Lockheed Martin beats the Street

The celebration, however, may be short-lived as massive defense spending cuts loom.

By Jonathan Berr Jul 24, 2012 12:33PM
Lockheed Martin (LMT), the world's largest defense contractor, reported better-than-expected quarterly results Tuesday as the U.S. Congress tries to avoid historic cuts to the Pentagon's budget. The company also raised its earnings forecast.

Profit from continuing operations at the Bethesda, Md., company rose 5% to $781 million, or $2.38 per share, versus $748 million, or $2.16 per share, in the year-ago period, fueled by gains in the company's aeronautics, electronic systems and space systems businesses. Sales rose to $11.92 billion. Wall Street analysts expected Lockheed Martin to earn $1.91 on revenue of $11.29 billion.

The company benefited from increased deliveries of the F-16, along with the settlement of a strike by the International Association of Machinists and Aerospace Workers. Other positives in the quarter included higher profits from defense electronics contracts and increases in commercial satellite deliveries. The company expects 2012 profit of $7.90 to $8.10, up from an April forecast of $7.70 to $7.90. Lockheed maintained its revenue outlook of $45 billion to $46 billion. Analysts expected profit of $7.89 on revenue of $45.9 billion.

Shares of Lockheed, which have gained 7.4% this year, are trading up slightly in early afternoon trading Tuesday. The celebration, however, may be short-lived. Defense contractors are raising the alarm bells about the so-called fiscal cliff, which includes some $500 billion in reductions to the Pentagon budget set to begin January 2. CEO Robert Stevens recently told the U.S. Congress that the company was slowing hiring in case lawmakers are unable to reach an agreement to avoid the massive reductions.

Congress' track record on the issue is not inspiring. Lawmakers instituted these decade-long cuts after efforts to craft a bipartisan agreement to curb the national debt failed. These across-the-board cuts were meant to be like a nuclear deterrent, an option so awful that the two parties would have no choice but to work together to avoid such a fate. Unfortunately, Washington is more dysfunctional than it has been in decades. The two parties are playing fiscal chicken in a presidential election year. Both sides are waiting for the other to blink and -- at least so far -- no one is  budging.

Even if the fiscal cliff is avoided, which it probably will be, Lockheed has a tough road ahead. The next president will likely push for steep defense spending cuts. The federal budget deficit has topped $1 trillion for four straight years. About the only thing that the two parties agree upon is that the problem needs to be addressed. Until that day comes, however, investors should avoid Lockheed's shares.

Jonathan Berr does not own shares of the listed stocks. Follow him on Twitter@jdberr.
Tags: LMT


Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.


StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

123 rated 1
262 rated 2
480 rated 3
651 rated 4
649 rated 5
629 rated 6
616 rated 7
496 rated 8
346 rated 9
111 rated 10

Top Picks

TAT&T Inc9



Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.