Company Update (NYSE:LMT): Lockheed Martin Corporation Reports Third Quarter 2015 Results


Lockheed Martin Corporation (NYSE:LMT) reported third quarter 2015 net sales of $11.5 billion, compared to $11.1 billion in the third quarter of 2014. Net earnings in the third quarter of 2015 were $865 million, or $2.77 per share, compared to $888 million, or $2.76 per share, in the third quarter of 2014. Cash from operations in the third quarter of 2015 was $1.5 billion, compared to $990 million in the third quarter of 2014.

“Our strong operating results this quarter are a reflection of our corporate-wide focus on program execution and delivery of value to customers and shareholders,” said Lockheed Martin Chairman, President and CEO Marillyn Hewson.  “As we look ahead to 2016, we will remain focused on performing with excellence and providing affordable and innovative solutions for our customers, while strategically positioning our business portfolio on the best path to long-term growth and value for the corporation.”

Summary Financial Results

The following table presents the Corporation’s summary financial results.

(in millions, except per share data)   Quarters Ended     Nine Months Ended    
      Sept. 27, 2015     Sept. 28, 2014     Sept. 27, 2015     Sept. 28, 2014    
  Net sales          $11,461       $11,114       $33,215       $33,070    
                                     
  Business segment operating profit     $1,369       $1,346       $4,075       $4,181    
  Unallocated items                                  
  FAS/CAS pension adjustment     119       84       358       255    
  Special item – severance charges1     (35)             (35)          
  Other, net     (99)       (38)       (243)       (186)    
  Total unallocated items     (15)       46       80       69    
  Consolidated operating profit     $1,354       $1,392       $4,155       $4,250    
                                     
  Net earnings     $865       $888       $2,672       $2,710    
                                     
  Diluted earnings per share     $2.77       $2.76       $8.45       $8.39    
                                     
  Cash from operations2     $1,517       $990       $3,737       $4,067
 

 

 

1  Severance charges for the third quarter of 2015 consist of amounts associated with the planned elimination of certain positions at the Corporation’s Information Systems & Global Solutions (IS&GS) business segment.  Severance charges for initiatives that are not significant are included in business segment operating profit.

2  The Corporation made no contributions to its defined benefit pension trust during the third quarter of 2015 compared to $485 million during the third quarter of 2014.  Additionally, the Corporation made net income tax payments of $670 million during the third quarter of 2015 compared to $451 million during the third quarter of 2014.

2015 Financial Outlook

The following table and other sections of this news release contain forward-looking statements, which are based on the Corporation’s current expectations. Actual results may differ materially from those projected. It is the Corporation’s practice not to incorporate adjustments into its financial outlook for proposed acquisitions, divestitures, ventures, changes in law and restructuring activities until such items have been consummated or enacted. Accordingly, the Corporation’s outlook for 2015 does not reflect any impact from the strategic review of the government IT infrastructure services and technical services businesses (strategic review) or its pending acquisition of Sikorsky Aircraft Corporation (Sikorsky).  For additional factors that may impact the Corporation’s actual results, refer to the “Forward-Looking Statements” section in this news release.

(in millions, except per share data)   Current Update   July Outlook
Orders   No Change   $43,500 – $45,000
Net sales          ~$45,000   $43,500 – $45,000
Business segment operating profit   ~$5,400   $5,225 – $5,375
   FAS/CAS pension adjustment   No Change   ~475
   Special Item – Severance      (35)  
   Other, net   ~(290)   ~(275)
Consolidated operating profit   ~$5,550   $5,425 – $5,575
Diluted earnings per share   ~$11.30   $11.00 – $11.30
Cash from operations   No Change   ≥ $5,000

The Corporation may determine to fund customer programs itself pending government appropriations and is doing so with increased frequency. If the Corporation incurs costs in excess of funds obligated on a contract, it may be at risk for reimbursement of the excess costs. In 2014, the Corporation received customer authorization and initial customer funding to begin production of C-130J aircraft to be procured under the Multiyear II contract. Similarly, in 2014 and 2015, the Corporation received customer authorization and initial funding to begin producing F-35 aircraft to be acquired under low-rate initial production (LRIP) 9 and 10 contracts, respectively. The Corporation continues to negotiate these contracts with its customer. Throughout the negotiations process the Corporation has incurred costs in excess of funds obligated and has provided notification to its customer that current funding is insufficient to cover the production process. Despite not yet receiving additional funding, the Corporation continued work in an effort to meet its customer’s desired aircraft delivery dates. As a result, as of Sept. 27, 2015, the Corporation has $2.4 billion in potential cost and termination liability exposure related to the C-130J Multiyear II and F-35 LRIP 9 and 10 contracts. The Corporation is currently negotiating final contract terms with its customer and expects to receive additional funding by the end of 2015. Depending on when the Corporation receives the additional funding, approximately $750 million of cash the Corporation expects to collect in 2015 may be delayed until 2016.

