BETHESDA, Md. - For the first quarter of 2014, Lockheed Martin reported sales of $10.7 billion, down almost 4 percent from sales of $11.1 billion in the first quarter of 2013. Net income for the quarter rose 23 percent to $933 million from $761 million a year ago.
"The strong earnings and operating cash delivered in the first quarter are a result of our continued focus on program performance, affordability and meeting commitments to our customers," said Chairman, President and CEO Marillyn Hewson. "Our diverse portfolio of products and services, investment in future innovations and dedicated workforce give me confidence that we'll continue to deliver outstanding results for our customers and return value for our shareholders."
Backlog at the end of the quarter was $79.6 billion compared to $82.6 billion at year-end 2013.
By year-end 2013, Congress regained some sense and ameliorated some of the impact of sequestration. With the cuts not going so deep in the near term, defense firms across the United States breathed a sigh of relief.
Nonetheless, uncertainty remains and Lockheed Martin is continuing its current tack of resizing for the new economy. In late 2013, the company announced plans to cut its workforce by some 4,000 and close several facilities. Since 2008, the company has cut its workforce from 146,000 to 116,000.
In this recent round, the cuts are focused on the space, mission training and information systems operations. Hardest hit will be the company's space operations in Newtown, Pa., which will see its work transferred to Denver. Space operations which build satellites in California will also bear the brunt. Other facilities in Goodyear, Ariz., and Horizon City, Texas, as well as most of a facility in Akron, Ohio will be closed. It also will shutter part of its Sunnyvale, Calif., space campus.
While difficult, the moves are needed to position Lockheed Martin for the current downturn. As priorities shift at home, Lockheed Martin is looking abroad to maintain revenues. Company officials have said they would like to see the export business account for 20 percent of sales in the coming years as a counter to the sequestration cuts. International sales currently account for about 17 percent of revenue, and officials expect to easily hit the 20 percent mark soon.
INDUSTRY SEGMENTS
Aeronautics
Aeronautics' net sales for the first quarter of 2014 increased $200 million, or 6 percent, to $3.39 billion compared to $3.19 billion in the same period in 2013. The increase was primarily attributable to higher net sales of about $190 million for F-35 production contracts due to increased volume; approximately $170 million for the C-5 program due to increased aircraft deliveries (two aircraft delivered in the first quarter of 2014 compared to no deliveries during the same period in 2013); and about $30 million for the F-16 program due to increased sustainment activities and increased aircraft deliveries (four aircraft delivered in the first quarter of 2014 compared to three delivered during the same period in 2013), partially offset by aircraft configuration mix. The increases were partially offset by lower net sales of approximately $85 million for the C-130 program due to fewer aircraft deliveries (five aircraft delivered in the first quarter of 2014 compared to six delivered during the same period in 2013) and decreased sustainment activities; about $60 million for the F-35 development contract due to lower volume; and approximately $30 million for the F-22 program due to decreased volume and risk retirements.
Aeronautics' operating profit for the first quarter of 2014 increased $14 million, or 4 percent, to $393 million compared to $379 million in the same period in 2013. The increase was primarily attributable to higher operating profit of approximately $35 million for the C-130 program due to increased risk retirements, partially offset by fewer aircraft deliveries and decreased sustainment activities; and about $25 million for F-35 production contracts due to higher volume. Operating profit was comparable for the F-35 development contract. The increases were partially offset by lower operating profit of approximately $10 million for the F-16 program due to the resolution of a contractual matter during the first quarter of 2013; about $10 million for the F-22 program due to decreased risk retirements; and approximately $25 million for various other programs due to decreased volume. Operating profit for the C-5 program also was comparable as increased aircraft deliveries were substantially offset by a lower profit booking rate. Adjustments not related to volume, including net profit booking rate adjustments, were approximately $15 million lower for the first quarter of 2014 compared to the same period in 2013
Information Systems & Global Solutions
IS&GS' net sales for the first quarter of 2014 decreased $196 million, or 9 percent, to $1.91 billion compared to $2.11 billion in the same period in 2013. The decrease was primarily attributable to lower net sales of approximately $220 million due to the wind-down or completion of certain programs (primarily command and control programs); and about $115 million due to a decline in volume for various programs, which reflects lower funding levels and programs impacted by in-theater force reductions (such as the Persistent Threat Detection System program). The decreases were partially offset by higher net sales of about $140 million due to the start-up of new programs and growth in other recently awarded programs (primarily a U.S. Government IT program).
