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Why Is Lockheed (LMT) Down 4.7% Since Last Earnings Report?

Zacks Equity Research
·5-min read

A month has gone by since the last earnings report for Lockheed Martin (LMT). Shares have lost about 4.7% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Lockheed due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Lockheed Martin Q1 Earnings & Sales Beat Estimates

Lockheed Martin reported first-quarter 2020 earnings of $6.08 per share, which surpassed the Zacks Consensus Estimate of $5.76 by 5.5%. The bottom line also improved 1.5% from the year-ago quarter’s $5.99. This year-over-year upside can be attributed to higher sales.

Operational Highlights

In the reported quarter, net sales amounted to $15,651 million, which outshined the Zacks Consensus Estimate of $15,227 million by 2.8%. The reported figure also increased 9.2% from $14,336 million a year ago. Except for the company’s Rotary and Missions Systems unit, all segments registered year-over-year growth in sales.

Backlog

Lockheed Martin ended the first quarter (on Mar 29, 2020) with $144.1 billion in backlog, up 0.1% from $144 billion at the end of 2019. Of this, the Aeronautics segment accounted for $52.9 billion, while Rotary and Mission Systems contributed $37.5 billion. Also, $26.7 billion came from Space Systems and $27.1 billion from the Missiles and Fire Control segment.

Segmental Performance

Aeronautics: Sales increased 14.1% year over year to $6.37 billion, primarily driven by higher net sales from the F-35 programs. Also, higher sales from classified development activities owing to increased volumes contributed to sales growth at this unit.

The segment’s operating profit improved 14.9% year over year to $672 million, whereas the operating margin expanded 10 basis points (bps) to 10.6%.

Missiles and Fire Control: Quarterly sales improved 11.4% year over year to $2.62 billion owing to higher sales from tactical and strike missile programs as well as integrated air and missile defense programs.

The segment’s operating profit declined 5% year over year to $396 million, whereas operating margin contracted 260 bps to 15.1%.

Rotary and Mission Systems: Quarterly sales of $3.75 billion declined 0.4% from the prior-year quarter on account of lower sales for Sikorsky helicopter programs, which include combat rescue helicopter and Black Hawk production programs.

The segment’s operating profit declined 0.8% year over year to $376 million, while operating margin contracted 10 bps to 10%.

Space Systems: Sales rose 10.5% year over year to about $2.92 billion in the first quarter. The uptick was driven by higher net sales for strategic and missile defense programs, and increased volumes from government satellite programs.

The segment’s operating profit declined 15.9% to $281 million, while its operating margin contracted 310 bps to 9.6% in the reported quarter.

Financial Condition

Lockheed Martin’s cash and cash equivalents totaled $1.99 billion as of Mar 29, 2020, compared with $1.51 million at the end of 2019. Long-term debt summed $11.44 billion, slightly higher than the prior-year-end level of $11.40 billion.

Cash from operations at the end of first-quarter 2020 amounted to $2.3 billion compared with $1.7 billion a year ago.

During the reported quarter, the company repurchased 1.7 million shares for $756 million compared with the buyback of one million shares for $281 million in the year-ago quarter.

Lockheed Martin paid out dividends worth $693 million to its shareholders in the first quarter compared with the year-ago quarter’s figure of $638 million.

Guidance

For 2020, Lockheed Martin has updated its financial guidance. The company currently expects to generate revenues of $62.25-$64 billion compared with $62.75-$64.25 billion projected earlier. The Zacks Consensus Estimate for full-year revenues, pegged at $63.78 billion, lies toward the higher end of the company’s updated guidance.

Earnings per share are anticipated to be in the $23.65-$23.95 range for 2020. The Zacks Consensus Estimate for the company’s full-year earnings, pegged at $24.12, lies below the company’s guidance.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

VGM Scores

At this time, Lockheed has a strong Growth Score of A, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Lockheed has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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