2016 Financial Trends

The Corporation expects its 2016 net sales will be comparable with 2015 and that total business segment operating margin will be in the 11.0 percent to 11.5 percent range. The Corporation also expects its 2016 cash from operations will be comparable with 2015. The Corporation’s preliminary outlook for 2016 does not reflect any impacts from the ongoing strategic review or its pending acquisition of Sikorsky.  The Corporation’s outlook for 2016 will be updated at the conclusion of its strategic review, and when the acquisition of Sikorsky closes. In addition, the preliminary outlook assumes the U.S. Government continues to support and fund the Corporation’s key programs, consistent with the continuing resolution funding measure through Dec. 11, 2015, and Congress approves budget legislation for government fiscal year (GFY) 2016 soon. Changes in circumstances may require the Corporation to revise its assumptions, which could materially change its current estimate of 2016 net sales, operating margin and cash flows.

The Corporation expects the 2016 FAS/CAS benefit to be approximately $810 million assuming a 4.25 percent discount rate at the end of 2015, a 25 basis points increase from 2014, and zero return on plan assets in 2015, among other assumptions. The Corporation does not expect to make contributions to its qualified defined benefit pension plans in 2016. A change of plus or minus 25 basis points to the assumed discount rate, with all other assumptions held constant, would result in an incremental increase or decrease of approximately $120 million to the estimated 2016 FAS/CAS pension adjustment. The Corporation will finalize the postretirement benefit plan assumptions and determine the 2015 actual return on plan assets on Dec. 31, 2015. The final assumptions and actual investment returns for 2015 may differ materially from those discussed above.

Cash Deployment Activities

The Corporation’s cash deployment activities in the third quarter of 2015 consisted of the following:

  • repurchasing 4.1 million shares for $823 million, compared to 2.6 million shares for $446 million in the third quarter of 2014;
  • paying cash dividends of $462 million, compared to $421 million in the third quarter of 2014;
  • making capital expenditures of $191 million, compared to $203 million in the third quarter of 2014; and
  • making no contributions to the Corporation’s pension trust, compared to $485 million during the third quarter of 2014.

On Sept. 24, 2015, the Corporation increased its share repurchase program by $3.0 billion. Inclusive of this increase, the total remaining authorization for future common share repurchases under the program was $4.3 billion as of Sept. 27, 2015. The Corporation anticipates at least $2.0 billion of share repurchases in 2016, which is consistent with the Corporation’s plan to reduce its total outstanding share count to below 300 million shares by the end of 2017, subject to market conditions and fiduciary obligations permitting.

On Sept. 24, 2015, the Corporation increased its quarterly dividend 10 percent, or $0.15 per share, to $1.65 per share beginning with the payment to be made on Dec. 24, 2015 to stockholders of record as of the close of business on Dec. 1, 2015.  (Original Source)

Shares of Lockheed Martin closed yesterday at $210.64. LMT has a 1-year high of $216.27 and a 1-year low of $166.28. The stock’s 50-day moving average is $206.72 and its 200-day moving average is $197.76.

On the ratings front, Lockheed Martin has been the subject of a number of recent research reports. In a report issued on October 12, J.P. Morgan analyst Seth Seifman downgraded LMT to Hold, with a price target of $230, which represents a potential upside of 9.2% from where the stock is currently trading. Separately, on September 28, Cowen’s Cai Rumohr reiterated a Hold rating on the stock and has a price target of $220.

According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Seth Seifman and Cai Rumohr have a total average return of -0.8% and 6.0% respectively. Seifman has a success rate of 50.0% and is ranked #2593 out of 3793 analysts, while Rumohr has a success rate of 65.6% and is ranked #1110.

The street is mostly Neutral on LMT stock. Out of 8 analysts who cover the stock, 6 suggest a Hold rating and 2 recommend to Buy the stock. The 12-month average price target assigned to the stock is $223.00, which represents a potential upside of 5.9% from where the stock is currently trading.

Lockheed Martin Corp is a security and aerospace company. The Company is engaged in the research, design, development, manufacture, integration and sustainment of advanced technology systems, products and services.