10-QPeriod: Q3 FY2016

LOCKHEED MARTIN CORP Quarterly Report for Q3 Ended Sep 25, 2016

Filed October 27, 2016For Securities:LMT

Summary

Lockheed Martin Corporation (LMT) reported strong financial performance for the third quarter and the first nine months of 2016. Net sales from continuing operations significantly increased year-over-year, driven by growth in the Aeronautics and Rotary and Mission Systems (RMS) segments. This growth was substantially bolstered by the acquisition of Sikorsky, which closed in late 2015 and is now fully reflected in the RMS segment's results. The divestiture of the Information Systems & Global Solutions (IS&GS) segment was completed in August 2016, and its results are now classified as discontinued operations, contributing a significant gain to net earnings for the period. Profitability also saw a considerable improvement, particularly due to the gain from the IS&GS divestiture and strong performance in the Space Systems segment, which included a gain from increased ownership in the AWE venture. Diluted earnings per share from continuing operations showed a healthy increase. The company continues to focus on cash generation and return of capital to shareholders, with a substantial remaining authorization for share repurchases and consistent dividend payments. Management expressed confidence in the company's outlook, citing program growth and strategic positioning.

Financial Highlights

45 data points
Beta

Revenue

$11.55B

12.0% Gross Margin

Net Income

$2.40B

20.7% Net Margin

EPS (Diluted)

$7.93

Total Assets

$48.74B

Cash & Equivalents

$2.90B

Free Cash Flow

$1.32B

Financial Statements
Beta
Revenue$11.55B
Cost of Revenue$10.17B
Gross Profit$1.38B
Operating Income$1.59B
Interest Expense$162.00M
Net Income$2.40B
EPS (Basic)$8.02
EPS (Diluted)$7.93
Shares Outstanding (Basic)298.50M
Shares Outstanding (Diluted)302.10M

Key Highlights

  • 1Total net sales increased by 14.9% to $11.55 billion for the third quarter of 2016 compared to $10.06 billion in the prior year period.
  • 2Net earnings saw a substantial jump to $2.40 billion ($7.93 per diluted share) in Q3 2016, compared to $0.87 billion ($2.77 per diluted share) in Q3 2015, largely driven by a significant gain from the divestiture of the IS&GS business segment.
  • 3The acquisition of Sikorsky, integrated into the Rotary and Mission Systems (RMS) segment, significantly boosted net sales, contributing approximately $1.2 billion in product sales for the quarter.
  • 4Operating profit from continuing operations increased by 33.2% to $1.59 billion in the third quarter of 2016, up from $1.19 billion in the prior year.
  • 5The company generated $4.46 billion in net cash from operating activities for the first nine months of 2016, an increase from $3.74 billion in the same period of 2015.
  • 6Lockheed Martin announced an increase in its share repurchase program by $2.0 billion, with a remaining authorization of $4.3 billion as of September 25, 2016.
  • 7The divestiture of the IS&GS business segment was completed on August 16, 2016, resulting in a net gain of approximately $1.2 billion, now classified under discontinued operations.

Frequently Asked Questions

The divestiture of the IS&GS business segment, completed on August 16, 2016, resulted in a significant net gain of approximately $1.2 billion. This gain is reflected in the net earnings from discontinued operations for the period. The operating results, assets, and liabilities of IS&GS are now classified separately as discontinued operations.

The acquisition of Sikorsky, completed in November 2015, has been integrated into the Rotary and Mission Systems (RMS) segment. For the third quarter of 2016, Sikorsky contributed significantly to RMS's net sales, driving a substantial year-over-year increase in that segment's revenue. While it contributed to segment profit, certain acquisition-related adjustments and amortization offset some of this impact.

Management projected that 2016 net sales were expected to increase in the low-double digit percentage range compared to 2015, driven by Sikorsky and growth in the F-35 program, partially offset by declines in the Missiles and Fire Control (MFC) segment. The company also anticipated 2017 net sales to increase by approximately 7%, primarily from Aeronautics and MFC, with RMS and Space Systems largely offsetting each other. The outlook assumes continued U.S. Government support for key programs.

Key risks include reliance on U.S. Government contracts and funding, potential budget constraints and sequestration, complexities and cost overruns in large development programs like the F-35, geopolitical and economic conditions, competition, supplier performance, and the successful integration of acquisitions like Sikorsky. The divestiture of IS&GS also presented risks related to realizing intended benefits and potential residual liabilities.