Lockheed Martin's quarterly profit handily beats estimates

(Reuters) - Lockheed Martin Corp LMT.N, the world's largest defense contractor, reported a quarterly profit on Tuesday that handily beat analysts' expectations, as sales of its Sikorsky helicopters pushed total revenue up 14.8 percent.

Lockheed Martin's logo is seen during Japan Aerospace 2016 air show in Tokyo, Japan, October 12, 2016. REUTERS/Kim Kyung-Hoon

Lockheed’s shares were up about 7 percent in afternoon trading following the company’s earnings conference call.

The company also raised its adjusted profit and sales outlook for the year.

Results from the Pentagon's No. 1 weapons supplier are often seen as a bellwether for the U.S. defense sector. Northrop Grumman Corp NOC.N and Raytheon Co RTN.N are due to report quarterly results later this week.

The company said third-quarter sales in its rotary and mission systems business unit jumped 55 percent to $3.35 billion, which included about $1.2 billion from sales of Sikorsky military and commercial helicopters. Lockheed completed the $9 billion acquisition of Sikorsky from United Technologies Corp UTX.N last year.

Lockheed said sales in its aeronautics business, the biggest division, increased 6.8 percent due to higher net sales of approximately $300 million for the F-35 jet program due to higher aircraft production and sustainment activities.

Only 10 F-35 aircraft were produced this quarter compared with 12 for the same period last year. On their quarterly results conference call, management said a problem with the insulation in the F-35’s fuel lines and fuel tanks, and the subsequent fix for aircraft still on the production line, was the reason for “lighter” F-35 deliveries this quarter.

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Lockheed is developing and building F-35s for the U.S. military and eight other countries. With estimated development and procurement costs of $391 billion for the United States alone, the F-35 is the world’s most expensive weapons program.

Lockheed’s space systems division, the third largest unit at the Bethesda, Maryland-based company, delivered $185 million in additional operating profit for the quarter, a 70 percent increase over the same period last year.

According to Thomson Reuters I/B/E/S calculations, the company’s income from continuing operations was $3.27 per share, versus the average analyst estimate of $2.87.

Net income more than doubled to $2.40 billion, or $7.93 per share, in the third quarter ended Sept. 25, from $865 million, or $2.77 per share, a year earlier.

“Most investors who take a look at the trading chart will conclude that this result is more than enough for a stock that has underperformed sharply of late,” Barclays analyst Carter Copeland said in a research note.

Lockheed's net income included a one-time special cash payment of $1.8 billion from the company's $5 billion tax-free deal to merge its information systems and global solutions business with Leidos Holdings Inc LDOS.N earlier this year.

The company said it expected 2017 net sales to increase by 7 percent compared to 2016. The company also said it expected business segment operating margins to be between 10 and 10.5 percent.

Lockheed raised its adjusted outlook 2016 profit forecast of $11.15 to $11.45 per share to $12.10 and said its forecast for adjusted sales of $45 billion to $46.2 billion had been raised to $46.5 billion.

Net sales rose to $11.55 billion from $10.06 billion a year earlier.

Reporting by Rachit Vats in Bengaluru and Mike Stone in Washington; Editing by Sayantani Ghosh and Tom Brown