The Pentagon’s prime contractor, Lockheed Martin Corp. (LMT), posted fourth-quarter 2014 earnings before the opening bell today. The company reported adjusted quarterly earnings of $3.01 per share, comfortably surpassing the Zacks Consensus Estimate of $2.81 by 7.1%. Earnings in the reported quarter also rose 26.5% from $2.38 per share in the year-ago quarter, led by strong operational performance and higher fighter jet demand.
Full year 2014 adjusted earnings of $11.40 per share also beat the consensus estimate of $11.21 and jumped 16.9% from the year-ago level.
Operational Highlights
In the reported quarter, total revenues were $12.5 billion, beating the Zacks Consensus Estimate of $11.9 billion by 5.5%.
Despite the tepid defense budget scenario, the company’s top line increased 8.6% from $11.5 billion a year ago. All segments, except Information Systems & Global Solutions, recorded year-over-year sales increase.
2014 total revenues of $45.6 billion were up 0.5% year over year and also surpassed the Street consensus estimate of $45 billion.
Backlog
Lockheed Martin ended 2014 with $80.5 billion of backlog, down 2.5% from $82.6 billion as on Dec 31, 2013. Of this, $27.6 billion belonged to the Aeronautics segment and $18.9 billion to the Space Systems segment. The rest is made up of $13.6 billion for the Missiles and Fire Control segment, $11.7 billion for Mission Systems and Training and $8.7 billion for Information Systems & Global Solutions.
Segmental Performance
Aeronautics: Aeronautics’ quarterly sales increased 6.1% year over year to $4.1 billion − the increase was mainly driven by higher demand for F-35 fighter jets. C-130 deliveries and sustainment activities were also strong during the quarter.
Segmental operating profit expanded 6.5% year over year to $441 million and operating margin increased 10 basis points (bps) to 10.7% in the quarter.
Information Systems & Global Solutions: Information Systems & Global Solutions’ quarterly sales decreased 5.4% to approximately $2 billion. The decline reflects lower net sales and completion of certain programs. The negatives were, however, partially offset by the initiation of certain U.S. government IT programs and the integration of recently acquired companies.
Segmental operating profit came in at $175 million, down 7.4% year over year while operating margin contracted 20 bps to 8.8%.
Missiles and Fire Control: Missiles and Fire Control segment’s quarterly sales grew 16.9% to $2 billion. The increase reflects higher net sales for various technical services programs, for air and missile defense programs as well as for Joint Air-to-Surface Standoff Missile.
Segmental operating profit, however, decreased 8.6% to $320 million and operating margin contracted 440 bps to 15.9% in the reported quarter.
Mission Systems and Training: Mission Systems and Training segment’s quarterly sales of $2.1 billion increased 11.5% from the prior year. The growth primarily reflects higher revenues in integrated warfare systems and sensors programs and the start-up of new programs.
Segmental operating profit increased by $2 million year over year to $215 million while operating margin shrunk 110 bps to 10.4%.
Space Systems: Space Systems’ segmental sales increased 18.8% year over year to $2.3 billion in the fourth quarter. The increase reflects higher sales for government satellite programs and for the Orion program.
Segmental operating profit increased marginally to $256 million from $255 million a year ago. Operating margin contracted 200 bps to 11% from 13% in the year-ago quarter.
Financial Condition
Cash and cash equivalents were $1.45 billion at end 2014 as compared to $2.62 billion at year-end 2013. Long-term debt rose slightly to $6.17 billion from $6.15 million at 2013 end.
During 2014, the company repurchased 11.5 million shares for $1.90 billion compared with $16.2 million shares repurchased for $1.8 billion a year ago. It also contributed $2 billion to its pension trust during 2014, compared with $2.25 billion during 2013.
Guidance
Lockheed Martin expects 2015 revenues between $43.5 billion and $45 billion with orders in the $43.5–$45 billion range. The company projects earnings of about $10.80−$11.10 per share for 2015.
Lockheed expects cash from operations of approximately $5 billion for the year.
Upcoming Peer Releases
General Dynamics Corp. (GD) is slated to report its fourth-quarter 2014 results on Jan 28, 2015, before the opening bell.
The Boeing Co. (BA) is slated to report its fourth-quarter 2014 results on Jan 28, 2015, before the opening bell.
Northrop Grumman Corp. (NOC) is slated to report its fourth-quarter 2014 results on Jan 29, 2015, before the opening bell.
Outlook
Considering that the U.S. military budget is increasingly under pressure, Lockheed Martin’s better-than-expected fourth quarter earnings are commendable. Also, the company continued to generate strong cash from operations while maintaining its cash deployment strategy.
Given the vital role played by satellites in the military space, Lockheed Martin is looking to bolster its satellite product coverage by increasingly investing in R&D and acquisitions.
However, the threat of sequestration still lurks over this defense major, negatively impacting the company’s backlog.
Lockheed Martin has a Zacks Rank #3 (Hold).
(We are reissuing this article to correct a mistake. The original article, issued earlier today, should no longer be relied upon.)
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