10-QPeriod: Q3 FY2018

LOCKHEED MARTIN CORP Quarterly Report for Q3 Ended Sep 30, 2018

Filed October 25, 2018For Securities:LMT

Summary

Lockheed Martin Corporation (LMT) reported strong financial results for the nine months and third quarter ended September 30, 2018, with notable increases in net sales and earnings compared to the prior year. Net sales grew significantly, driven by higher product and service sales across all segments, particularly Aeronautics and Missiles and Fire Control. This top-line growth translated into robust earnings, with diluted earnings per share showing a substantial increase year-over-year. The company also highlighted strategic financial management, including substantial pension contributions and ongoing share repurchase programs, underscoring a commitment to enhancing shareholder value while investing in future growth. The company continues to benefit from a strong U.S. government funding environment for defense programs, with a positive outlook for both 2018 and 2019. Despite ongoing program complexities and potential budget uncertainties, Lockheed Martin's diverse portfolio and strategic focus on critical national priorities position it well. Investors should note the adoption of new accounting standards (ASC 606 and ASU 2017-07) which have been retrospectively applied and impact revenue recognition and pension expense presentation, but the underlying operational performance remains strong.

Financial Highlights

44 data points
Beta

Revenue

$14.32B

13.4% Gross Margin

Net Income

$1.47B

10.3% Net Margin

EPS (Diluted)

$5.14

Total Assets

$45.49B

Cash & Equivalents

$897.00M

Free Cash Flow

$361.00M

Financial Statements
Beta
Revenue$14.32B
Cost of Revenue$12.40B
Gross Profit$1.92B
Operating Income$1.96B
Interest Expense$177.00M
Net Income$1.47B
EPS (Basic)$5.18
EPS (Diluted)$5.14
Shares Outstanding (Basic)284.30M
Shares Outstanding (Diluted)286.70M

Key Highlights

  • 1Net sales increased by 16% to $14.3 billion in the third quarter of 2018 and by 9% to $39.4 billion for the nine months ended September 30, 2018, compared to the prior year periods.
  • 2Diluted earnings per share rose to $5.14 for the third quarter and $13.21 for the nine months, up from $3.32 and $9.29 respectively in the comparable prior year periods.
  • 3Significant increases in sales were observed across all business segments, with Aeronautics, Missiles and Fire Control (MFC), Rotary and Mission Systems (RMS), and Space all showing year-over-year growth.
  • 4The company made substantial contributions to its defined benefit pension plans totaling $5.0 billion for the nine months ended September 30, 2018, impacting operating cash flow but demonstrating a commitment to managing long-term liabilities.
  • 5Shareholders received $2.00 per share in dividends in the third quarter and $6.00 per share for the nine months, with $826 million spent on share repurchases in the nine-month period.
  • 6The company reiterated its positive 2018 financial outlook and provided an optimistic preliminary outlook for 2019, expecting further net sales growth and improved operating margins.
  • 7Lockheed Martin adopted new accounting standards ASC 606 (Revenue from Contracts with Customers) and ASU 2017-07 (Compensation-Retirement Benefits), with adjustments applied retrospectively to all periods presented.

Frequently Asked Questions

Lockheed Martin adopted ASC 606, which changes revenue recognition for certain contracts, and ASU 2017-07, which affects the presentation of pension and other postretirement benefit plan expenses. These standards have been applied retrospectively to all periods presented in the filing, meaning prior year financial statements have been restated for comparability. While ASC 606 can accelerate revenue recognition for some contracts, the overall financial impact on total revenue and earnings for the periods presented is primarily an adjustment in timing and presentation rather than a fundamental shift in the company's performance.

Lockheed Martin made significant pension contributions, totaling $1.5 billion in the third quarter and $5.0 billion year-to-date for the nine months ended September 30, 2018. These contributions are intended to improve the funding status of its qualified defined benefit pension plans. The company expects these contributions to alleviate the need for material cash funding in 2019 and 2020. While these contributions impacted operating cash flow, they demonstrate proactive management of long-term liabilities.

The company views the U.S. Government funding environment favorably, noting the passage of the Department of Defense and Labor, Health and Human Services, and Education Appropriations Act, 2019, which increased defense spending. Lockheed Martin's outlook for 2019 remains positive, assuming continued government support for its key programs. While acknowledging potential budget uncertainties and the risk of future sequestration, the company believes its portfolio of products and services aligns with critical national priorities and is well-supported.

The company mentions ongoing challenges related to the F-35 program, including supplier performance, software development, life cycle operations costs, and the need for timely production funding. It also notes performance issues and cumulative losses on two commercial satellite programs in the Space segment and a turret upgrade program for the Warrior Capability Sustainment Program in the MFC segment. However, for these specific programs, the company generally does not anticipate additional material charges or impacts on its overall financial condition, though it continues to monitor them closely.