Lockheed Martin Hit By Middle East Charges--Update
26 April 2017 - 3:43AM
Dow Jones News
By Doug Cameron
Lockheed Martin Corp. said Tuesday it booked almost $200 million
in charges on two Middle East contracts in a move that highlights
the potential pitfalls of the overseas deals that have been driving
growth for U.S. defense contractors.
The world's largest defense company by sales took charges on a
new missile-defense system being developed for the United Arab
Emirates and an Abu Dhabi-based aircraft maintenance joint venture,
ending a multi-quarter run of forecast-beating earnings.
Lockheed generated 27% of its revenue from overseas deals last
year and aims to raise this toward 30%, with prospective sales
including F-16 fighter jets for Bahrain and India.
Overseas defense budgets have generally been growing faster than
Pentagon spending, especially in the Middle East and Asia, and
investors have recently grown more cautious about the upward
trajectory of domestic outlays under President Donald Trump.
Marillyn Hewson, Lockheed's chief executive, acknowledged the
dent to the company's first quarter earnings from the $184 million
in Middle East charges, but said she remained optimistic both
ventures could still trigger future sales growth.
The company knocked a dime off its per-share earnings forecast
for the year, though also boosted its outlook for sales and cash
flow.
Crucially, Lockheed still expects profit margins on its F-35
combat jet to continue rising, even as it pursues an effort to cut
the cost of the most popular model to $80 million over the next
several years.
President Trump criticized the F-35's cost last year, though
efforts to cut the price through productivity measures have trimmed
it to about $95 million apiece.
Lockheed has accepted a contract for one batch of the jets
imposed by the Pentagon last year, and after closing a second deal
in February, aims to reach agreement on a third batch by the third
quarter.
The F-35 is central to Lockheed's growth plans, and a follow-on
multiyear deal for 440 jets could be worth more than $30 billion,
one of the largest-ever defense sales.
Lockheed shares dipped following the earnings report, having
reached an all-time high on Monday.
The company now expects earnings of $12.15 to $12.45 a share
this year on $49.5 billion to $50.7 billion in sales.
For the quarter to March 31 it reported earnings of $763
million, or $2.61 a share a share, down from $898 million, or $2.91
a share, a year earlier. Revenue rose 6.6% to $11.1 million.
Boeing Co., General Dynamics Corp. and Northrop Grumman Corp.
all report earnings Wednesday, with Raytheon Co. -- the most
exposed to export markets -- following on Thursday.
--Imani Moise contributed to this article.
Write to Doug Cameron at doug.cameron@wsj.com
(END) Dow Jones Newswires
April 25, 2017 13:28 ET (17:28 GMT)
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