Lockheed Martin Q2 Earnings: Stellar Performance Pushes Stock To Record High

Lockheed Martin (NYSE: LMT) reported a strong quarter this time around, beating both the earnings and revenue consensus estimates by a considerable margin. The top line was helped by the fact that all segments, except Missiles and Fire Control, managed to post positive growth in sales. The Aeronautics segment emerged as the star of the quarter, reporting a mammoth 20% increase in revenues on the back of higher F-35 jet deliveries and sales.

Furthermore, given the stellar year-to-date performance, Lockheed’s management has decided to raise its full-year guidance for both revenues and earnings, significantly. We can expect this momentum to continue well through to the next year as well. The company now hopes to take in between $12.30 and $12.60 per share from $12.15 to $12.45 per share, while revenues come in around $49.8 billion to $51 billion, up from $49.5 billion to $50.7 billion.

Two Major Contracts Awarded

Lockheed was awarded two major contracts in the quarter that are testament to the growing strength of the company’s portfolio. Further, these deals provide the company with significant growth opportunities that are bound to boost the top line in the next five years.

The Rotary and Mission Systems area, or the Sikorsky business, received a mammoth $3.8 billion, five year contract, to provide the U.S. Army and Saudi Arabia with 257 Black Hawk helicopters. It represents the ninth such multi-year deal to be signed with the U.S. government. The contract also includes an option to purchase an additional 103 aircraft in the future, bringing the potential value of the deal to over $5 billion. We can expect this to provide a significant jump in production in the coming quarters. First deliveries, in this respect, can be expected as early as 2018.

The company’s famed F-35 program also received a $5.6 billion contract to produce the eleventh batch of 74 jets for the Pentagon. In addition, Lockheed hopes to book a separate award later in Q3, which will add additional aircraft for its international F-35 partners and foreign military sales customers. These deals prove the fact that the F-35 program has garnered notable support over the years and will continue to drive growth in the future.

Higher International Sales to Drive Growth 

Lockheed Martin is probably one of the few companies in the world that stands to benefit from global unrest. In this respect, the company expects a significant rise in international orders in the coming quarters on the back of the current political climate.

Earlier in the quarter, Pres. Trump signed a major defense contract with his majesty King Salman of the kingdom of Saudi Arabia. As part of the deal, the kingdom has expressed its intent to purchase more than $28 billion worth of Lockheed Martin products and services in the future. 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. Should things go to plan, we can expect the deal to add significant value to the company over the next decade.

Furthermore, 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.

Over the next five years, the company projects 50% of all F-35 orders to come from international customers. This is primarily because Lockheed is seeing increased interest from countries outside the current program of record. Last year, it was revealed that the company was in talks with Spain, Belgium, and Switzerland about selling them the F-35. At present, the defense contractor is partnered with the U.K., Italy, the Netherlands, Japan, Turkey, Australia, and Israel, among others.

View Interactive Institutional Research (Powered by Trefis):

Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap
More Trefis Research