Lockheed Martin Corp.’s second-quarter earnings leapt 56 percent as the defense contractor best-known for its fighter jets showed Tuesday how it has adapted to change along with the military it supplies.
The nation’s largest defense contractor has pushed to build up its government information-technology business and electronic-systems unit, which makes products like surveillance systems and missiles. Higher sales spurred by recent investments in this segment helped offset a dip in fighter jet sales.
Bethesda, Md.-based Lockheed also raised its full-year earnings outlook above Wall Street’s expectations.
Lockheed reported second-quarter earnings of $461 million, or $1.02 per share, up from $296 million, or 66 cents per share, in the year-earlier period. Sales rose 6 percent to $9.3 billion from $8.8 billion.
Analysts surveyed by Thomson Financial expected Lockheed would earn 83 cents per share in the quarter on sales of $9.12 billion.
The results were helped by a $27 million gain related to its investment in satellite-network operator Inmarsat, which bolstered earnings by 6 cents per share.
Sales in the systems and IT group rose 17 percent to $4.79 billion in the quarter. Combined, Lockheed’s IT and systems units account for more than half of the company’s sales.
“They should definitely be looked at as a broad-based defense firm in every area,” said Paul Nisbet, an analyst with JSA Research.
The company now helps the U.S. Postal Service sort mail, builds missiles and ships, and is constructing a new helicopter for the president.
Lockheed Chief Financial Officer Christopher Kubasik said the company will look to expand its systems IT business soon through acquisitions. Lockheed has spent about $1.5 billion on buying companies in the past few years.
There aren’t any specific deals planned, he said, but the company expects to spend from $3 billion to $4 billion on purchases in the short term.
“We will continue to focus on acquisition in those areas,” he said.
Lockheed’s core business has traditionally been fighter jets and planes. The company is building two new jets for the military, the F/A-22 and the F-35 Joint Strike Fighter. But waning appetites for big, expensive contracts have made some Lockheed programs vulnerable. For example, the Pentagon has recommended deep cuts for the F/A-22 to save money.
In the second quarter, aeronautics revenue dropped 8 percent to $2.9 billion, a decline the company attributed to lower sales of F-16 jets. However, the segment’s profit rose to $245 million from $239 million on earnings from an increase in C-130J transport plane deliveries.
Kubasik said the decline was expected because the aging F-16 is gradually being phased out and Lockheed’s newer planes aren’t yet being produced in large numbers.
“That trend will continue for the full year,” he said of the lower sales. “There is no surprise from my perspective.”
For the first six months of 2005, Lockheed reported earnings of $830 million, or $1.85 per share, up from $587 million, or $1.31 per share, in the first half of 2004. First-half revenue stood at $17.8 billion.
Lockheed forecast full-year earnings of $3.60 to $3.75 per share, on sales between $36.5 billion to $38 billion.
Analysts’ full-year estimate is $3.54 per share on revenue of $37.51 billion. In April, Lockheed had forecast 2005 earnings of $3.35 to $3.55 per share, on sales ranging from $36.5 billion to $38 billion.
