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Lockheed Martin Corporation Execs Spill the Beans on the F-35

Source: Lockheed Martin.

When Lockheed Martin (NYSE: LMT  ) reported its fourth-quarter and full-year 2013 earnings this morning, it disappointed investors pretty badly. The fact that the stock sank 4% in response to the earnings news alone should tell you that. But quarterly earnings aren't everything.

Lockheed Martin expects to be building, maintaining, upgrading -- and getting paid for -- F-35 Lightning II fighter jets for the next 60 years -- or 240 "quarters." Viewed from that perspective, you could argue that a single quarter's results are downright insignificant to the big picture. So, let's try to color that picture in a bit, move past the numbers, and focus instead on what Lockheed Martin had to say about the airplane that promises to be perhaps its biggest revenue generator... ever: the F-35.

The F-35 is unique
Lockheed Martin's F-35 is a really big deal. With projected sales in excess of $1 trillion on the jet, former Chairman of the Joint Chiefs Admiral Mike Mullen went so far as to say that it's probably the last manned fighter jet model America will ever build.

Already, Lockheed CEO Marillyn Hewson is able to boast that, thanks to Lockheed owning the F-35, "no one else has a fifth generation fighter and it's a unique capability" for Lockheed. CFO Bruce Tanner points out that because the F-35 is "through the developmental cycle," Lockheed doesn't have to spend as much on R&D to develop a new plane, while its rivals must: "Our portfolio is available now ... I think that's got us very uniquely positioned."

Lockheed Martin's F-35: Ready for takeoff. Source: Lockheed Martin.

The F-35 is a big part of Lockheed's business
Lockheed Martin delivered 35 F-35s to its customers in 2013, five more than in 2012. So the program is still very definitely in the "low-rate, initial production" phase of its rollout. Yet already, Hewson pointed out in yesterday's conference call, "the F-35 [is] a very significant element of our portfolio. It ... represents 16% of our revenue in 2013 and it's going to continue to grow."

Tanner projects that this year, "the F-35 program [alone will be] as large or larger than any of our other four business areas."

But the F-35 is not very profitable... yet
As important as the F-35 is to Lockheed's future, though, investors still need to keep a close eye on the bottom line. Pointing to the 6% decline in aeronautics revenues in 2013, Tanner noted that operating profit margins held more or less steady at 11.4% -- not because the company is building more F-35's, though, but in spite of it. In emphasizing Lockheed's "improved performance from multiple lines of business," Tanner noted that diversification was actually "helping to offset the dilutive effects of additional F-35 volume" (emphasis added).

Translation: So far, the more F-35s Lockheed builds for its customers, the less profit it's making. Over time, that could change, as production volumes go up, and production costs go down. For now, though, the F-35 sounds like a bit of a double-edged sword for Lockheed: Yes, It's a product everyone else would like to have, but Lockheed is able to sell. The trick now will be to earn more profits on the product.

The F-35 remains a work in progress. Source: Lockheed Martin.

Oh, and one more thing
Did I mention that Lockheed Martin pays its shareholders a 3.5% dividend yield? Mustn't forget that bit -- because over time, generous dividend-paying stocks like Lockheed Martin can make you rich. While they don't garner the notability of high-flying tech stocks, dividend-paying stocks are also less likely to crash and burn. And over the long term, the compounding effect of the quarterly payouts, as well as their growth, adds up faster than most investors imagine. With this in mind, our analysts sat down to identify the absolute best of the best when it comes to rock-solid dividend stocks, drawing up a list in this free report of nine that fit the bill. To discover the identities of these companies before the rest of the market catches on, you can download this valuable free report by simply clicking here now.

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Rich Smith

As a defense writer for The Motley Fool, I focus on defense and aerospace stocks. My job? Every day of the week, I'm monitoring the news, figuring out the winners and losers, and tracking down the promising companies for you to invest in. Follow me on Twitter or Facebook for the most important developments in defense & aerospace, and other great stories.

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8/31/2015 4:01 PM
LMT $201.18 Down -2.72 -1.33%
Lockheed Martin Co… CAPS Rating: ****