Recessions are tough on business.
They're even tougher on employees.
But not at Lockheed Martin (NYSE: LMT ) . Lockheed's stock got perfectly pounded after earnings, thrown for a 6.5% loss (and down nearly another 3% yesterday) despite reporting:
- Third quarter sales growth of 5% over last year.
- An 8% improvement in earnings per share.
- An incredible 35% rise in operating cashflow.
- And even a modest amount of backlog growth (0.5% from last year's third quarter). Not enough to replace the firm's booked revenue, admittedly, but any growth at all counts as a success in the context of a Pentagon budget crunch.
Lockheed's bottom line crushed Wall Street's projections -- so why is the stock losing altitude?
No good deed goes unpunished
Two words: Profits and pensions. In recent years, we've seen traditional or cash balance corporate pension plans go the way of the dodo at hi-profile corporate names like Wells Fargo (NYSE: WFC ) , Motorola (NYSE: MOT ) , and FedEx (NYSE: FDX ) . Across America, companies have moved to freeze, slash contributions to, and even wash their hands entirely of their pension obligations. And as I wrote back in July, the mayhem isn't even close to being finished. According to Bank of America unit Merrill Lynch, dozens of America's industrial titans face pension funding shortfalls as this year's stock market collapse torpedoes pension fund returns, including Dow Chemical (NYSE: DOW ) , U.S. Steel (NYSE: X ) , and ExxonMobil (NYSE: XOM ) . It seems no one is safe.
But while others fret, Lockheed is doing something about the problem -- and getting punished for it. Part and parcel of the earnings warning that Lockheed issued is the company's plan to shore up its pension fund. Lockheed will inject $1 billion into its fund this year, and a further $1.4 billion in 2010. Combined, the twin injections will eat up quite a bit of Lockheed's yearly cash production.
Is it worth it?
That's the real question, Fools. Wall Street doesn't seem thrilled with the idea, but personally, if I were a Lockheed Martin employee, I'd be feeling pretty darn proud of my company today. As other corporates shirk or slash their pension obligations, Lockheed's paying up in full -- and I'd argue, making a wise investment in employee satisfaction.
When you consider that even after the market's rebound, stocks are trading for some 30% to their pre-Crash highs, an investment into the pension fund today isn't a bad time to patch a hole in Lockheed's pension shortfall. Personally, I'd rather have a company contribute now and have that money grow from these lessened levels.
It just might secure the fund's future while other companies with less courage only delay the inevitable shareholder pains. Then again, at the tail end of last year, Lockheed had arguably the largest pension headache of any American company, so maybe this is just the start of Lockheed's pension pain.