $5.6 billion deal, during the quarter, to begin production of the eleventh batch. The company hopes to deliver close to 66 jets over the year, however, the Pentagon expects this number to be closer to 57.

  • In terms of orders, the company had earlier announced that it anticipates additional GPS III satellite orders during the first half of the year. Additionally, it also hopes to finally conclude the Hellfire missile order that was put on hold last year. The earnings call could help provide some more information on these deals.

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