IS&GS' operating profit for the first quarter of 2014 decreased $15 million, or 8 percent, to $174 million compared to $189 million in the same period in 2013. The net decrease in the first quarter operating profit was primarily attributable to the activity described above. Adjustments not related to volume, including net profit booking rate adjustments, for the first quarter of 2014 were comparable to the same period in 2013.
Missiles and Fire Control
MFC's net sales for the first quarter of 2014 decreased $121 million, or 6 percent, to $1.87 billion compared to $1.99 billion in the same period in 2013. The decrease was primarily attributable to lower net sales of approximately $125 million for various technical services programs due to lower volume; about $30 million for air and missile defense programs (primarily fewer deliveries of Patriot Advanced Capability-3, partially offset by higher volume for Terminal High-Altitude Area Defense); and approximately $30 million for tactical missiles programs due to fewer deliveries (primarily Hellfire). These decreases were partially offset by higher net sales of about $50 million for fire control programs (primarily Apache, Sniper®, and LANTIRN®) due to increased deliveries.
MFC's operating profit for the first quarter of 2014 increased $14 million, or 4 percent, to $358 million compared to $344 million in the same period in 2013. The increase was primarily attributable to higher operating profit of approximately $25 million for tactical missile programs (primarily Hellfire) due to net increased risk retirements. Adjustments not related to volume, including net profit booking rate adjustments, were approximately $15 million higher for the first quarter of 2014 compared to the same period in 2013.
Mission Systems and Training
MST's net sales for the first quarter of 2014 decreased $202 million, or 11 percent, to $1.63 billion compared to $1.83 billion in the same period in 2013. The decrease was primarily attributable to lower net sales of about $115 million for various integrated warfare systems and sensors programs due to lower volume (primarily Aegis and Medium Extended Air Defense System (MEADS)); and approximately $100 million for undersea systems programs due to decreased volume.
MST's operating profit for the first quarter of 2014 increased $49 million, or 24 percent, to $250 million compared to $201 million in the same period in 2013. The increase was primarily attributable to higher operating profit of approximately $30 million due to increased risk retirements for radar surveillance systems and combat systems programs; about $30 million for reserves recorded in the first quarter of 2013 that were not repeated in the first quarter of 2014, including reserves for a supply chain management contract (Fleet Automotive Support Initiative) and undersea systems programs (primarily Common Broadband Advanced Sonar System); and about $25 million for various training and logistics services programs due to increased risk retirements. The increases were partially offset by lower operating profit of approximately $35 million for various programs (such as MEADS) due to lower risk retirements and volume. Adjustments not related to volume, including net profit booking rate adjustments, were approximately $40 million higher for the first quarter of 2014 compared to the same period in 2013.
Space Systems
Space Systems' net sales for the first quarter of 2014 decreased $101 million, or 5 percent, to $1.86 billion compared to $1.96 billion in the same period in 2013. The decrease was primarily attributable to lower volume of about $55 million for government satellite programs (primarily the Global Positioning System III (GPS-III) program) and approximately $50 million for the Orion program.
Space Systems' operating profit for the first quarter of 2014 increased $24 million, or 10 percent, to $254 million compared to $230 million in the same period in 2013. The increase was primarily attributable to higher operating profit of approximately $10 million for government satellite programs (primarily the Advanced Extremely High Frequency program due to increased risk retirements, partially offset by the GPS-III program due to lower volume and a lower profit booking rate); and about $15 million for higher equity earnings and other program activities. Adjustments not related to volume, including net profit booking rate adjustments, for the first quarter of 2014 were comparable to the same period in 2013.
Total equity earnings recognized by Space Systems (primarily ULA) represented approximately $70 million, or 28 percent, of this business segment's operating profit, in the first quarter of 2014 compared to approximately $65 million, or 28 percent, in the first quarter of 2013.
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