Lockheed Martin (NYSE:LMT)
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5 Years : From May 2008 to May 2013
By Christopher Hinton
NEW YORK (Dow Jones) -- Lockheed Martin Corp. is expected to report a relatively flat fourth quarter next week with modest top line growth, but Wall Street is on edge over the military contractor's future pension payments and production ramp-ups for several key programs.
Bethesda, Md.-based Lockheed (LMT) reports the quarter ended Dec. 31 next Thursday. The builder of jet fighters, missiles and communication and data analysis equipment is expected to earn $1.90 a share, on average, according to analysts polled by FactSet Research.
Last year the company reported earnings of $1.89 a share.
"We're expecting single-digit top line growth with the aeronautic business posting a negative decline as the F-16 program continues to wind down as the F-35 ramps up," said Troy Lahr, an analyst with Stifel Nicolaus.
Lockheed's F-35 Lighting II is its next-generation stealth jet designed to replace the F-16, of which there are some 4,400 in the world. The F-16 backlog runs into 2012.
Question marks swirl about Lockheed's pension plan, however, which faces higher costs in 2009 as the economy stumbles in recession, Lahr said. There's also concern over shrinking profit margins in the company's space unit from the ramp-up of its GPS satellite program, and worries that its IT business may suffer cuts to the federal budget.
Lockheed was awarded a $1.4 billion GPS satellite contract from the Air Force in May. .
Meanwhile, the company's growing Information Systems & Global Services unit now makes up about a quarter of Lockheed's annual sales.
"We want to make sure that if we do see a slowdown in the budget that these businesses aren't being impacted," Lahr said. "But right now we see a steady stream of revenue."
Indeed, the economic downturn and resulting job losses may save the F-22 Raptor and C-17 Globemaster programs, which Lockheed is building in partnership with Boeing Co. (BA), said Macquarie Research analyst Rob Stallard.
"We think in-production programs that employ thousands of Americans are probably more secure for now," Stallard said.
Shares of Lockheed were recently off 22 cents to $78.56.
Pension costs rattle competitors, too
In October, Lockheed said it would have to make up a $100 million shortfall in its pension program with a cash contribution in 2009, and will face a hike in its annual pension expense to the tune of 30 cents a share. .
But since then the discount rate, which dictates pension costs, has fallen sharply. The rate is set at the beginning of the year and estimates the long-term rate of the plan's return. If the discount rate goes up, pension expenses decline.
Rivals' General Dynamics (GD), Northrop Grumman (NOC) and Raytheon (RTN) also saw their pension plans shaken, and with a falling discount rate, could see their earnings-per-share values reduced by 6% to 8%, according to Bernstein Research analyst Douglas Harned.
"These reductions, however, should ultimately not have a significant effect on valuations because of government obligations to cover the majority of pension expense at these companies," Harned wrote in a note.
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