Lockheed Martin Shrugs off Sequestration, Shares Bump Up

Michael Teague  |

On March 1, 2013, Lockheed Martin (LMT), the world’s largest defense contractor, released a brief statement on its website regarding the automatic sequestration cuts that had been triggered by Washington’s inability and/or unwillingness to find some sort of compromise regarding the nation’s finances: “While our industry faces significant challenges, we remain confident that with our broad portfolio of products and technologies, a robust and durable strategy and the industry’s best team, we will continue to meet our customers’ evolving needs and generate value for our shareholders.”

On Tuesday, the Lockheed’s first quarter earnings report showed that while there was a slight 2 percent decrease in sales, the company’s net earnings were $761 million, or $2.33 per share on revenue of $11.1 billion, well ahead of the prior year period’s earnings of $668 million, or $2.03 per share on revenue of $11.3 billion.

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The company’s strategy has been so “robust and durable”, in fact, that the year-over-year increase included a $121 million pension adjustment that hampered net earnings by $75 million, as well as $30 million in costs resulting from “workforce reductions” in its information technology operations, the Information Systems & Global Solutions (IS&GS) wing that took a $19 million bite out of net earnings.

While some of these costs were offset by the reinstatement of a federal research and development tax credit of $46 million, the numbers still speak for themselves. Consensus estimates had Lockheed Martin earning just $2.04 per share on $10.3 billion in sales.

Since sequestration did not kick in until the end of Q1, it would be premature to say whether or not the cuts have affected the company. Lockheed itself noted in its report that “the Corporation’s customers have not yet informed it of specific decisions taken in response to sequestration except in some very limited circumstances.”

The company has lowered guidance for the rest of 2013 as a result, estimating that sequestration could cost it $825 million in sales. This still leaves the company within the low end of the $44.5 to $46 billion net sales outlook it announced back in January.

Furthermore, the company managed all this while pursuing an aggressive share buyback plan (5.1 million for $461 million), and an equally generous dividend payout of $371 million.

The news bumped the company’s stock up to an intraday high of $99.50, before pulling back to $96.63, a 0.8 percent gain on Monday’s close of $95.85.

[Image via Flickr]

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