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Lockheed Martin Earnings — Seeking Alpha

This is an exclusive article I wrote for Seeking Alpha about Lockheed Martin’s latest quarterly earnings and the rest of 2012.

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Mid-tier Defense Contractors Report Poorer Results for Most Recent Quarter

The larger defense contractors all reported their most recent quarterly earnings a few weeks ago. Most maintained their profits or saw an increase although revenue did decline in some cases. They remained mainly positive for the year stating that they would meet or exceed their full year estimates indicating that despite all of the talks and plans of cuts there has not yet been a significant slowdown in U.S. defense spending.

This week two of the mid-tier defense contractors, Kratos (KTOS) and Alliant Techsystems (ATK), also reported for the third quarter and somewhat surprisingly they both saw worst performance with Kratos even suffering a loss.

Kratos Defense & Security Systems is a supplier of IT, safety and security, engineering and technical support for a variety of defense, FMS and civil customers. They saw a loss of about $7 million on sales of $211 million. This was a significant increase in sales from the previous year which saw only $120 million. The primary reason given for the swing to the negative was the completion of the acquisition of Integral Systems. Kratos has over the last few years been fairly aggressive in M&A to expand its business base and customers.

ATK which makes rocket motors, ammunition and explosives primarily saw a decline in revenue of of about $100 million and income fall $17 million. The company is exposed not only to cut backs at the Defense Department but also NASA. ATK is also suffering due to a decline in demand for civil ammunition.

ATK is also waiting on a new competition for one of its major contracts with the U.S. Army. The company had run the Radford, VA plant for the Army but lost a re-compete to BAE Systems (BAE:LSE) which they then protested. The Army decided to have a new contest due to ATK’s protest. That is a $200 million a year contract.

What these results illustrate is that the defense contracting industry is already adjusting to a different market. Results may be uneven for several quarters as this adjustment takes place. The companies that have not diversified or have a wide customer base will be the first to see changes in their revenues and earnings as decisions on individual programs or demand for some supplies begin to dry up. Both Kratos and ATK remain confident for the year but there is starting to be pressure on the sector.

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Are Raytheon’s Earnings a Trend or a Aberration?

Raytheon (RTN) released its most recent quarterly earnings statement last week and they showed a decline in year-to-year results. While sales were up slightly at $6.06 billion from $6.05 earnings were down fourteen percent. The company also adjusted its yearly projection down to $4.67 to $4.82 from $4.83 to $4.98. Perhaps a little more ominously backlog went down slightly as well.

The question of course is whether this report is a one time aberration or will it signal a trend that due to decreases in U.S. and Western defense spending the big defense contractors are finally going to see contraction in the market. In this quarter Raytheon is able to point to a charge related to a cancelled British homeland defense IT contract but a major contribution was Integrated Defense Systems decline of nine percent in net sales primarily related to an unidentified U.S. Navy program.

In 2010 adjusted earnings per share for the company were up fifteen percent at $5.58 a share. This was after the company made a discretionary payment to their pension plan of $750 million as. For the last quarter of that year net sales were almost $7 billion. The contrast to the first quarter of 2011 is quite stark.

The U.S. will have to begin reducing defense spending soon. The goal of deficit reduction and control of total spending means that the largest discretionary item will have to take some hits. The end of fighting in Iraq and probably return of some troops from Afghanistan will also reduce operating costs. The Defense Department will also begin turning away from systems used in this fighting to investing in new, advanced weapons to face a more conventional threat.

Raytheon because of its focus on missiles, radars and C4I systems should be able to exploit that market. It has stakes in missile defense through the PATRIOT and Navy programs as well as ship and tactical missile systems. It should maintain its share of the pie although how big a pie remains to be split up among contractors remains to be seen.

Photo from Nevada Tumbleweed’s flickr photostream.

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iRobot Reports First-Quarter Financial Results

BEDFORD, Mass.--(BUSINESS WIRE)--iRobot Corp. (NASDAQ: IRBT), a leader in delivering robotic technology-based solutions, today announced its financial results for the first quarter ended April 2, 2011. Revenue for the first quarter of 2011 increased 12 percent to $106.3 million, compared with $94.9 million for the same quarter one year ago. Net income in the first quarter of 2011 was $7.5 million, compared with $6.2 million in the first quarter of 2010. Quarterly earnings per share were $0.27, c

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Does Lockheed’s Results Portend the Defense Market?

Lockheed Martin (LMT) announced their most recent quarterly earnings and they didn’t paint a pretty picture. The concern is whether this was a one off bad report or does it portend the future for the large defense contractors now that Iraq and Afghanistan may wind down and budgetary pressures will reduce U.S. defense spending.

Compared to the same quarter in 2009 profits fell twenty-eight percent. Profits totaled $517 million compared to last year’s $797 million. Lockheed also reduced its estimates for the year by 40 cents and its projected sales by $600 million.

One of the effects dragging down the company’s results was a charge of almost thirty-two cents a share to cover the costs of buying out executives and other over head employees. This was done by the company in September as part of cost cutting moves to meet the Defense Department’s desires for lower overall costs by their contractors. 600 executives accepted the buy out. This is a one time charge but reflects the changing market Lockheed is facing.

Lockheed also is expecting short term reductions in revenue due to the decision to sell its consulting engineering division, Enterprise Integration Group (EIG). This was done in response to Pentagon concerns about Organizational Conflicts of Interest (OCI) between companies that support weapon testing and buying and also provide hardware to the military. Last year Northrop Grumman (NOC) did the same thing with its TASC group.

With Britain announcing major defense spending restructuring including retiring and delaying major programs the United State’s is expected to follow in the near term. These considerations led Lockheed to predict that their 2011 is looking fairly flat as well.

While cuts are expected the issue will be how fast they come. If there is a downturn hopefully it will be spread across several quarters allowing the defense industry to reduce steadily. If there are major cuts done rapidly the industry will be driven to reduce capabilities and jobs without allowing consolidation or M&A to happen.

There are already reports of contractors laying off workers due to decline in demands due to the withdrawal of U.S. troops from Iraq. In the Seventies and Nineties the U.S. military saw major reductions in money for not only new weapons but also that used to maintain and operate their existing equipment and train their personnel. The coming draw down must avoid similar situations.

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Tale of Two Companies: Lockheed and Boeing Face Similar Struggles

April 27, 2010 by · Comment
Filed under: BNET 

Boeing (BA) and Lockheed Martin (LMT) reported quarterly earnings last week. They companies felt the bite of the tax changes from the new health…

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Israel Buying Armored Trucks In The U.S.

Arotech Corporation of Michigan reported their recent quarterly earnings. The company still performed at a loss but compared to the same quarter last year saw strong improvement. The company almost halved its loss from $1.9 million to $1 million on revenues that were up almost $3.5 million.

One of the prime reasons for this growth in revenues was the sale of armored trucks, the David, to Israel. The company also makes simulators and armored plate for the military market as well as some commercial products. It’s subsidiary, MDT Armor Corp, makes the David in Alabama.

Israel like the U.S. and its allies in Afghanistan and Iraq faces a significant mine and Improvised Explosive Device (IED) threat. The provision of a armored truck makes sense as they must move supplies and troops by road along dangerous borders with the Gaza Strip or West Bank. The David is considered an “ultra light armored personnel carrier” that can defeat small arms and grenades as well as lighter IED attacks. The market for these kinds of vehicles is fairly significant as they can be used for internal security missions as well as light combat duty.

Unfortunately there are many parts of the world where military and police face these kind of threats from terrorist and insurgent groups. The David is one of several kinds of vehicles that would be useful in these kind of situations to move small groups of troops or supplies.

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