Lockheed Martin beats profit estimates, raises 2018 forecast

(Reuters) - Demand for Lockheed Martin Corp's LMT.N F-35 jet once again helped company profit beat Wall Street's expectations on Tuesday and the No. 1 U.S. defense contractor raised its forecast for the rest of the year.

FILE PHOTO: A Lockheed Martin F-35 aircraft is seen at the ILA Air Show in Berlin, Germany, April 25, 2018. REUTERS/Axel Schmidt/File Photo

Lockheed shares were up around 3 percent although they traded flat as the session progressed. Rising U.S. defense budgets and stronger foreign demand helped Lockheed raise its 2018 net sales forecast to a range of $51.60 billion to $53.10 billion from a range of $50.35 billion to $51.85 billion.

During a post-earnings conference call with analysts, Lockheed’s CEO Marillyn Hewson said, “we are very encouraged by the support of our portfolio, as continued to receive as the (U.S.) budget process progresses.”

U.S. Senate and House negotiators on Monday reached agreement on a $716 billion defense policy bill.

But unexpected, and bigger than expected, awards were helping the company, CFO Bruce Tanner told analysts. “We have just a tremendous across the board year from an orders perspective so far in the first half,” he told analysts on Tuesday.

Full-year profit is now expected to be between $16.75 to $17.05 per share, compared with its earlier estimate of between $15.80 and $16.10 per share.

Revenue from the company’s missiles and fire control business, which makes PAC-3 missiles, rose 16.9 percent to $2.09 billion. The PAC-3 is the interceptor in the Patriot missile system. In late March, Poland signed its largest arms procurement deal in its history, a Patriot missile defense system for $4.75 billion.

The company’s aeronautics business, which makes the stealthy F-35 fighter jet, posted a 8.1 percent rise in revenue to $5.32 billion.

There were 25 F-35s delivered during the quarter versus 14 from the same period a year earlier. So far, Lockheed has delivered 39 of the stealthy jets towards this year’s target of 91.

The Pentagon and the company are nearing an announcement for a deal for 141 F-35s that would lower the price of the F-35A, the most common version of the stealthy fighter jet, to about $89 million each, down around 6 percent from $94.3 million in the last deal struck in February 2017.

Tanner said profit margins at the F-35 business would continue to improve, but at a slower rate than in years past.

The company’s net income rose to $1.16 billion, or $4.05 per share, in the second-quarter ended June 24 from $955 million, or $3.28 per share, a year earlier.

Net sales rose 6.6 percent to $13.40 billion.

Tanner said the company’s tax rate for 2018 would be in the mid-14 percent range following the U.S. corporate tax cut enacted last year. He did not expect the rate to stay that low in future years.

Analysts were expecting adjusted earnings of $3.92 per shares and revenue of $12.74 billion, according to Thomson Reuters I/B/E/S.

The quarterly results included a charge of $96 million related to severance and restructuring activities, which reduced net income by $76 million, or $0.26 per share.

“Although Lockheed beating consensus for the quarter is hardly a novel experience, to do this despite the 26 cents of restructuring is an impressive performance,” analyst Robert Stallard of Vertical Research said in a note on Tuesday.

Up to Monday's close, Lockheed's shares had risen 9.7 percent in the past 12 months, compared with a 13.6 percent rise in the S&P 500 index .SPX.

Reporting by Mike Stone in Washington and Sanjana Shivdas in Bengaluru; Editing by Bill Trott and Chizu Nomiyama