Lockheed boosts 2015 forecast as aircraft margins improve

Lockheed Martin raised its annual profit forecast as improving margins for its aircraft unit, led by its marquee F-35 fighter jet, help ease pressure from U.S. defense-spending cuts.

The positive outlook from the largest defense contractor and first-quarter earnings that beat analysts’ estimates set the stage for peers. Boeing and Raytheon report later this week, followed by General Dynamics and Northrop Grumman on April 29.

Lockheed’s $391.1 billion F-35 program has come under scrutiny because it’s the Pentagon’s most expensive and has suffered some technological setbacks, while its development costs have squeezed profits.

The company has said it intends to deliver 40 to 45 of the advanced fighter jets this year though it’s late delivering fully-functioning software for the first F-35s due to be declared combat-ready. Smoothing production of the jet is crucial as deliveries fall for Lockheed’s higher-margin F-16 fighter and C-130J cargo transport, said Doug Rothacker, a defense analyst with Bloomberg Intelligence.

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Earnings will be $10.85 to $11.15 a share in 2015, up from the $10.80 to $11.10 range forecast in January, Lockheed said in a statement Tuesday. Bethesda, Maryland-based Lockheed reaffirmed its forecast for revenue of $43.5 billion to $45 billion.

The shares gained 2.2 percent so far this year through Monday, in line with the Standard & Poor’s 500 Index and ahead of Raytheon’s 0.6 percent decline. Boeing gained 17.5 percent this year.

Operating margins in the aeronautics unit rose to 11.8 percent in the first quarter from 11.6 percent a year earlier although Lockheed delivered one fewer F-16 fighter, its most profitable aircraft. The eight F-35 fighters delivered during the period were the same number as a year ago.

“That indicates to me that F-35 margins are picking up nicely to offset margin pressure from other aircraft,” Rothacker said in a phone interview after the results.

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First-quarter profit fell 5.9 percent to $878 million, or $2.74 a share, but exceeded the $2.50 average of 16 analysts’ estimates compiled by Bloomberg. Revenue of $10.1 billion was less than the $10.3 billion analysts expected.

Lockheed repurchased 3 million shares for $604 million, down from the 7 million shares it bought back for $1.1 billion a year earlier.