RPT-UPDATE 2-Lockheed sees relief for defense spending after 2014 'trough'

Thu Jan 23, 2014 4:20pm EST

By Andrea Shalal-Esa

WASHINGTON Jan 23 (Reuters) - Lockheed Martin Corp, maker of F-35 fighter jets, satellites and warships, on Thursday forecast higher earnings in 2014 after charges linked to U.S. defense budget cuts and workforce reductions depressed earnings in the fourth quarter.

Lockheed Chief Financial Officer Bruce Tanner told reporters 2014 would likely mark a "trough" in U.S. military spending, with recent budget agreements paving the way for a more stable outlook going forward.

He said congressionally mandated budget cuts in 2013 may have a lingering effect on revenues, projected to be flat to slightly lower in 2014, but a recent congressional budget deal meant U.S. defense spending would edge up in coming years.

"We're hopeful that 2014 is kind of the bottoming out if you just take a look at the recently signed budget agreement," Tanner said.

Lockheed's higher earnings forecast reflected a swing to expected income from its pension accounts after years of payments that had lowered earnings, he said.

Chief Executive Marillyn Hewson told reporters Lockheed remained focused on becoming a "stronger, leaner, healthier company," by cutting costs, improving operational efficiencies, investing in innovations, and boosting international orders.

Foreign orders accounted for 23 percent of orders received and 17 percent of sales in 2013, with revenues set to grow a "little under 20 percent" in 2014, Tanner said.

Lockheed shares fell 1.7 percent to $154.02 in lower overall market trading on the New York Stock Exchange.

Joe Nadol at JP Morgan said Lockheed's results might prove "a bit of a disappointment" to investors since the company had consistently exceeded expectations in recent quarters.

Lockheed reported its fourth quarter net earnings from continuing operations fell 14.2 percent to $488 million, or $1.50 per share, from $569 million, or $1.73 per share, a year earlier. Revenues dropped to $11.5 billion from $12.1 billion.

It said its fourth-quarter earnings included a non-cash goodwill impairment charge of $195 million linked to U.S. defense spending cuts that reduced earnings by $176 million.

It also included severance charges of $171 million that cut earnings by $111 million. The two items combined reduced earnings per share by $0.88, the company said.

It said it did not expect similar goodwill charges for other reporting units in the near term.

Net earnings also included pension adjustments, although at a lower level than seen in the year-earlier period.

RECORD BACKLOG

Analysts polled by Thomson Reuters I/B/E/S had forecast net quarterly earnings from continuing operations of $668.5 million or $2.02 per share on revenues of $11.34 billion.

Excluding the goodwill charge, Lockheed's earnings per share totaled $2.04, beating the consensus forecast of $1.95, according to Thomson Reuters I/B/E/S.

Rob Stallard, analyst with RBC Capital Markets, said an unexpected goodwill charge and higher tax rate kept results below his expectations, but Lockheed continued to benefit from aggressive cost-cutting measures adopted in recent years.

Lockheed, the Pentagon's No. 1 supplier, said full-year earnings from continuing operations rose to $3.0 billion, or $9.04 per share, up from $2.7 billion, or $8.36 per share, in 2012.

Revenues fell to $45.4 billion in 2013 from $47.2 billion in 2012.

It said it expected slightly lower to flat revenues of $44 billion to $45.5 billion in 2014, but earnings per share were likely to rise to $10.25 to $10.55.

Lockheed's Hewson said the company reached a record backlog of $82.6 billion in 2013. She said its products were strongly supported in the U.S. budget plan, and continued to attract strong international interest.

She said Lockheed would work closely with the Navy as it weighed changes in its plan to buy 52 Littoral Combat Ships built by Lockheed and Australia's Austal.

Hewson said reports of a possible cut in the total buy were not too troubling since Lockheed remains under contract to deliver 10 ships.

Sales were down across the company's five business areas in the fourth quarter, but three of the five - missiles and fire control, mission systems and training, and space systems - reported higher operating profit, Lockheed said.

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