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Lockheed Martin’s earnings impressed, but its sales were disappointing.

Jason Connolly/AFP/Getty Images


Lockheed Martin

‘s third-quarter sales were worse than what Wall Street expected—but the real bad news is that the company expects revenue to fall short of its full-year goals and to decline further in 2022.

The worst news of all is the company is reassessing it five-year business plan. “Reassessment” has put the stock into turmoil.

The downbeat view on sales clouded out the company’s strong earnings. Lockheed stock dropped almost 9% in early trading Tuesday. The

S&P 500
and

Dow Jones Industrial Average
are up about 0.5% and 0.2%, respectively.

Coming into Tuesday trading, shares had gained about 6% in 2021.

The aerospace-and-defense giant reported third-quarter sales of $16 billion, down from $16.5 billion in the same period in 2020 and below the $17.1 billion expected by Wall Street, according to FactSet data. The group also slashed its full-year sales outlook to $67 billion, down from a previous range of $67.3 billion to $68.7 billion.

It will get worse in 2022. Lockheed expects net sales to decline next year to $66 billion. Wall Street was looking for more than $70 billion.

It isn’t a very good earnings print. “We have recently undertaken a reassessment of our five-year business plan given recent external and programmatic events,” said Lockheed Chairman, President, and CEO James Taiclet in a statement.

Investors don’t like it when underlying assumptions about growth and earnings change. Talicet tried to strike an upbeat tone about cash-flow generation: “Our conclusions, which are reflected in our updated 2021 guidance and subsequent trend information, reflect continuing strong-cash-flow generation.” The company also increased its share-repurchase authorization, reflecting increased confidence in future cash flow.

Vertical Research Partners analyst Rob Stallard called the buyback increase the “only notable positive” from the report. “While we’re not surprised to see a conservative initial guide, the revenue and cash numbers still look light versus our estimates,” added Stallard in his Tuesday research note.

The buyback is a positive, but second-quarter earnings also look fine. Investors just don’t care much about current earnings. The market is forward-looking. Lockheed reported diluted earnings per share of $2.21, a decline from $6.25 a year ago. The earnings reflect a noncash pension-settlement charge of $1.7 billion, or $4.72 per share, after tax, which was previously announced. Wall Street was looking for about $1.97 a share, including the pension charge.

Full-year EPS is expected to be around $22.45, above the previous range of $21.95 to $22.25. The new guidance implies fourth-quarter earnings of about $7.11 a share, right in line with Street estimates.

Lockheed’s results echo those of defense peer


Raytheon Technologies
,
(RTX) which also reported Tuesday. Raytheon’s sales similarly missed expectations even as earnings beat estimates, and its full-year sales forecast of $64.5 billion sat at the bottom of the previous range of $64.4 billion to $65.4 billion.

Raytheon stock is down 1.8% in Tuesday trading.

Write to Al Root at [email protected]

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