10-QPeriod: Q2 FY2013

LOCKHEED MARTIN CORP Quarterly Report for Q2 Ended Jun 30, 2013

Filed July 24, 2013For Securities:LMT

Summary

Lockheed Martin Corporation (LMT) reported its second-quarter 2013 financial results, showcasing a mixed performance driven by various segment dynamics and a challenging macroeconomic environment. Total net sales decreased year-over-year to $11.4 billion from $11.9 billion in the prior year's quarter, primarily impacted by lower product sales across several segments, though offset by modest growth in services. Despite the revenue dip, net earnings saw a notable increase to $859 million ($2.64 per diluted share) from $781 million ($2.38 per diluted share) in the same period last year. This improvement was supported by a lower effective tax rate, reduced interest expense, and favorable adjustments related to contract estimates. The company's strong operational cash flow generation remained a key strength, providing resources for significant share repurchases and dividend payments. However, investors should remain aware of the ongoing concerns surrounding U.S. government spending constraints, particularly sequestration, which poses a material risk to future revenue and operational stability.

Financial Highlights

44 data points
Beta

Revenue

$11.41B

10.7% Gross Margin

Net Income

$859.00M

7.5% Net Margin

EPS (Diluted)

$2.64

Total Assets

$38.95B

Cash & Equivalents

$2.85B

Free Cash Flow

$447.00M

Financial Statements
Beta
Revenue$11.41B
Cost of Revenue$10.18B
Gross Profit$1.22B
Operating Income$1.30B
Interest Expense$88.00M
Net Income$859.00M
EPS (Basic)$2.68
EPS (Diluted)$2.64
Shares Outstanding (Basic)320.80M
Shares Outstanding (Diluted)325.90M

Key Highlights

  • 1Net sales for the quarter ended June 30, 2013, decreased by 4.3% to $11.4 billion compared to $11.9 billion in the prior year's quarter.
  • 2Net earnings increased by 10.0% to $859 million, or $2.64 per diluted share, from $781 million, or $2.38 per diluted share, in the comparable prior-year period.
  • 3Operating profit increased to $1.30 billion from $1.19 billion, driven by favorable contract adjustments and operational efficiencies.
  • 4The Aeronautics segment experienced flat net sales, while Missiles and Fire Control saw a significant increase in net sales, up 11%.
  • 5Space Systems and Information Systems & Global Solutions (IS&GS) segments reported declines in net sales.
  • 6Cash provided by operating activities for the six months ended June 30, 2013, was strong at $2.7 billion, an increase from $1.3 billion in the prior year.
  • 7The company repurchased $926 million of its common stock during the first six months of 2013 and paid $742 million in dividends.

Frequently Asked Questions

The company explicitly states that sequestration could have significant negative impacts on its industry and operations, including program disruptions, supply chain impacts, contractual actions, potential facility closures, and personnel reductions. While minimal impacts were observed in the second quarter of 2013, significant program changes and reductions were expected as the DoD implemented the Fiscal Year 2013 budget reductions. Lockheed Martin anticipates that sequestration, or other future budgetary cuts, will have a material negative effect on the company, impacting future sales and potentially requiring restructuring charges.

Performance varied significantly across segments. Aeronautics' net sales were comparable year-over-year, but operating profit decreased. Missiles and Fire Control (MFC) showed strong growth in both net sales (up 11% for the quarter) and operating profit, driven by air and missile defense programs. Space Systems experienced a notable decline in net sales due to lower commercial satellite deliveries and the Orion program, impacting its operating profit. Information Systems & Global Solutions (IS&GS) also saw a decrease in net sales, primarily due to program completions and lower volume, while Mission Systems and Training (MST) reported lower net sales but a significant increase in operating profit due to contract cost settlements.

Lockheed Martin maintains a balanced cash deployment strategy focused on enhancing shareholder value and positioning for new business opportunities. This includes investing in the business (capital expenditures, R&D), returning cash through dividends and share repurchases, and making selective acquisitions. The company generated strong operating cash flows, which funded these activities, including significant share repurchases ($926 million in the first six months of 2013) and dividend payments ($742 million in the first six months of 2013). The company also has access to a $1.5 billion revolving credit facility for liquidity.

Lockheed Martin is involved in various legal proceedings, including environmental matters and contract disputes. The company believes the probability is remote that the outcome of these matters will have a material adverse effect on the Corporation as a whole, though unfavorable resolutions could impact net earnings in specific periods. Noteworthy are ongoing proceedings related to environmental violations at the Paducah Gaseous Diffusion Plant and a contract dispute with the New York Metropolitan Transportation Authority (MTA). The company also manages significant liabilities and receivables related to environmental remediation efforts.