Lockheed Martin Projects Higher Sales as War Boosts Orders

Lockheed Martin said it expects to resume growth this year, reversing its earlier prediction that sales would shrink despite the conflict in Ukraine and rising global military budgets. 

Sales and profit in the second quarter beat expectations among analysts polled by FactSet, and the company raised its full-year guidance for both. Other defense companies, including RTX, formerly known as Raytheon Technologies, and Northrop Grumman, report results next week.

How has Lockheed Martin’s financial outlook improved?

• The world’s largest defense company reported net profit of $1.68 billion for the three months ended June 30 compared with $309 million a year earlier, the latter weighed by a charge on a classified program.
• Sales rose 8% to $16.7 billion in the quarter, lifted by big orders for its F-35 combat jet and GMLRS and Himars missiles.
• Full-year sales are forecast to rise as high as $66.75 billion, up 1.5% at the midpoint from Lockheed’s prior guidance in April, which would top the $66 billion generated in 2022. 
• Lockheed shares gained 1.5% in morning trading.

How is Russia’s war in Ukraine driving sales?

• Lockheed Martin has benefited more than most peers from the Ukraine conflict, with more countries buying the F-35 and Patriot missile-defense system, as well as rockets and launchers. Its total outstanding orders are a record $158 billion.
• The order backlog at its missiles and fire control unit rose 24% during the quarter to $34 billion, though this will take months or even years to translate into sales. Operating profit fell 11% in the quarter on flat sales during the period.
• Falling profit margins indicate that defense contractors are still wrestling with supply chain problems and labor shortages, as well as the lingering impact of inflation.

What’s up with the F-35?

• The F-35 accounts for 30% of company sales and orders have been buoyant, but the program remains dogged by problems.
• The Pentagon has frozen accepting new F-35 deliveries until Lockheed Martin catches up installing and testing upgrades to the aircraft’s sensors and weapons systems.

What’s happening with the U.S. defense budget?

• Defense company shares are closely tied to defense budgets. The large bump in the Pentagon’s fiscal 2023 spending plan is starting to generate more sales, but Congress is unlikely to reach agreement on a 2024 budget before the end of the financial year on Sept. 30.
• The 2024 budget is expected to be flat compared with the previous year, with nondefense spending plans and the budget deficit constraining growth in future years.

Write to Doug Cameron at [email protected]