Lockheed Martin Corp. (LMT:US), the biggest U.S. government contractor, raised its full-year forecast as third-quarter profit jumped 16 percent, defying Pentagon budget cuts.
The company’s profit from continuing operations climbed to $842 million, or $2.57 a share, from $727 million, or $2.21 a share, a year earlier, Lockheed said today in a statement. That exceeded the $2.27-a-share average estimate (LMT:US) of 20 analysts surveyed by Bloomberg. Sales declined (LMT:US) 4.4 percent to $11.35 billion.
Lockheed so far has weathered automatic federal spending cuts under a process known as sequestration. The Defense Department has protected large programs such as the company’s F-35 jet, the military’s costliest weapons system. The contractor also has reduced costs, most recently by firing 600 workers last week.
“We can size our company for the environment that we work in,” Bruce Tanner, chief financial officer of Bethesda, Maryland-based Lockheed, told reporters during a conference call today.
Lockheed rose 2.9 percent to $128.88 at 12:45 p.m. in New York. Even amid the defense cuts, investors have sent Lockheed’s shares (LMT:US) up 36 percent this year through yesterday, exceeding the 22 percent gain in the Standard & Poor’s 500 Index. (SPX)
Lockheed was among the first of the top federal contractors to announce third-quarter results.
United Technologies Corp. (UTX:US), the No. 6 U.S. government vendor, said today that defense spending cuts contributed to the company’s reduced full-year sales forecast. The Hartford, Connecticut-based company predicted annual sales of about $63 billion, down from an earlier $64 billion forecast. Net income rose 1.2 percent to $1.43 billion in the quarter.
While Marillyn Hewson, Lockheed’s chief executive officer, referred in the statement to “the uncertainty surrounding our industry,” the company raised its financial outlook for the second consecutive quarter.
Lockheed today projected full-year earnings (LMT:US) per share of $9.40 to $9.70, an increase from $9.20 to $9.50 estimated in July. It forecast sales for the year of about $45 billion, compared with $44.5 billion to $46 billion estimated in July.
The forecast reflected sequestration and the impact of the 16-day partial government shutdown that began Oct. 1. The automatic cuts and the shutdown will slice revenue for the year by about $450 million, compared with an estimate of $825 million in April, Tanner said.
Sequestration accounted for almost all the expected reductions in sales, he said. The shutdown had minimal effects on revenue -- about $15 million to $20 million a week, Tanner said.
Earlier this month, Lockheed furloughed 2,400 employees, most of them tied to nondefense programs, during the shutdown. The workers were sent home because government sites were closed or the company received an order from agencies to stop work.
Looking further ahead, the company said it expects sales in 2014 “will decline slightly from 2013 levels and that business segment operation margin will remain above 11.5 percent.”
Lockheed said it had a backlog of $78.7 billion at the end of the quarter, compared with $75.1 billion at the end of the second quarter. The company also is expanding its international sales, Hewson said on a conference call with investors and analysts.
“Our international work is expected to grow and help mitigate domestic pressures in 2014,” Hewson said.
The Defense Department must cut about $50 billion from its planned spending in the year that began Oct. 1 under sequestration.
The company has been largely sheltered from those cuts since they began in March as Pentagon officials locked in contracts for systems they deemed a high priority, including the F-35 aircraft.
While third-quarter sales and operating profit declined in the company’s largest unit, aeronautics, F-35 production contracts provided gains in the segment.
Of Lockheed’s five segments (LMT:US), Missiles and Fire Control was the only one with both higher sales and operating profit. The unit’s sales rose 2.7 percent to $2 billion in the quarter, with boosts from air and missile defense programs.
The 600 jobs cut last week came from the company’s Mission Systems and Training unit, where sales fell 8.8 percent to $1.7 billion in the quarter from a year earlier.
Discontinued operations in the third quarter generated $31 million, which the company described as a “benefit resulting from the resolution of certain tax matters related to a business previously sold.”
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