), 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.