January 28, 2020 / 12:40 PM / a month ago

Lockheed Martin beats estimates, raises sales forecast on higher F-35 deliveries

(Reuters) - Lockheed Martin Corp (LMT.N) forecast 2020 revenue above analysts’ estimates on Tuesday, as the Pentagon’s No.1 weapons supplier’s late 2019 results benefited from better jet and missile sales and heightened geopolitical tensions in the Middle East.

FILE PHOTO: A Lockheed Martin F-35B stealth fighter is seen inside the USS Wasp (LHD 1) amphibious assault carrier during their operation in the waters off Japan's southernmost island of Okinawa March 23, 2018. REUTERS/Issei Kato

Shares of Lockheed rose 2.5% in premarket trading, after the company reported a better-than-expected quarterly profit on Tuesday and raised its 2020 revenue outlook to a range of $62.75 billion to $64.25 billion, beating analysts’ estimate of about $62.61 billion.

U.S.-Iran tensions over the past few months have helped build momentum for defense purchases, benefiting Lockheed and other weapons makers, analysts have said. One business unit, Missiles and Fire Control, saw sales up 14% in the quarter on higher volume for higher tactical and strike missiles.

Shares of the company rose about 4.5% to a record high on Jan 3 after a U.S. drone strike killed Iranian military commander Qassem Soleimani.

Defense contractors General Dynamics (GD.N), Lockheed and Northrop Grumman Corp (NOC.N) are expected to outperform this year, in line with the sector’s general pattern during presidential election years.

During the quarter the Pentagon announced pricing details for its agreement with Lockheed that lowers the cost of the F-35A jets it plans to purchase through 2022 by 12.7%.

Lockheed’s Aeronautics division, which makes the F-35, saw quarterly sales up 9% in the quarter to $6.3 billion.

The F-35 comes in three configurations, the A-model for the U.S. Air Force and U.S. allies; a F-35 B-model which can handle short takeoffs and vertical landings; and carrier-variant F-35C jets for the U.S. Navy.

Under the agreement, which began as a handshake in June, the F-35A, the most common version of the aircraft, will each cost $82.4 million in 2020, $79.17 million in 2021 and $77.9 million in 2022.

The agreement means the U.S. government and allies plan to purchase 478 F-35 fighter jets at a cost of $34 billion over the three years. Because Congress has yet to approve budgets for future years agreement represented pricing “options” for the U.S..

The F-35 program, which makes up about 25% of Lockheed’s annual revenue, delivered a total of 134 of the stealthy jets in 2019 and aims to deliver 141 F-35s in 2020.

Lockheed said it expects 2020 earnings per share to be in the range of $23.65 per share to $23.95 per share, below analysts’ expectation of $24.30 per share, according to IBES data from Refinitiv. In the past Lockheed has begun the year with a modest forecast and outperforms as the year goes on.

Net earnings rose to $1.5 billion, or $5.29 per share, in the fourth quarter ended Dec. 31, from $1.25 billion, or $4.39 per share, a year earlier.

Analysts, on average, had expected the company to post a profit of $5.03 per share.

Net sales rose 10.2% to $15.88 billion, below analysts’ expectation of $15.29 billion.

The company said its tax rate was 18.2% and 14% in the quarter and year ended Dec. 31, 2019, compared to 15.5% and 13.6% in the quarter and year ended Dec. 31, 2018.

Reporting by Ashwini Raj in Bengaluru and Mike Stone in Washington; Editing by Krishna Chandra Eluri and Chizu Nomiyama

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