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WIKI ANALYSIS
Lockheed Martin (NYSE:LMT) is one of the world's largest defense contractor by revenue.[1] As a manufacturer of primarily electronic, information, aeronautic, and space systems, LMT has benefited from the increased defense spending that has accompanied the Afghan and Iraq War.
United States government spending typically represents about 85% of Lockheed Martin's revenue.[2] As a result, the company is sensitive to political changes that impact federal government spending priorities. Historically, Republican political victories have benefited Lockheed Martin through increases in defense spending.
Company Overview
Business and Financial Metrics
The Lockheed Martin Corporation is involved in the research, development, and manufacturing of technological systems, products, and services. It makes money by producing, operating, and maintaining these products for its customers, which are almost always for the governments (mainly the US government).
Lockheed Martin's growth continues to be fueled by global political instability, such as the conflicts in the Middle East particularly because Israel is Lockheed Martin's primary export partner. While civilian contracts do not play a very significant role, Lockheed Martin's diversification program (even within government contracts themselves) helps it sustain its net income and revenue levels even during times of global peace. Lockheed's diversification program focuses mainly on the acquisition of companies that can help them expand into civil endeavors.
Business Segments
- Aeronautics (29% of sales in FY2010): This segment of the company is involved in the design and manufacturing of combat, transport, and un-manned aircraft, air vehicles, and similar technologies that are sold to the U.S. Government and its allies. Some of this group's major products include the F-16 and F-22 fighter jets or the C-130 Hercules and C-5 Super Galaxy transport planes.[3] Net sales in Aeronautics posted $13.2 billion, and the three principal lines of business were "Combat Aircraft", "Air Mobility", and "Global Sustainment." Of these, "Global Sustainment" is playing a larger portion of the Aeronautics business, as it is focused in providing logistics support, sustaining engineering, aviation upgrades, and other services toward existing lines of aircraft.
- Electronic Systems (31% of sales in FY2010): This group designs integrated hardware and software systems for many different uses. There are three subgroups within this segment: "Maritime Systems and Sensors", "Missiles and Fire Control", and "Platform, Training and Transportation Systems". "Maritime Systems and Sensors" is involved in the creation, sale, and implementation of nautical systems, with uses ranging from missile defense to port management. "Missiles and Fire Control" designs, sells, and implements land and air systems for missile defense, battlefield missiles, and precious weapons. The "Platform, Training and Transportation Systems" business integrates mission-specific systems and provides information management to governments.[4] Major projects in this division include the Terminal High Altitude Area Defense system, VH-71 Presidential Helicopter, the Aegis Weapons System, and the Arrowhead fire control system for Apache helicopters.[5]
- Information Systems and Global Services (22% of sales in FY2010): This group provides IT solutions for its customers.[6] Some examples of this segments offerings are the FAA en route Automation Modernization program, Joint Tactical Radio System program, and the MILSATCOM Mission Operations Segment program.[7]
- Space Systems (18% of sales in FY2010): This business segments manufactures both government and commercial satellites, defensive missile systems, and space transportation systems.[8]
FY2010 Earnings Summary
- Revenues are up 4.3% to $45.8 billion, compared to last fiscal year
- Net income down 3.2% to $2.9 billion, compared to last fiscal year.
FY2011 Q1 Earnings Summary
- Reported quarterly net sales of $10.63 billion, an increase compared to year-ago quarterly revenue of $10.34 billion by $296 million.[9]
- Posted $530 million in profits, flat compared to same quarter last year.[10]
Key Trends and Forces
U.S. Government spending influences the company's revenues
Lockheed Martin is susceptible to fluctuations in the Department of Defense's budget since contracts with the United States government account for approximately 85% of its income. Therefore, the distribution of government spending also affects Lockheed Martin.
President Obama has mentioned on several occasions his desire to reduce the defense budget.[11] Often, while such a goal might reduce LMT's revenues in the long-run, defense allocations are planned several years in advance, so there will be a lag before any reductions by the Obama administration take effect.[12] But when these decisions occur abruptly, LMT suffers tremendously.
Lockheed Martin has been negatively affected by the Obama presidency, as military/defense spending have been cut under his administration. Further, depending on political preferences, LMT's operations can be curtailed if it does business with a country that no longer is in favorable terms with the United States. This is because arms sales to foreign governments are tightly regulated by the Arms Export Control Act. Foreign investments by Lockheed Martin, such as a joint venture with the Russian government on space systems, carry the risk of total loss if U.S. regulators deem instability in Russia or the hostility of that government to require the project's termination.
Rising Demand for Security Systems Help Diversify LMT's Revenues
LMT projects strong international growth for the next several years in the global security solutions sphere as governments around the world face increasingly complex threats, specifically from terrorist fears. In particular, international demand for security systems and solutions is expected to grow from 15% currently to around 20% in coming years.[13] According to Homeland Security Research, this global demand for homeland security worldwide is expected to grow by roughly 124% to $518 billion USD by 2015. By increasing exposure to these lines, LMT can diversify its revenues as well as take part in the growing demand for security systems.
Competition
For comparison purposes, Lockheed Martin had $45.8 billion in FY2010 revenues.
- Boeing Company (BA): 2010 revenue - $64.3 billion[14].
- Raytheon Company (RTN): 2010 revenue - $25.2 billion[15].
- Northrop Grumman (NOC): 2010 revenue - $34.8 billion[16].
- General Dynamics (GD): 2010 revenue - $32.5 billion[17]
| Company | FY2010 Net Profit Margin | FY2010 Operating Margin | FY2010 EBITD Margin | Return on Average Equity | Biggest Division |
| Lockheed Martin[18] | 5.77% | 8.94% | 11.11% | 67.50% | Electronic Systems |
| Boeing[19] | 5.15% | 7.73% | 9.36% | 135.31% | Civilian Aircraft |
| Northrop Grumman (NOC)[20] | 5.86% | 8.83% | 10.85% | 15.5% | Electronic Systems |
| Raytheon Company (RTN)[21] | 7.32% | 10.35% | 11.56% | 18.43% | Space and Airborne Systems |
| General Dynamics (GD)[22] | 8.09% | 12.15% | 13.90% | 20.42% | Information Systems and Technology |
References
- ↑ LMT 10-K FY2010, Pg 2
- ↑ Lockheed Martin 2010 Form 10-K, Page 1
- ↑ Reuters, "Lockheed Martin Corp"
- ↑ Reuters, "Lockheed Martin Corp"
- ↑ Lockheed Martin 2010 Form 10-K, Page 52
- ↑ Reuters, "Lockheed Martin Corp"
- ↑ Lockheed Martin 2010 Form 10-K, Page 53
- ↑ Reuters, "Lockheed Martin Corp"
- ↑ Lockheed Strikes Better, Guides Up
- ↑ Lockheed Martin earns $530M in Q1
- ↑ The Economist: Defence companies: In the line of fire
- ↑ The Economist: Defence companies: In the line of fire
- ↑ [GlobalData Resources on LMT published April 2011]
- ↑ Google Finance, "The Boeing Company"
- ↑ Google Finance, "Raytheon Company"
- ↑ Google Finance, "Northrop Grumman Corporation"
- ↑ Google Finance, "General Dynamics Corporation"
- ↑ Lockheed Martin Financials
- ↑ Boeing Financials
- ↑ Northrop Grumman Financials
- ↑ Raytheon Financials
- ↑ General Dynamics Financials
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