Lockheed may revise 2014 outlook if U.S. budget deal passes

WASHINGTON Mon Dec 16, 2013 7:29pm EST

1 of 3. Newly elected Lockheed Chairman Marillyn Hewson comments during an interview with Reuters in Washington, December 16, 2013.

Credit: Reuters/Stelios Varias

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WASHINGTON (Reuters) - U.S. weapons maker Lockheed Martin Corp (LMT.N) may revise upward its financial outlook for 2014 if Congress passes a two-year budget deal that would blunt the effect of mandatory budget cuts, Marillyn Hewson, the company's president and chief executive officer, told Reuters on Monday.

Hewson said she hoped the U.S. Senate would approve the agreement, which was passed by the House of Representatives last week, and was optimistic that further cuts required under sequestration could be eliminated as the U.S. economy improved.

"We had factored sequestration in, so now that we have more input ... assuming that the budget gets approved, we'll have an opportunity to revisit what our outlook is," said Hewson, who will also assume the job of chairman of the company's board on January 1, a year after she became CEO.

Lockheed, the Pentagon's No. 1 supplier, has said that the budget cuts will knock about $400 million to $450 million from full-year revenues in 2013, and is currently forecasting a further slight decline in sales in 2014. Hewson said any revision in the company's guidance would come during the company's next earnings call in January.

The Senate this week is expected to approve the budget deal that passed the House 332-94 on Thursday. The measure would roughly halve $52 billion in automatic spending cuts facing the Pentagon in fiscal 2014, while providing additional relief from mandatory reductions in projected spending in 2015.

"I'm very encouraged by the budget deal," said Hewson. "It gives a lot more stability to us as an industry. It's certainly not everything that everybody wanted, but a very important compromise that moved things forward."

Lockheed, which builds everything from fighter jets to satellites and coastal warships, is aggressively pursuing sales in other countries and adjacent markets to offset the drop in U.S. military spending after a decade of sharp growth.

Hewson said Lockheed expected international sales to grow to 20 percent or more of total revenues over the next few years from around 17 percent now. She said international sales would grow in absolute terms from $8 billion in 2012, not just as a percentage of sales.

Hewson, who ranked No. 4 in Fortune magazine's list of the most powerful women in U.S. business for 2013, will succeed Robert Stevens as chairman. Stevens will retire from Lockheed in early 2014, the company said.

Hewson moved into the top job at Lockheed after Christopher Kubasik was fired when he admitted to an improper relationship with a subordinate.

Lockheed and other arms makers have been warning about the devastating impact of the across-the-board cuts, known as sequestration, since passage of the Budget Control Act in 2011.

But the company's stock is trading near a record high of $144.43 hit in late November, and earnings are up, compared to year-earlier levels. Lockheed shares closed $1.02 or 0.7 percent higher at $140.05 on Monday.

Hewson said the company's strong performance in 2013 was due to concerted efforts to reduce production and overhead costs by consolidating facilities and laying off workers.

"I don't believe we've been crying wolf," Hewson asked, when asked about the defense industry's better-than-expected performance this year. She said she remained convinced that the industry's long and vocal concerns had led to some positive policy changes on implementation of the cuts.

"By raising the awareness we got some policy decisions made. We got some feedback on how it would happen," she said. "I think that we as an industry have been appropriate in raising the flag about it, and having our voice on Capitol Hill about why it is poor public policy."

Hewson said the Pentagon had also been able to shift unused funds to minimize the impact on programs like the $392 billion F-35 fighter, the costliest U.S. arms project. The F-35 accounts for 15 percent of Lockheed's annual sales and is set to grow in coming years as U.S. and foreign sales increase.

She said the budget deal was well timed since sequestration budget cuts had been poised to hit the Pentagon and the defense industry much harder in 2014.

Lockheed was well-placed to benefit from rising international demand for its fighter jets, C-130 cargo planes, satellite technology and air and missile defense systems, Hewson said. She said the company was also looking to expand in adjacent markets such as energy and cybersecurity.

Hewson said Lockheed, the No. 1 provider of information technology to the U.S. government for the past 19 years, said she saw growing demand for cybersecurity services in the United States and overseas, despite the National Security Agency spying scandal.

She said the company would continue to evaluate possible acquisitions to round out its businesses in certain areas, or gain access to new customers and new markets.

(Reporting by Andrea Shalal-Esa; Editing by Tim Dobbyn and Bob Burgdorfer)

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