Lockheed Martin Results Reflect Modest Impact From Pentagon Cuts
The nation's biggest military contractor today reported fourth-quarter and full-year results for 2012 indicating that Pentagon budget cuts have not yet begun to have a major impact on revenues and returns. Maryland-based Lockheed Martin said 2012 sales grew to $47.2 billion from $46.5 billion the previous year, while earnings from continuing operations were $2.75 billion ($8.36 per share) compared with $2.67 billion ($7.85 per share) in 2011. The company's backlog grew to a record $82.3 billion, potentially providing a cushion against further budget cuts scheduled to be implemented in March.
Because the outlook for sequestration pursuant to the Budget Control Act of 2011 is uncertain, company officials elected to exclude the possibility of across-the-board military cuts from their business forecast for the year ahead. The forecast projected a moderate decline in revenues for all of 2013 but a surge in E.P.S. to between $8.80 and $9.10 per share. This pattern is consistent with the early stages of past defense downturns, when business booked during periods of heavy demand continues to generate strong cashflow as costs moderate. Like its competitors in the defense sector, Lockheed Martin has moved aggressively to cut discretionary expenses for items like research, marketing and infrastructure in anticipation of softening military demand.
Lockheed Martin's results are markedly different from those reported by General Dynamics yesterday, reflecting the fact that incoming GD Chairman & CEO Phebe Novakovic elected to take charges against units that have encountered headwinds in their domestic and foreign business. In contrast, newly-minted Lockheed Martin CEO Marillyn Hewson has chosen an approach signaling continuity with the past in her own financial results. Taking the comments of both companies at face value, GD has moved to recognize weaknesses in its balance sheet that Lockheed Martin did not have.
Lockheed Martin also disclosed today that two of the five Executive Vice Presidents running its major business units will retire effective April 1. Joanne Maguire, head of Space Systems, will be succeeded by deputy Rick Ambrose, a 30-year veteran of the space business. Linda Gooden, head of Information Systems & Global Solutions, will be succeeded by corporate Chief Information Officer and cybersecurity expert Sondra Barbour. The outgoing executives positioned Lockheed Martin as the dominant player in government space and IT markets; promoting executives from within to succeed them is indicative of the deep "bench" of high-quality managers the company has in both market segments.