Lockheed Martin profit up but forecasts lower cash flow in 2020; shares slip

Lockheed Martin raised its estimate for 2019 earnings on Tuesday as quarterly profit climbed 9.2% amid improved sales of its F-35 fighter jets, but shares fell in premarket trading after it forecast lower cash flow next year.

The company also said the “preliminary outlook for 2020 assumes there is no impact from U.S. Government actions related to Turkey.” The U.S. and Turkey are embroiled in a dispute over a Russian missile defense system and its impact on Turkish defense purchases.

Lockheed estimated 2020 cash flow of $7.2 billion, lower than its 2019 year-end estimate of $7.6 billion, which disappointed investors and sent the stock down about 2.9% in premarket trading.

Lockheed raised its profit estimate for 2019 by 1.9% to $21.55 per share from $21.15, the high point of its previous guidance, amid an improved performance in its aeronautics business.

The Bethesda, Maryland-based company said 2020 sales would increase 5% to $62 billion from the current year-end 2019 estimate of $59.1 billion.

Business unit profit margins in 2020 were estimated to be between a range of 10.5% and 10.8%, lower than the 11.2% margin so far this year.

Turkey had agreed to buy 100 stealthy F-35 jets, Lockheed’s biggest program, but the Pentagon removed the NATO ally from the program and the jet’s supply chain.

To be sure, other countries have expressed an interest in buying the F-35 and in September, the U.S. State Department approved a proposed sale of 32 F-35 fighter jets worth as much as $6.5 billion to Poland.

The Pentagon has said the U.S. is spending between $500 million and $600 million in non-recurring engineering in order to shift the supply chain away from Turkey.

There was some operating segment wins for Lockheed during the quarter.

Lockheed was awarded a NASA contract worth up to $4.6 billion to build Orion astronaut capsules to help NASA build a sustainable presence on the moon. Though sales at the space unit were up 5%, the 11.5% profit margin at the space unit was unchanged from last year.

Lockheed’s net income rose to $1.61 billion, or $5.66 per share, in the third quarter ended Sept. 29, from $1.47 billion, or $5.14 per share, a year earlier.

Net sales rose to $15.17 billion from $14.32 billion.

The company delivered 28 F-35 combat jets in the quarter, compared with 20 a year earlier.

During the second quarter, Lockheed delivered 29 F-35s. So far this year, the company has delivered 83 of the jets, out of a total expected for the year of 131.

Lockheed’s income tax rate was 9.7% in the third quarter, compared to 6.5% in the third quarter of 2018.

Read Lockheed’s earnings release here.