STEADY AS SHE GOES! U.S. MAJORS RAISE PROFIT FORECASTS
LOCKHEED MARTIN AND BOEING RAISE EARNINGS GUIDANCE WHILE THEY FUNNEL MORE CASH BACK TO SAHREHOLDERS
By Howard Wheeldon, FRAeS, Wheeldon Strategic Advisory Ltd.
22 Jul 14. Q2 results from two giants of the US aerospace and defence industry earlier this week – Lockheed Martin and Boeing – confirm that while both have specific problems to resolve both are in the best of financial health as they move forward on different strategic agendas.
Lockheed Martin
Not for the first time this year Lockheed Martin has pleased investors with better than expected performance and by raising full year earnings guidance, this time to $11.15 per share. Based on relatively flat full year revenue expectation the continuing improvement in bottom line performance from the Bethesda, Maryland based company in Q2 comes primarily on the back of raised efficiency, strong cash flow and continuation of a long running share buy-back campaign. In many past years I have drawn attention to LM’s strong cash flow and how this would in my view hold the company in good stead in the years to come.
Once again we can see how cash flow has impacted on the latest set of results and long may that continue. That apart, given the variety of issues impacting on how western governments choose to spend on future defence capability that Lockheed Martin continues to defy earnings gravity is in part a reflection on the very strong management the company clearly has together with an excellent strategy of growing international business presence. Neither should we ignore in this context the massive potential of a likely 3,000 plus F-35 military aircraft programme build that together with maintenance, repair and overhaul will be spread over the next thirty or more years.
With all eyes on what is clearly a serious problem currently affecting the F-35 Joint Strike Fighter programme development following an engine fire that led to a temporary grounding of the 100 plus jets already built LM’s Chief Financial Officer, Bruce Tanner was quoted Tuesday saying “I don’t believe that we’re quite at the root cause [of the problem] yet, but we’re getting close”. As a reassurance such words went down well with investors, partners, buyers and component suppliers but as a complicated military aircraft development programme little more than 60% complete we do need to accept that problem such as the one that led to the current investigation process should not be perceived as being that unusual. That the Pentagon itself does not apparently believe there is a systematic design problem with the Pratt and Whitney built F-35 engine is also reassuring although I guess that sceptics may be entitled to resurrect the view that the Pentagon decision not to go ahead with the originally proposed alternative second engine development by Rolls-Royce/GE engine on affordability reasons was a mistake.
The bottom line is that in my experience if there is the will and determination to succeed all engineering and technology related problems are resolvable. This one is no exception and I am in no doubt that the combined efforts of Lockheed Martin and Pratt & Whitney will get to the bottom of the F-35 engine related issue even if we have to accept the inevitability that in getting there this could cause a further delay in overall programme delivery.
The growing international presence and status of Lockheed Martin internationally and particularly the fast growing base of operations here in Britain that have been built over the past fifteen years has been one that has been very interesting to observe. The relationship between Lockheed Martin and the UK is now writ large in stone and through a mix of diverse engineering based acquisitions, LM UK has grown into a formidable operating unit that provides a mix of systems integration and mission systems for fighting vehicles plus a range of other engineering based and logistical operations and ser