Lockheed Martin, the US government’s and the world’s largest military contractor, reported a drop in sales in the fourth quarter of 2013 to $11.5 billion, from $12.1 billion in the same quarter in 2012.
Net earnings from continuing operations in Q4 2013 declined to $488 billion ($1.50 per diluted share), compared to $569 million ($1.73 per diluted share) in Q4 2012.
Lockheed Martin Corp, which makes the F-35 fighter jets, warships and satellites, says earnings will be higher in 2014. The company added that charges related to US defense budget cuts and reductions in its workforce dented earnings in Q4 2013.
Cash from operations in Q4 2013 was $938 million compared to $1.3 billion in Q4 2012, after discretionary pension contributions of $750 million in 2013 and $2.5 billion in 2012.
Net earnings from continuing operations in Q4 2013 included special charges for a non-cash goodwill impairment charge of $195 million, which net of state tax benefits reduced earnings by $175 million ($0.54 per diluted share). Reductions in the workforce cost the company another $171 million ($111 million net of state taxes).
Lockheed Martin reported record profit margins
Chairman, President, and CEO of Lockheed Martin, Marillyn Hewson, said:
“Our employees delivered exceptional performance for our customers in 2013 resulting in record backlog, earnings, and profit margin as well as strong cash generation.”
“Looking ahead to 2014, we will continue our focus on improving operational efficiency, reducing our cost structure, investing in innovations to address our customers’ future challenges and returning value to our shareholders.”
In a press conference today, Bruce Tanner, Lockheed Martin’s Chief Financial Officer, said that 2014 will probably mark a ‘trough’ in US military spending. Recent budget agreements indicate that over the medium term defense spending will become more stable.
Tanner added that the effects of budget cuts ordered by Congress last year may affect 2014 revenues slightly. He forecasts slightly lower revenues for this year. However, he added that a recent congressional budget deal means that defense spending should gradually increase in the years to come.
Tanner said “We’re hopeful that 2014 is kind of the bottoming out if you just take a look at the recently signed budget agreement.”
Lockheed Martin focusing on foreign orders
Tanner said that international orders accounted for 17% of sales and 23% of orders last year. He forecasts an increase in foreign orders of a little under 20% for this year.
A growing number of analysts are wondering whether foreign sales will live up to expectations. The Canadian government recently cancelled an army vehicle program, while in the Middle East several deals are taking much longer to complete than expected.
According to the Telegraph, the UK’s Ministry of Defence is close to ordering 14 F-35 fighter jets in what the newspaper describes as “its first major tranche of orders.”
Britain is the only top-tier international partner in the $1.5 trillion F-35 fighter jet project, led by Lockheed Martin. Fifteen percent of each jet is built in the UK, supporting 25,000 local jobs.