July 24, 2012 / 1:22 PM / 6 years ago

Lockheed raises 2012 guidance as Q2 net tops view

WASHINGTON (Reuters) - Lockheed Martin Corp (LMT.N) posted better-than-expected second-quarter net profit and raised its full-year forecast, but said it still faces challenges ahead with $500 billion in additional U.S. defense spending cuts due to start next year.

A Danish delegation walks pass Lockheed Martin's F-35 Lightning II, at the Farnborough Airshow in southern England July 11, 2012. REUTERS/Luke MacGregor

Top U.S. weapons maker Lockheed Martin, which receives more than 80 percent of its revenue from the U.S. government, expects U.S. defense spending to fall by about $55 billion next year if the cuts — to be spread out over 10 years — move ahead.

Chief Executive Bob Stevens, who retires at the end of the year, said the company’s solid second-quarter results reflected ongoing efforts to reduce overhead costs, cut the workforce and consolidate facilities in the face of lingering uncertainty about U.S. defense spending levels.

He reiterated his repeated calls for Congress to avert the additional, across-the-board cuts in U.S. defense spending that are due to take effect January 2 under a so-called “sequestration” budget deal enacted by Congress last year.

He said the Pentagon and White House had provided very little insight into how the additional cuts — which would come on top of $487 billion in cuts already slated for the next decade — would be implemented. Lockheed estimated it might have to lay off 10,000 employees if the cuts took effect.

“We’ve petitioned Congress and the administration to find an alternative method ... to reduce costs and lower the debt, but if sequestration is going to occur, then we need more detailed information as to how to properly plan and execute our responsibilities,” Stevens said.

Lockheed, which builds F-35 and F-16 fighter jets, Aegis missiles and coastal warships, raised its forecast for operating profit in the full 2012 year to $4.025-$4.125 billion from $3.9-$4.0 billion, or by 20 cents a share to $7.90 to $8.10.

It affirmed its forecast of $45 billion to $46 billion in revenues and raised its forecast for cash from operations by $100 million to $3.9 billion. Analysts said the improved cash guidance bodes well for Lockheed’s future dividend payments, which are already higher than most other defense companies.

Rob Stallard, defense analyst with RBC Capital Markets, said Lockheed surpassed his forecasts for both earnings and revenues.

“Whilst we had expected a good result from Lockheed this quarter (as usual), we had not expected such a strong performance on all fronts,” Stallard said in an analyst note.

He said the revenue increase was “particularly notable in this tough defense environment, with continued progress on the margins,” but said Lockheed will probably have a tough time sustaining the 12.3 percent margins it was achieving now.

Lockheed said second-quarter net profit rose 5 percent to $781 million from $742 million a year earlier, thanks to strong results from its aeronautics, electronic systems and space systems businesses.

Lockheed said revenues and profits declined slightly in the information systems and global solutions business, largely due to the Pentagon’s cancellation of part of the Joint Tactical Radio System, and completion of a UK census program, it said.

Earnings from continuing operations gained 11.2 percent to $2.38 per share from $2.14 a year earlier. Net sales rose 3.3 percent to reach $11.9 billion in the quarter, up from $11.5 billion in the same quarter of 2011, the company said.

Analysts polled by Thomson Reuters I/B/E/S forecast second-quarter earnings per share of $1.91 and revenues of $11.29 billion.

Lockheed said cash from operations during the second quarter fell 5.5 percent to $845 million, after pension contributions of $607 million, from $894 million in the same quarter of 2011, when pension contributions amounted to $325 million.

Pension contributions in the first two quarters reached $1.1 billion, completing Lockheed’s required funding for the year.

The company paid shareholders $326 million in cash dividends in the second quarter and bought back 2.2 million shares for $186 million.

Sales were up more than 18 percent in the space division, buoyed by increased commercial satellite deliveries, as well as increased production volume on the Orion multi-purpose crew vehicle program for NASA.

Chief Financial Officer Bruce Tanner said results might be slightly less stellar in the second half.

He said a 10-week strike at the Fort Worth, Texas, plant and other sites prompted the company to shave $200 million off projected full-year sales for the aeronautics division.

Tanner said that included about $100 million in lower than expected revenues from the F-35 fighter program, and about $100 million from the F-16 fighter program, where three aircraft deliveries are now expected to slip into early 2013.

Christopher Kubasik, who takes over as chief executive in January, said the F-35 program was about 30 percent ahead of its flight test plan as of June.

Kubasik said the company is also “making progress” in its negotiations with the Pentagon to finalize a multibillion dollar contract for a fifth batch of production planes, talks that have been underway since December. “Each day we get closer, so I think we’re progressing,” Kubasik told reporters.

Reporting By Andrea Shalal-Esa; Editing by Matt Driskill and Sofina Mirza-Reid

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