Fighters, missiles push Lockheed Martin sales to new heights

After years of production delays and cost overruns, the F-35 program has stabilized in recent years.

The Washington Post

Lockheed Martin, the world’s largest defense contractor, reported record annual sales of $51 billion Monday, up from $47.2 billion a year earlier, as the Bethesda, Maryland, company saw growth in all four of its major business divisions.

In a call with analysts, Lockheed Martin chief executive Marillyn Hewson said much of the growth was driven by sales of its F-35 Joint Strike Fighter, which is ramping up production. The firm’s profits were helped along by sales of the Terminal High Altitude Air Defense and PAC-3 missile defense systems, which have received increased international interest amid an escalating nuclear stand-off with North Korea. And the company also benefited from a GOP-sponsored tax reform bill that slashed corporate tax rates, allowing the company to fund its pension requirements through 2021.

Lockheed’s stock price improved throughout 2017 amid a broader market rally that lifted defense stocks even as the U.S. Defense Department’s spending levels were changed little in President Donald Trump’s first year. Lockheed’s stock price jumped 1.7 percent in afternoon trading Monday after news of the company’s financial results.

After years of production delays and cost overruns, the F-35 program, the most expensive weapons system in the history of the Defense Department, has stabilized in recent years, the company and the Pentagon have said.

In 2017, Lockheed delivered 66 of the stealthy jets to U.S. and international customers, a 40 percent increase from the previous year. This year, it is preparing to deliver 90, as the program builds up to reach its full rate of production, said Bruce Tanner, Lockheed’s chief financial officer.

“I think the message everyone is trying to send when you’re delivering 90 aircraft … that’s a pretty big production rate,” he said, noting that the company should hit 150 aircraft annually within a few years.

Sales in Lockheed Martin’s missiles and fire control grew by 9 percent. The company received a $900 million order for PAC-3 MSE missiles from the U.S. and allied countries last year. Sales were also boosted by the Japanese government’s decision to install two Lockheed-Martin-made Aegis Ashore missile batteries, a ground-based system designed to defend against nuclear ballistic missile attacks.

Lockheed Martin also got a boost from the recent GOP-sponsored tax bill, which slashed the firm’s effective corporate tax rate by about 10 percent, Tanner said. The company expects to save another $500 million in 2018 as a result of the tax legislation.

Hewson said the company is using its savings under the reform package to contribute $5 billion toward satisfying the company’s pension requirements over the next three years. Pension requirements have been a challenge for government contractors in recent years, as a flood of longtime employees retire amid a strong stock market.

For the quarter, Lockheed Martin reported sales of $15.1 billion, up from $13.7 billion for the same period a year ago. The company posted a quarterly loss of $642 million, or $2.25 a share, compared to a $988 profit, or $3.35 a share, a year earlier. The loss was largely attributed to a one-time $1.9 billion noncash charge resulting from the estimated impacts of the coming tax changes, Lockheed said. For the year, the company said profits topped $2 billion, or $6.89 a share, down from $5.3 billion, or $17.49 a year earlier.

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