Lockheed's Profits Rise, Boosted By IT

By Stephen Manning
Associated Press

Bethesda defense contractor Lockheed Martin said Tuesday that third-quarter earnings rose 2 percent as the company recorded strong sales in its information technology business, along with a one-time gain from the sale of a rocket launch business.

Lockheed, which makes F-35 fighter jets, raised its 2008 outlook, but its guidance for next year came in well below Wall Street expectations. Company shares fell $3.02, or nearly 3.25 percent, in electronic pre-market trading.

The company said third-quarter earnings totaled $782 million, or $1.92 per share, compared with $766 million, or $1.80 per share, in the same quarter last year. The latest quarter included a gain of $44 million from the sale of the rocket launch business.

Overall revenue dropped about 4.5 percent to $10.58 billion, down from $11.1 billion in the same quarter a year ago. Leading the decline was Lockheed's aeronautics division, which makes fighter jets and other military planes. Sales fell 13 percent to $2.9 billion, the effect of a planned company shift from making older F-16 fighter planes to the new F-35 jet.

Lockheed's unit that makes information technology systems was the only of its four business divisions to post a sales gain, rising 9 percent to $2.95 billion.

Bruce Tanner, the company's chief financial officer, said in an interview that despite the lower sales, Lockheed was able to increase profit margins in all but the aeronautics division. He attributed it to "rock solid operating performance" that helped the company post higher quarterly earnings despite the lower sales figures.

"Operationally, we couldn't ask for much better results," he said.

The company also raised its outlook for the year by 10 cents per share to between $7.55 to $7.70 per share on sales in a range of $41.9 billion to $42.9 billion. The increase is based largely on an expected pick up in sales of the F-35.

But its 2009 forecast of $7.65 to $7.90 per share in earnings came in short of the $8.39 consensus forecast of analysts.

Tanner said the company will face a significant headwind next year for pension expense. This year, adjustments for pensions are expected to lead to a $125 million benefit to income, while in 2009 it will be a $60 million income drag. The $185 million swing between the two years totals about 30 cents per share in earnings, he said.

The lower results are due to the recent volatility in the financial markets, which has hurt the pension plans of many defense contractors.

By Dan Beyers  |  October 21, 2008; 9:56 AM ET  | Category:  Economy Watch , Lockheed
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