Lockheed Martin Reports Earnings: Should Investors Be Pleased or Worried?

F-35 Lightning ll. Photo: Lockheed Martin

Lockheed Martin (NYSE: LMT  ) reported its first-quarter 2014 earnings results on Tuesday. The good news is that net earnings increased 23% to $933 million, and Lockheed increased its total consolidated operating margin to 13.4%. The bad news is that Lockheed saw a 4% decrease in total net sales, as well as a slight decrease in operating margin for its aeronautics division -- by far the most profitable of Lockheed's five business segments. Here's what investors should watch going forward.

The F-35 and Lockheed's future
For the quarter ending March 30, the aeronautics unit reported net sales of almost $3.39 billion. The next highest business segment, information systems and global solutions, reported net sales of a little over $1.9 billion.

While Lockheed makes a number of planes, in 2013 the F-35 accounted for 16% of the company's total consolidated net sales. It looks like the fighter jet will continue this trend this year. In its first-quarter report, Lockheed said: "Aeronautics' net sales for the first quarter of 2014 increased $200 million, or 6 percent, compared to the same period in 2013. The increase was primarily attributable to higher net sales of about $190 million for F-35 production contracts due to increased volume." 

The problem with the F-35
At first glance, strong F-35 sales don't seem like a problem for Lockheed. However, investors should keep in mind that the F-35 is a much-maligned program, with significant cost overruns and delays. Additionally, Boeing (NYSE: BA  )  has criticized the F-35 for not being able to keep up with evolving threats across the electromagnetic spectrum, and for not being able to survive attack missions at the start of a war.

Lockheed dismissed the assertions, but that hasn't stopped Boeing's critique, which highlights doubts about the F-35 program's stability.

Additionally, as Reuters reported, Lockheed CFO Bruce Tanner on Tuesday told analysts that the F-35 program generates a narrow profit margin -- given the effect of the F-35 program on Lockheed's profit, this could negatively impact overall profit margins.

What to watch
Lockheed is a multibillion-dollar company that generates significant sales. But it has also seen a decrease in net sales across every sector except aeronautics. This trend is likely the result of defense spending cuts in the current budget environment, which investors should not ignore. That said, Lockheed is still in a healthy position, with an order backlog of $79.6 billion as of March 30, and almost $10.7 billion in total net sales for its first quarter. Consequently, while Lockheed's investors should continue to monitor certain segments -- the F-35 program is especially important -- the company overall is pretty stable. Moreover, if the F-35 generates more good news than bad, it will likely continue to positively affect Lockheed's profits.

Top dividend stocks for the next decade
The smartest investors know that dividend stocks, like Lockheed Martin, simply crush their non-dividend paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.


Read/Post Comments (1) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 24, 2014, at 12:26 PM, JERRYSTR wrote:

    Boeing's airplane that competed against the F-35 was dubbed the "pregnant guppy". It was ugly, had a hugh inlet and as the whole world knows, Lockheed invented and dominates stealth technolgy. Boeing is no technical position to critque the F-35. Time will prove out the F-35. Other countries are chomping at the bit to add it to thier airforces. They know it will move them a generation ahead of any power that threatens them.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2924791, ~/Articles/ArticleHandler.aspx, 8/31/2015 12:54:02 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Katie Spence

Katie Spence has been a financial journalist for The Fool since 2011. She specializes in defense companies, “green" technology, autos, and robots. Follow her on Twitter for breaking news in the defense, auto, and robot industry.

Today's Market

updated 2 days ago Sponsored by:
DOW 16,643.01 -11.76 -0.07%
S&P 500 1,988.87 1.21 0.06%
NASD 4,828.33 15.62 0.32%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

8/28/2015 4:02 PM
LMT $203.90 Down -0.03 -0.01%
Lockheed Martin Co… CAPS Rating: ****
BA $133.24 Up +1.37 +1.04%
The Boeing Company CAPS Rating: ****