Lockheed Martin Corp. reported better-than-expected quarterly profit on Tuesday as U.S. President Donald Trump’s looser policies on foreign arms sales boosted demand for missiles and fighter jets.
The Pentagon’s biggest weapons supplier is the first major defence company to report quarterly earnings this week, which Wall Street expects to be higher than a year ago as global demand for arms rises. Mr. Trump’s administration has proposed an increase in U.S. defence spending for the next fiscal year.
Lockheed shares rose nearly 7 per cent in their best one-day percentage rise since October, 2016. Investors bet on similar results from the whole sector, pushing Northrop Grumman Corp., Raytheon Co. and General Dynamics Corp. shares up more than 2.7 per cent.
Lockheed’s Missiles and Fire Control business, which makes missile defences such as the Terminal High Altitude Area Defense (THAAD), was one of its best-performing units.
On April 1, in a deal that was partially brokered by Trump, the unit was awarded a THAAD interceptor missile contract worth US$2.4-billion, many of which are slated to be delivered to Saudi Arabia.
Chief financial officer Kenneth Possenriede told investors on a postearnings conference call that profits for the unit for the rest of the year would not be as strong, “a little north of 13-per-cent margin,” because of investments in future programs.
Overall, the Bethesda, Maryland-based company said its earnings rose to US$1.70-billion, or US$5.99 a share, in the first quarter ended March 31, from US$1.16-billion, or US$4.02 a share, a year earlier. That was partly helped by a US$75 million dollar boost from additional tax deductions on foreign military sales, part of Mr. Trump’s tax cut that came into effect last year.
Excluding that one-time gain, Lockheed reported US$5.73 per share profit, well ahead of the US$4.34 a share that Wall Street had expected, on average, according to IBES data from Refinitiv.
The company had a 12.4-per-cent tax rate in the first quarter, but Mr. Possenriede said he expected its 2019 tax rate to be 15.5 per cent.
Lockheed’s overall net sales for the quarter rose 23 per cent to US$14.34-billion. The company’s sales backlog grew to US$133.5-billion, up 3 billion over the quarter.
Lockheed shares were up 6.6 per cent at US$336.23 in afternoon trading.
JET SALES UP
Operating margins at the aeronautics division, Lockheed’s biggest, fell to 10.5 per cent in the first quarter from 10.8 per cent a year earlier, but sales were up 27 per cent to US$5.5-billion on demand for the F-35 jet and some classified contracts.
The United States is considering expanding sales of Lockheed-made F-35 fighter jets to five new countries, including Romania, Greece and Poland as European allies bulk up their defences in the face of a strengthening Russia, a Pentagon official told Congress in early April.
The F-35, a key program for Lockheed, suffered a setback earlier this month when a Japanese F-35 stealth fighter crashed in the Pacific Ocean close to northern Japan. The aircraft was less than a year old and was the first F-35 assembled in Japan.
The company highlighted some risks in its earnings report, including U.S. “government actions to prevent the sale or delivery of the corporation’s products” to Turkey.
The U.S. Congress recently introduced several bipartisan resolutions targeting Turkey, calling on Mr. Trump’s administration to impose sanctions or prohibit the transfer of F-35 fighter aircraft.