25 Jan 22. Another year and one impacted by Covid together with supply chain issues and yet, Lockheed Martin has once again managed to post better than expected FY21 revenue and earnings whilst at the same time, reiterating a positive outlook for FY22 sales and providing investors with raised earnings guidance of around $26.70 per share on anticipated revenue of $66bn.
Divisional performance set against analyst expectation may be summarised:
Missiles and Fire Control net sales $3.22 billion, +12% y/y, estimate $3.15 billion
Aeronautics net sales $7.13 billion, +6.2% y/y, estimate $7.12 billion
Rotary and Mission Systems net sales $4.46 billion, +5.9% y/y, estimate $4.41 billion
Space net sales $2.92 billion, -9.8% y/y, estimate $2.98 billion
EPS $7.47 vs. $6.38 y/y
Order Backlog $135.36 billion, -8% y/y
Operating profit $2.46 billion, +7.3% y/y, estimate $2.40 billion (range $2.32 billion to $2.49 billion)
Aeronautics operating profit $820 million, +13% y/y, estimate $810.1 million
Missiles and Fire Control operating profit $438 million, +17% y/y, estimate $434.9 million
Rotary and Mission Systems operating profit $448 million, +10% y/y, estimate $444.3 million
Space operating profit $308 million, -16% y/y, estimate $313.1 million
Given a year that was impacted by Covid-19 and other factors such as supply-chain shortage, there is little not to like in Lockheed Martin’s fourth quarter and FY21 results published yesterday.
Of particular note was the reported full year $9.221bn cash from operations – a $1bn plus improvement on those reported for the previous year. Operating profits were also ahead although in divisional terms, Aeronautics was slightly down, Military and Fire Controls and Rotary and Mission Systems both ahead of last year and Space relatively unchanged.
Net sales for the full year were $67bn against $65.3bn in the previous year. Basis FY21 EPS declined to $22.85 per share (FY2020 $24.40 per share) on an unchanged 16.4% tax rate.
In the statement accompanying the results Lockheed Martin Chairman and CEO James Taiclet said:
“We closed the year on a strong note with solid growth in fourth quarter sales, segment operating profit, and earnings per share, while cash exceeded our projections as we delivered on our customer commitments and drove strong execution” adding that
“We delivered significant value back to shareholders in 2021, including $7 billion in dividends and share repurchases, and our team continued to provide world-class support to our customers despite the ongoing challenges of the global pandemic”.
“Through our strong balance sheet, we continue to invest in the many emerging growth opportunities ahead – from new aircraft competitions around the world, to our classified portfolio, to solid demand for our signature programs, to emerging technologies like hypersonics. Looking ahead to 2022, we will remain fully dedicated to service to our customers and dynamic and disciplined capital allocation for the benefit of our shareholders.”
On net sales of up 2% to $482 million, Aeronautics operating profits decreased 2% to $44 million.
The company points to the decrease in operating profits of approximately $120 million being attributable to classified contracts and a $225 million loss recognized in the second quarter of 2021 for performance issues experienced on a classified program that was partially offset by higher risk retirements on other classified programs recognized in the second half of 2021 plus about $70 million for the F-35 program due to lower risk retirements and volume on development contracts and lower risk retirements on production contracts – these being partially offset by higher risk retirements and volume on sustainment contracts.
The company delivered 142 F-35 Joint Strike Fighters during the year – this being three more than it had originally planned.
Operating profit decreases were partially offset by an increase of approximately $90 million for the C-130 program due to higher risk retirements on sustainment contracts; and about $50 million for the F-16 program due to higher risk retirements on sustainment contracts and higher production volume. Adjustments not related to volume, including net profit booking rate adjustments, were $60 million lower in 2021 compared to 2020. Margins were little change on last year at 10.5%.
In Missiles and Fire Control FY21 operating profit increased $103 million – up 7% compared to FY20 on Sales up 4% to $436 million.
The increase (as per company statement) was primarily attributable to higher operating profit of approximately $65 million for integrated air and missile defense programs due to higher risk retirements and volume (primarily PAC-3); about $45 million for tactical and strike missile programs due to higher volume (primarily LRASM and JASSM) and higher risk retirements (primarily GMLRS); and approximately $20 million for sensors and global sustainment programs due to the reversal of a portion of previously recorded losses on the Warrior program in the second and third quarters of 2021 that will not recur as a result of the program being terminated, which was partially offset by lower volume (primarily SNIPER and Apache).
These increases were partially offset by charges of approximately $25 million due to performance issues on an energy program during the third quarter of 2021. Adjustments not related to volume, including net profit booking rate adjustments, were $85 million higher in 2021 compared to 2020. Margins rose to 14.1%.
Operating Profits from Rotary and Mission Systems rose 11% to $183 million on sales up 5% to $794 million – increases being attributable to higher operating profit of approximately $140 million for Sikorsky helicopter programs due to higher risk retirements (Black Hawk and CH-53K), higher production volume (Black Hawk and CRH), and lower charges on the CRH program in the first half of 2021; and about $10 million for TLS programs due to the delivery of an international pilot training system in the first quarter of 2021.
Operating profit for IWSS programs was comparable as lower risk retirements on the LCS program and lower volume on the TPQ-53 program were offset by higher volume on the CSC program and lower charges on a ground-based radar program. Adjustments not related to volume, including net profit booking rate adjustments, were $80 million higher in 2021 compared 2020. Margins Improved from 10.1% to 10.7% in FY20.
Space operating profits decreased by $15 million, or 1%, compared to 2020 on sales down 1% to $66 million. The decrease was primarily attributable to approximately $70 million of lower equity earnings from the company’s investment in ULA due to lower launch volume and launch vehicle mix; and about $20 million due to the renationalization of the AWE program.
Operating profit decreases were partially offset by an increase of about $35 million for strategic and missile defense programs due to higher volume (primarily hypersonic development programs); and approximately $25 million for national security space programs due to higher risk retirements (primarily SBIRS and classified programs) and higher volume (primarily Next Gen OPIR) that was partially offset by charges of about $80 million on a commercial ground solutions program. Operating profit was comparable for commercial civil space programs as higher risk retirements (primarily space transportation programs) were offset by lower volume (primarily Orion). Adjustments not related to volume, including net profit booking rate adjustments, were $100 million higher in 2021 compared to 2020. Margins remained generally static at 9.6%.
Perhaps the only negative note was a decision announced last evening by the US Federal Trade Commission to sue in order to block Lockheed Martin’s proposed $4.4bn purchase of rocket engine manufacturer Aerojet Rocketdyne Holdings over anti-trust concerns. Lockheed Martin CEO Jim Taiclet responded to this saying: “The company will review the FTS’s planned challenge” adding that “with the filing of the suit, we may elect to defend the lawsuit or terminate the merger agreement.” No further detail were provided by the FTC.
CHW (London – 26th January 2022)
Howard Wheeldon FRAeS
Wheeldon Strategic Advisory Ltd,
M: +44 7710 779785