Lockheed profit beats estimates on pension savings, F-35

Julie Johnsson (c) 2014, Bloomberg News. Lockheed Martin, the largest U.S. government contractor, reported third-quarter profit that beat analysts’ estimates on pension savings and higher production of its F-35 jet.

Net income rose 1.7 percent to $888 million, or $2.76 a share, in the three months ended Sept. 28, from $873 million, or $2.66, a year earlier, the Bethesda, Maryland-based company said in a statement Tuesday. That exceeded the $2.72 a share average analyst estimate, according to data compiled by Bloomberg.

Lockheed is increasingly reliant on the $398.6 billion F-35 program, the Pentagon’s most-expensive weapons system. The jets were temporarily grounded earlier this year after an engine fire on one plane. While the company’s sales have declined amid U.S. budget cuts, Lockheed’s shares have been buoyed on speculation that increased global tensions will improve the prospects for defense spending.

In 2015, sales will decline at “a low single digit rate from 2014 levels,” Lockheed said, with a total business segment operating margin of 11.5 percent to 12 percent. The preliminary outlook for next year is based on the U.S. government continuing to support and fund its key programs and approving proposed budget legislation, Lockheed said.

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Third-quarter sales decreased 2.1 percent to $11.1 billion, the company said, the ninth straight quarterly decline amid government budget cutbacks. Analysts had projected $11.27 billion.

Net sales in the company’s aeronautics unit, its largest, fell 2.4 percent to $3.54 billion from a year earlier on fewer C-130 transport plane deliveries — five in the quarter compared with eight in the same period of 2013. The drop in C-130 deliveries was countered by increased F-35 production volume which resulted in higher net sales of about $130 million.

Lockheed’s earnings also benefited from a $55 million reduction in pension costs resulting from the introduction of the Highway and Transportation Funding Act of 2014.

Shares in the defense company fell 0.4 percent to $175.53 at the close in New York Monday to give it a gain so far this year of 18 percent.

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For the full year, Lockheed projects earnings of about $11.15 per share on sales of about $45 billion. Its forecast for sales is toward the high end of the $44 billion to $45.5 billion range it gave in July while its earnings projection is at the top end of its previous guidance. Analysts on average estimate full-year earnings of $11.13 a share on sales of $44.8 billion.

Lockheed said it repurchased 2.6 million shares for $446 million during the third quarter, after halting stock buybacks during the second quarter as it assessed pension obligations.

The company, which approved a $2 billion increase to its share repurchase program last month, said it has $3.9 billion available for future stock repurchases. It forecasts spending at least $2 billion of that repurchasing its stock next year.

Lockheed also said it will generate about $3.8 billion in cash from operations this year, compared with an earlier projection of about $4.8 billion because of $1 billion of anticipated pension contributions in the current quarter.