10-QPeriod: Q2 FY2017

LOCKHEED MARTIN CORP Quarterly Report for Q2 Ended Jun 25, 2017

Filed July 20, 2017For Securities:LMT

Summary

Lockheed Martin Corporation (LMT) reported strong top-line growth in the second quarter of 2017, with total net sales increasing by 10% year-over-year to $12.7 billion. This growth was primarily driven by higher product sales across its Aeronautics, Space Systems, and Rotary and Mission Systems segments, notably on the F-35 program and from the consolidation of AWE. Despite the robust sales increase, net earnings from continuing operations saw a slight decline, impacted by higher income tax expenses and specific program charges, particularly within the Rotary and Mission Systems segment related to the EADGE-T program and commercial satellite programs in Space Systems. Diluted earnings per share from continuing operations were $3.23, a modest increase from $2.93 in the prior year's quarter, benefiting from a reduced share count due to share repurchases. The company continues to execute its strategy of investing in the business while returning capital to shareholders through dividends and share repurchases.

Financial Highlights

43 data points
Beta

Revenue

$12.56B

13.2% Gross Margin

Net Income

$955.00M

7.6% Net Margin

EPS (Diluted)

$3.28

Total Assets

$48.71B

Cash & Equivalents

$2.45B

Free Cash Flow

$1.54B

Financial Statements
Beta
Revenue$12.56B
Cost of Revenue$10.91B
Gross Profit$1.66B
Operating Income$1.72B
Interest Expense$160.00M
Net Income$955.00M
EPS (Basic)$3.31
EPS (Diluted)$3.28
Shares Outstanding (Basic)288.50M
Shares Outstanding (Diluted)291.20M

Key Highlights

  • 1Total net sales increased by 10% to $12.7 billion in Q2 2017 compared to Q2 2016, driven by growth in Aeronautics, Space Systems, and Rotary and Mission Systems segments.
  • 2Product sales were a key driver of growth, increasing by 10% year-over-year, boosted by the F-35 program and the consolidation of AWE.
  • 3Net earnings from continuing operations were $942 million, a slight increase from $899 million in the prior year's quarter, with diluted EPS from continuing operations at $3.23.
  • 4Operating profit saw a significant increase of 8% to $1.5 billion, largely due to strong performance in Aeronautics and Rotary and Mission Systems, despite some headwinds in Space Systems.
  • 5The company returned $1.1 billion to shareholders in dividends and repurchased $1.0 billion in stock during the first six months of 2017.
  • 6A material weakness in internal control over financial reporting at Sikorsky Aircraft Corporation was identified, with remediation expected by the end of 2017.
  • 7The F-35 program continues to progress with significant deliveries and international assembly milestones, though subject to ongoing reviews and cost-cutting efforts.

Frequently Asked Questions

Sales growth was primarily driven by increased product sales in the Aeronautics segment, notably from the F-35 program due to higher production volume and sustainment activities. The Space Systems segment also saw growth, partly due to the consolidation of AWE, and the Rotary and Mission Systems segment benefited from adjustments related to the Sikorsky acquisition and higher volume in C4ISR programs.

Operating profit increased by 8% to $1.5 billion. However, net earnings from continuing operations saw a modest increase to $942 million, impacted by higher income tax expense. Specific charges, such as a $120 million charge related to the EADGE-T program in the RMS segment and performance issues in commercial satellite programs within Space Systems, also affected profitability.

The F-35 program continues to see progress with increasing production volumes and international assembly milestones. However, the program is subject to ongoing reviews by the U.S. Government, including cost reduction efforts. Key risks include supplier performance, software development, life-cycle operating costs, timely funding, testing outcomes, and operating challenges.

Lockheed Martin expects 2017 net sales to increase in the mid-single digit percentage range, driven by Aeronautics and increased volume at MFC and RMS, partially offset by Space Systems. Operating profit margin is expected to decline from 2016 levels due to program charges, higher volume on the F-35 program (which is dilutive to margin), contract mix, and lower equity earnings from AWE. The outlook assumes continued U.S. Government support and funding.