Lockheed Martin Q2 Results Top View, To Buy Sikorsky Aircraft For $9 Bln

(RTTNews) - Defense contractor Lockheed Martin Corp. (LMT) reported Monday a profit for the second quarter that grew four percent from last year, despite lower operating margins, reflecting sales growth. Both earnings per share and quarterly revenues topped analysts' expectations. The company also raised its earnings guidance for full-year 2014, while maintaining annual revenue outlook.

Separately, Lockheed Martin agreed to buy the Sikorsky Aircraft business of United Technologies Corp. (UTX) for $9 billion in cash. However, the price is effectively reduced to about $7.1 billion, after taking into account a tax benefit of about $1.9 billion resulting from the deal.

"Sikorsky is a natural fit for Lockheed Martin and complements our broad portfolio of world-class aerospace and defense products and technologies. I'm confident this acquisition will help us extend our core business into the growing areas of helicopter production and sustainment," Chairman, President and CEO Marillyn Hewson said.

The deal, subject to customary conditions, including securing regulatory approvals, is expected to close by late fourth quarter 2015 or early first quarter 2016. The company expects to fund the deal with a combination of new debt issuances and available cash.

Once the acquisition is complete, Lockheed Martin plans to align Sikorsky under its mission systems and training business segment.

The deal will extend Lockheed Martin's status as the world's largest defense contractor and widen its lead over Boeing Co. (BA) in the U.S. Black Hawk helicopter maker Sikorsky is one of the world's largest helicopter makers with $7.5 billion in sales last year.

For United Technologies, the sale of Sikorsky will enable it to focus on divisions making jet engines, air conditioners and elevators. The net proceeds from the sale are expected to be used to fund additional share repurchase to offset the earnings impact related to the sale. Its board of directors has already authorized a share repurchase program for up to 75 million shares, which would be worth about $8.3 billion, based on the NYSE closing price of UTC shares on July 17.

Further, Lockheed Martin said it will conduct a strategic review of alternatives for its government IT and technical services businesses within its information systems & global solutions or IS&GS business segment and the technical services business within its missiles and fire control business segment. The move is focused on reshaping its portfolio for future growth.

The programs to be reviewed represent about $6 billion in estimated 2015 annual sales and more than 17,000 employees. The IS&GS programs that are not included in the strategic review are mostly focused on defense and intelligence customers and will be realigned into the company's other four business segments following completion of the strategic review, which is expected in 2015.

Meanwhile, the Bethesda, Maryland-based world's largest defense contractor by revenue, Lockheed Martin, reported net earnings of $929 million or $2.94 per share for the second quarter, higher than $889 million or $2.76 per share in the prior-year quarter.

On average, 18 analysts polled by Thomson Reuters expected the company to report earnings of $2.67 per share for the quarter. Analysts' estimates typically exclude special items.

Net sales in the quarter improved 3 percent to $11.64 billion from $11.31 billion in the same quarter last year, and topped fifteen Wall Street analysts' consensus estimate of $10.99 billion.

Barring IS&GS, as well as missiles and fire control, all other segments reported a sales growth in the latest quarter.

Net sales for aeronautics increased 7 percent to $4.13 billion from last year, while IS&GS net sales declined 2 percent year-over-year to $1.90 billion.

Missiles and fire control net sales decreased 6 percent to $1.78 billion from a year ago, while mission systems and training net sales grew 2 percent to $1.81 billion, and space systems net sales improved 10 percent to $2.03 billion from last year.

Total operating profit for the quarter edged up one percent to $1.45 billion from $1.43 billion in the year-ago quarter, while operating margins contracted 40 basis points to 12 percent from last year's 12.4 percent.

The company ended the quarter with a backlog of $72.80 billion, compared to $80.50 billion at December 31, 2014. Orders also declined to $7.50 billion from last year's $9.50 billion.

"Solid operational and program execution in the second quarter allowed us to increase our financial guidance for profit and earnings per share," Hewson added.

Looking ahead to full year 2015, the company raised its earnings guidance to a range of $11.00 to $11.30 per share from the prior estimate of $10.85 to $11.15 per share, while maintaining its revenue forecast between $43.50 billion and $45.00 billion.

Street is currently looking for full-year 2015 earnings of $11.23 per share on annual revenues of $44.55 billion.

In Monday's regular trading session, LMT is currently trading at $204.15, up $2.97 or 1.48% on a volume of 0.10 million shares. In the past 52-week period, the stock has been trading in a range of $161.06 to $207.06.