Lockheed sees contract cuts, delays hurting 2011

ATLANTA (Reuters) - Defense contractor Lockheed Martin Corp (LMT.N) posted a lower quarterly profit on Tuesday and said contract delays and cancellations in the tough environment for global defense spending could hurt 2011 results.

The maker of fighter jets also cut its 2010 full-year forecast, citing costs for executive buyouts and the loss of sales from a unit it is selling.

"The longterm growth prospects remain a challenge," said Peter Arment, an analyst with Gleacher & Co.

Lockheed, whose F-35 Joint Strike Fighter is the Pentagon's costliest program at a projected $382 billion, and its U.S. defense peers have been overshadowed by concern that earnings growth will be hard to come by as governments are pressured to contain deficits.

The U.S. Defense Department has been scrutinizing costs of Lockheed's F-35 jets as it steps up a drive to make weapons programs more affordable.

Underscoring the global risks, Britain unveiled sweeping defense cuts on Tuesday, and Lockheed said it expected that country to cut the number of Joint Strike Fighters it will buy below original plans. British officials said on Tuesday there had been no decision on how many of the jets would be ordered.

Morningstar analyst Anil Daka said the market has been pricing in low growth for defense companies, and added profit margins will likely come under pressure across the sector in the current belt-tightening environment.

Defense companies are all "trading at the high single-digits kind of P/E multiples," Daka said. "That tells you that even the market itself is not expecting any huge improvement in EPS over the near term."

Lockheed shares closed down 57 cents at $69.47 on Tuesday as other defense stocks weakened. The S&P Aerospace & Defense Index .GSPAERO slid 1.6 percent.

CONTRACT DELAYS SEEN

The world's largest defense company said contract delays and cancellations could result in flat operating income next year and a sales increase in the low-single-digit percentage range.

"There have been a number of delays in programs being awarded this year and seemingly could carry over into next year," Lockheed Chief Financial Officer Bruce Tanner said in an interview on Tuesday. He said that Lockheed had earlier projected 2011 sales growth at the mid-single-digit level.

For example, Tanner said an award in the Navy's Littoral Combat Ship competition that Lockheed is vying for had been expected earlier this year but now could come in November.

Lockheed also said that declining interest rates would likely raise pension expenses for next year.

For the third quarter, net earnings fell 28 percent to $571 million, or $1.57 a diluted share, from $797 million, or $2.07 a share, a year earlier.

Special items in the quarter included a 32-cents-a-share charge tied to executive buyouts under a voluntary program. Earnings from continuing operations came to $1.55 a share, compared with $1.53 a share expected by analysts, according to Thomson Reuters I/B/E/S.

Revenue rose 6 percent to $11.38 billion, compared with $11.59 billion expected by analysts.

Lockheed, which has clamped down on its own spending and put two business units up for sale this year, said it now expects per-share profit from continuing operations of $6.75 to $6.95 a share this year, compared with a prior forecast of $7.15 to $7.35 a share.

The company said the charge for the voluntary executive buyout program and the removal of results for the Enterprise Integration Group (EIG) that is being sold accounted for the 2010 forecast revision.

Last week, Lockheed said it would sell EIG, which advises government agencies on weapons platforms, to a private equity firm for $815 million.

Lockheed shares have fallen about 8 percent this year, underperforming the S&P Aerospace & Defense Index, which is up about 9 percent.

(Reporting by Karen Jacobs; editing by Derek Caney, Dave Zimmerman, Matthew Lewis and Andre Grenon)