Lockheed Martin 2017 Guidance Falls Short -- 2nd Update
January 24 2017 - 5:55PM
Dow Jones News
By Doug Cameron
Lockheed Martin Corp. sought to reassure investors on Tuesday,
saying for the first time that its F-35 combat jets, its largest
program, would become more profitable despite pressure by President
Donald Trump to cut costs.
In December, then President-elect Trump started criticizing the
cost of the plane as "out of control." Since then, he has met with
Lockheed Chief Executive Marillyn Hewson twice, followed by the
world's largest defense company recommitting to cutting the F-35's
price.
This is being done through an existing cost-cutting plan and
producing more of the planes to generate economies of scale.
Ms. Hewson said she discussed with Mr. Trump the cost-cutting
plans and efforts to make the plane less expensive to operate, and
Lockheed hopes this year to secure contracts for two batches of the
jets.
Lockheed confirmed Tuesday that it expects the next group of
F-35s to cost less than $100 million each, matching a Pentagon
target that existed before Mr. Trump's criticism. Ms. Hewson said
on an investor call that Lockheed is close to a deal with the
Pentagon to sell 90 more planes, including the F-35A model being
used by the U.S. Air Force, at a price of less than $100
million.
Investors had been concerned that Mr. Trump's intervention would
hurt profits on the F-35 program and remained cautious in case the
company is forced into making additional cost cuts.
"It's not about slashing our profit," Ms. Hewson said on an
investor call of her F-35 discussions with Mr. Trump.
The company expects profit margins on the plane to continue
rising, by almost one percentage point this year compared with
2016, and catch up with those of its existing military jets such as
the F-16.
The F-35's cost has fallen with each deal, and the Pentagon last
year imposed a contract on Lockheed that priced each F-35A at $102
million. The Pentagon said it expects the price of the next batch
of the jets to fall 6% to 7% in the deal now being negotiated.
The Pentagon's goal is to cut the cost of the main version of
the plane to $85 million in inflation-adjusted dollars by 2019, a
target Ms. Hewson reiterated on Tuesday.
"For Lockheed to not concede anything new in the discussions on
the program may not be 'The Deal' that President Trump is hoping to
advertise," said Robert Stallard at Vertical Research in a client
note.
Lockheed on Tuesday reported forecast-beating fourth-quarter
earnings, though its initial 2017 profit guidance fell short of
expectations and caused shares to fall more than 3% on the New York
Stock Exchange. The share price recovered slightly as the day wore
on, closing down 1.8% at $252.91.
The company 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.
However, its profit guidance for 2017 included a
lower-than-expected pension tailwind, and the company also flagged
a potential accounting issue at its Sikorsky helicopter arm.
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.
Write to Doug Cameron at doug.cameron@wsj.com
(END) Dow Jones Newswires
January 24, 2017 17:40 ET (22:40 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
Lockheed Martin (NYSE:LMT)
Historical Stock Chart
From Apr 2024 to May 2024
Lockheed Martin (NYSE:LMT)
Historical Stock Chart
From May 2023 to May 2024