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Lockheed Situated to Ride Out Cutbacks

By    |   Wednesday, 18 May 2011 03:00 PM

Lockheed Martin (LMT) has an enviable position as the world's largest defense contractor. The company has benefited from increases in defense spending during the last 10 years. Obviously that trend is unlikely to continue, given the U.S. government’s severe budget woes. But Lockheed Martin is as well prepared as anyone in the defense industry to ride out the storm.

LMT has four divisions: aeronautics, electronic systems, space systems, and information and global services. It’s the leader in fighter jet systems and is currently working on the F-35, a potent stealth aircraft that will replace the Air Force F-16, Navy F/A-18, and Marines AV-8B planes. The program could generate revenue of up to $1 trillion for Lockheed Martin — not exactly a trivial figure.

Information systems will continue to be a source of growth for the company, as the Pentagon more and more comes to depend on high-tech weaponry.

In the first quarter, Lockheed Martin registered a profit increase of 5.6 percent from continuing operations, to $548 million from $519 million a year earlier. Sales gained 2.9 percent to $10.6 billion.

Strong aeronautics performance

As for the company’s individual units, aeronautics sales, which include F-16, F-22, and F-35 fighter jets, as well as C-130J transport planes, rose 8.2 percent to $3.18 billion. Space systems profit climbed 4.8 percent to $217 million.

Electronic systems, which include Patriot missiles, enjoyed a profit increase of 10 percent to $417 million. The information systems division saw sales fall 3.6 percent to $2.15 billion, while its profit was little changed.

Although lower defense spending and higher pension liabilities will act as constraints, “Lockheed Martin is expected to register a stable performance due to its leveraged presence in the Army, Air Force, Navy and IT programs,” write analysts at Zacks Investment Research.

“Additionally, the company’s focus on debt repayment, its ongoing share repurchase program and the incremental dividend will continue to shore up shareholder return.”

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Lockheed Martin (LMT) has an enviable position as the world's largest defense contractor. The company has benefited from increases in defense spending during the last 10 years. Obviously that trend is unlikely to continue, given the U.S. government s severe budget woes. But...
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2011-00-18
Wednesday, 18 May 2011 03:00 PM
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