F-35 Joint Strike Fighter Beginning to Power Lockheed’s Earnings
As the first quarter results for the various large defense contractors role in their have already been some surprises. Raytheon (RTN) failed to meet expectations and suffered a decline in earnings and revenue compared to last year and had to adjust its guidance downwards. Lockheed Martin (LMT) on the other hand reported a good quarter.
Earnings came in at $1.55 a share well above analysts’ predictions of $1.51 and increased 17 cents from last year. This has led the defense giant to raise its guidance twenty-five cents to $6.95 to up to $7.25 in earnings per share on steady sales figure of the $46 billion range.
There are concerns that the defense industry as a whole will begin to see declining revenues and earnings as pressure builds to reduce spending not only in the United States but also in Europe. This means that the contractors will be fighting among themselves for a smaller total amount of money reducing the chance of broad growth in this sector. So far this has translated to results like Raytheon’s where the United Kingdom cancelled a program and the U.S Navy reduced spending on another which affected the company’s performance as a whole. If there are large scale reductions in such spending then more of these effects will be realized.
Lockheed despite the good quarter did have some issues within their different sectors. Two of their four groups, Information Systems and Global Solutions and Space Systems, did see decreases in sales. These were offset by growth at Electronic Systems and most importantly Aeronautics.
Electronics produces radars and missile systems and the U.S.’s continued investment in missile defense including programs like the Army’s PATRIOT PAC-3 which Lockheed make’s the missile for led to some of the growth. The group also made money off of a logistical support contract.
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