LMT Lockheed Martin Corp

By Doug Cameron and Ezequiel Minaya 

Lockheed Martin Corp. on Tuesday reported forecast-beating fourth-quarter earnings, though its initial 2017 profit guidance fell short of expectations and triggered a drop in the company's shares.

The world's largest defense company by revenue said annual sales could surpass $50 billion for the first time in 2017 and the free cash that has powered its big stock buyback program is also set to rise, alongside margins at the aerospace unit that makes the F-35 combat jet.

The profitability of the F-35 remains the major concern for investors following criticism of its cost by President Donald Trump , triggering a commitment by Lockheed and its partners to continue trimming the price of the planes.

Lockheed's initial 2017 profit guidance included a lower-than-expected pension tailwind, and the company also flagged a potential accounting issue at its Sikorsky helicopter arm.

"Lockheed has exceeded its initial EPS guidance by 6% over the past three years, and this below-consensus initial outlook could be interpreted as its usual conservatism," said Matthew McConnell at RBC Capital Markets.

Its shares were down 2.6% at $250.80 in early trade, erasing most of its year-to-date gain. Other defense stocks such as F-35 partner Northrop Grumman Corp, also declined.

Lockheed didn't discuss the F-35 dust-up with the new president in its earnings' release, though the issue was expected to dominate its coming investor call. The company showed the planned fall in F-35 prices in an investor presentation.

The company expects earnings per share of between $12.25 and $12.55 for 2017, below the $12.87 consensus among analysts surveyed by Thomson Reuters. Revenue is expected to be between $49.4 billion and $50.6 billion as it boosts F-35 production.

For the December quarter, Lockheed reported a profit of $988 million, or $3.35 a share, up from $933 million, or $3.01 a share, a year earlier. Revenue climbed 19% to $13.75 billion.

Analysts surveyed by Thomson Reuters expected earnings of $3.05 a share on $13.03 billion in revenue.

Sales at the aeronautics business -- its biggest segment -- rose 23% to $5.41 billion on higher F-35 sales. Meanwhile, revenue in its mission systems segment surged 36% thanks to the addition of Sikorsky, which it bought in 2015.

Write to Doug Cameron at doug.cameron@wsj.com and Ezequiel Minaya at ezequiel.minaya@wsj.com

(END) Dow Jones Newswires

January 24, 2017 10:35 ET (15:35 GMT)

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