Earnings season, now in full swing, revealed mixed news for U.S. defense contractors last week, but the overarching theme is that companies are expecting marginal declines in sales for 2013, while the boom years of the late 2000s are clearly gone.
Lockheed Martin Showing strong results once again, Lockheed announced that 2012 sales were up 1.4 percent over 2011. Operating profit also climbed, up 5.7 percent.
The profit increase was largely attributed to cost control measures taken ahead of expected defense cuts.
Lockheed also announced a company record backlog of $82.3 billion, likely to help the company if budget cuts strike this year.
In a move that may become more common as companies look at underfunded pension plans, the company announced that it had spent $2.5 billion on discretionary pension fund contributions to put the fund in better position for the future.
That expenditure meant that cash from 2012 operations were down 63 percent to $1.6 billion.
Lockheed Martin expects that 2013 will see a slight dip in sales, projecting $44.5 billion to $46 billion for the year. Those numbers are based on the assumption that the automatic budget cuts from sequestration don’t happen.
General Dynamics Making the biggest headlines of any earnings announcement of a defense contractor last week, General Dynamics saw its assets decline 1.6 percent on the back of a goodwill impairment of $2.1 billion.
Revenues also were down, by 3.6 percent, to $31.5 billion for 2012.
The combination of revenue decline, paired with accounting for the goodwill reduction, meant that operating earnings fell 78 percent to $833 million.
The company’s backlog also declined 10 percent to $51.3 billion.
For 2013, General Dynamics is projecting a slight sales increase, about 1 percent. Sixteen percent of that growth is expected to come from commercial aerospace, while defense sales are expected to fall by between 3 and 4 percent.
Speaking on a recent earnings call, the company’s new CEO, Phebe Novakovic, said that rather than sales increases, the company is targeting cost-cutting to improve its numbers.
“The opportunities for upside, and they are significant, are on margin improvement, cash generation and driving performance side of the equation,” Novakovic said.
“We will focus this year on operations to drive cost out of our businesses and improve performance,” she said. “But I do not intend to guide you to higher operating margins than are currently embedded in our plan, because we have yet to earn them.”
Raytheon Raytheon announced that its sales had declined slightly for 2012, down 1.5 percent to $24.4 billion. Like Lockheed, the company’s backlog increased, in Raytheon’s case to $36.2 billion.
Operating cash flow held relatively steady, at $2 billion for 2012 compared to $2.1 billion for 2011.
The company is expecting marginal declines in sales for 2013, anticipating $23.6 billion to $24.1 billion. Like Lockheed, Raytheon is not anticipating a sequester of federal spending in its financial numbers.
“For us, right now, it looks like the CR [continuing resolution] is scheduled at the end of March,” said CEO William Swanson on a recent earnings call. “My gut tells me it’s more like the end of May, with everything lining up.
“And if I had to guess on sequestration, and this is a guess, I’ll qualify it, that we’ll probably end up touching the stove and feeling the heat, which means it’ll happen and then people are going to work to put it back in the box,” Swanson said.