Lockheed Martin Corp posted better-than-expected quarterly profit aided by a lower tax rate and share count on Tuesday, but revenue missed Wall Street estimates and the defense contractor warned earnings would drop in 2010, sending its shares down more than 5 percent.
It is difficult to find any positives in the results, Goldman Sachs analyst Noah Poponak said in a note to clients. Similar to last quarter's disappointment, we believe results indicate that the tides are changing in defense vs. the weaker-than-expected results being attributable to company- specific issues.
Wall Street is concerned that defense contractors will underperform as President Barack Obama curbs spending on traditional weapons systems. This year, Pentagon cancellations of programs such as the VH-71 presidential helicopter and the scale-back of some missile programs have hurt Lockheed's backlog.
FBR Capital Markets analyst Patrick McCarthy cited concern about the revenue outlook for the fourth quarter and the below-consensus 2010 earnings forecast.
He said Lockheed's current 2009 forecast implied that fourth-quarter sales will ramp up in the information systems and space business segments.
Those two businesses haven't inspired a lot of confidence over the last couple of quarters, McCarthy told Reuters.
For 2010, Lockheed said it expects per-share profit in the range of $7.05 to 7.25, down from its boosted 2009 profit forecast of $7.40 to $7.60. Analysts expected profit of $7.89 for 2010, according to Thomson Reuters I/B/E/S.
While Lockheed's 2010 pension costs were expected to rise, what was a surprise was that operating profit is going to be about 8 cents lower next year at the midpoint vs. this year, McCarthy said, suggesting revenue expectations may be muted.
Lockheed, the top supplier to the Pentagon, has been hurt by performance miscues. For example, in the second quarter, sales rose less than expected in the information systems and global services segment. Poponak, the Goldman analyst, noted that segment operating profit for the third quarter was below expectations.
Net earnings came to $797 million, or $2.07 a diluted share, for the third quarter, compared with $782 million, or $1.92 a share, a year earlier.
The company said the latest results include a pension adjustment and a tax benefit from the resolution of a U.S. Internal Revenue Service examination that together decreased per-share profit 4 cents a share.
Analysts had expected profit of $1.83 a share, according to Thomson Reuters I/B/E/S.
Quarterly revenue rose about 5 percent to $11.06 billion, but was short of the $11.40 billion expected by analysts.
Lockheed shares were down $4.33, or 5.6 percent, at $72.64 in morning New York Stock Exchange trading. Northrop Grumman was off $1.15, or 2.3 percent, at $50.04 and General Dynamics fell $1.38, or 2 percent, to $67.32.
(Reporting by Karen Jacobs, editing by Gerald E. McCormick and Maureen Bavdek)