Lockheed Martin (LMT) reported better-than-expected second quarter earnings, bringing some good news to investors of the F-35 jet fighter. The company’s adjusted earnings per share stood at $6.75, a significant increase from the previous quarter’s $6.43, while sales went up to $16.7 billion from $15.1 billion. This positive outcome exceeded Wall Street’s projections for earnings per share of $6.45 from sales of $15.9 billion.
In addition to the impressive earnings, Lockheed Martin also achieved a record backlog of $158 billion, as orders surpassed revenue. Looking ahead, the company has raised its sales forecast for 2023 to approximately $66.5 billion, up from the previous estimate of $65.5 billion. The expected earnings per share for the same year have also been adjusted to approximately $27.10, compared to the previous figure of $26.75.
Upon the announcement of these results, Lockheed Martin’s stock rose by 1.3%. However, the S&P 500 and Dow Jones Industrial Average futures remained flat. While investors seem to be content with the figures, management will address any remaining questions about the F-35 in a scheduled meeting with investors at 11 a.m. Eastern time.
An analyst from Morgan Stanley, Kristine Liwag, highlighted a potential challenge for Lockheed Martin regarding the F-35 aircraft equipped with Technology Refresh 3 (TR-3) upgrades. She mentioned that the Pentagon has temporarily halted the acceptance of such aircraft until testing of their capability is completed. This delay could lead to a shortage of around 55 aircraft deliveries compared to the original target of 147 to 153, potentially resulting in a $440 million headwind to the company’s 2023 free cash flow.
Overall, Lockheed Martin’s second quarter results bring positive news for investors, highlighting the company’s strong performance and continued growth.
Lockheed’s Earnings and Cash Flow Unaffected by Delivery Slowdown
Lockheed Martin, the aerospace and defense company, has reported that the slowing of deliveries has no significant impact on its earnings. The company recognizes sales and profits as planes are built, meaning that delays in delivery do not directly affect its financial performance.
In terms of cash flow, Lockheed Martin expects to generate approximately $6.2 billion in free cash flow in 2023. The company has maintained its cash flow guidance unchanged in its second-quarter report. Wall Street analysts estimate a slightly higher figure of around $6.3 billion. According to CFO Jay Malave, any potential impact on cash flow resulting from F-35 delivery delays would only involve timing changes between 2023 and 2024. In other words, cash will continue to flow into the company.
During the first quarter of 2023, Lockheed Martin delivered five F-35 jets, a decrease compared to the 26 units delivered during the first quarter of 2022. However, deliveries rebounded in the second quarter, with a total of 45 units being delivered.
Although Lockheed Martin’s performance has been somewhat overshadowed by concerns related to the F-35 aircraft, the stock has held steady in 2023. By Tuesday trading, Lockheed shares had experienced a decline of approximately 3% year-to-date, while both the S&P and Dow had seen positive gains. On Monday, Lockheed’s stock price increased by 2%, reaching a closing price of $473.60.
Analyst Marife Liwag, who rates Lockheed shares as Hold, has set a price target of $532 per share. Approximately 31% of analysts covering Lockheed’s stock rate it as Buy, which is lower than the average Buy-rating ratio for stocks in the S&P 500 (about 55%). The average analyst price target for Lockheed Martin is approximately $505 per share.
