Lockheed Martin Q1 Earnings: Top Line Spurred On By Growth At Aeronautics And Space Systems

Lockheed Martin ( LMT ) reported a solid  beginning to the year. Earnings (excluding certain one time charges) beat the consensus by a sizeable margin, while revenues missed marginally. The top line was spurred on by positive growth at all segments. That said, the Aeronautics and Space Systems divisions were the real winners this quarter. Growth at Aeronautics was recorded at 8%, while Space Systems raked in a growth of 11%. The company benefited significantly by higher F-35 sales and the inclusion of AWE at Space Systems.

Going forward, Lockheed is confident that revenues in the year will come in around $49.5-$50.7 billion, higher than the earlier provided projection of $49.4-$50.6 billion. However, earnings are expected to come in lower than expected at $12.15-$12.45 on the back of the special charges recorded in the quarter.

Could See A Boost In International Sales

Over the next five years, the company projects 50% of all F-35 orders to come from international customers. This is primarily because Lockheed is seeing increased interest from countries outside the current program of record. Last year, it was revealed that the company was in talks with Spain, Belgium, and Switzerland about selling them the F-35. At present, the defense contractor is partnered with the U.K., Italy, the Netherlands, Japan, Turkey, Australia, and Israel, among others.

Additionally, North Korea’s recent missile tests have hastened the deployment of the company’s Terminal High Altitude Area Defense system to South Korea. The assembly was to begin later this year, however components began arriving in the country as early as March. Further, the company expects interest in THAAD from certain Middle Eastern countries as well.

Lockheed Martin is probably one of the few companies in the world that stands to benefit from global unrest. In this respect, the company expects a significant rise in international orders on the back of the current political climate.

Update On The F-35 Program

In November last year, the company had signed a $6.1 billion contract for the sale of 57 F-35 planes with the Pentagon. Lockheed started deliveries from the deal in Q1. Additionally, an $8.2 billion contract for the tenth batch, which includes the sale of 90 F-35s  occurred in February. That said, the deliveries from this deal aren’t expected to be made until early next year. Given the growing demand, the largest defense contractor in the world is planning to transition to full-rate production by 2019. Furthermore, the company expects to conclude a deal for the sale of additional F-35 jets to the Pentagon as early as Q3.

The company is also trying hard to push the costs of the F-35A, a more basic model of the jet that was ordered by the Air Force and most international partners, to under $80 million a plane by 2019 or 2020. Lockheed believes that this news is bound to boost demand significantly over the coming…

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