July 25, 2012
Credit: Credit: Lockheed Martin
Lockheed Martin, the largest defense contractor in the world, posted a better-than-expected second-quarter net profit and raised its full-year forecast, sending its shares higher even as the company remains concerned about the threat of further U.S. defense spending cuts.
Chief Executive Bob Stevens, who retires at the end of the year, said this morning the company’s solid second-quarter results reflected ongoing efforts to reduce overhead costs, cut the workforce and consolidate facilities in the face of lingering uncertainty about U.S. defense spending levels.
Rob Stallard, defense analyst with RBC Capital Markets, said the top weapons maker surpassed his forecasts for both earnings and revenues. “Whilst we had expected a good result from Lockheed this quarter (as usual), we had not expected such a strong performance on all fronts,” Stallard said in a note for clients.
Shares of Lockheed rose 0.5 percent to $87.39 in afternoon trading, defying broad stock losses that saw most major share indexes lose more than 1%.
There are $500 billion in additional U.S. defense spending cuts over 10 years that are due to start next year unless Congress can agree on alternative spending cuts or new revenues. Lockheed Martin, which receives more than 80 percent of its revenue from the U.S. government, and other industry providers expect U.S. defense spending to fall by about $55 billion next year if the cuts move ahead.
Stevens reiterated his call for Congress to avert the additional, automatic, across-the-board cuts in U.S. defense spending that are due to take effect Jan. 2 under a so-called “sequestration” part of the budget deal enacted by Congress a year ago during a political crisis about raising the country’s self-imposed debt level. He said the Pentagon and White House had provided very little insight into how the additional cuts -- which would come on top of $487 billion in cuts already slated for the next decade -- would be implemented. Lockheed estimated it might have to lay off 10,000 employees if the cuts took effect.
“We’ve petitioned Congress and the administration to find an alternative method ... to reduce costs and lower the debt, but if sequestration is going to occur, then we need more detailed information as to how to properly plan and execute our responsibilities,” Stevens told reporters on a teleconference. Stevens later told analysts on an earnings call that the cuts could result in “significant shocks” to the defense industrial supply chain, and might put some small or minority-owned businesses out of business.
RAISING OUTLOOK FOR FULL 2012 YEAR