Lockheed To Use Savings from Tax Overhaul For Pensions

By FeaturesDow Jones Newswires

Lockheed Martin Corp. said Monday that it plans to use the savings from U.S. tax overhaul to make a big prepayment of its pension obligations, and boosted its 2018 financial guidance.

Defense companies are among the biggest corporate winners from the tax changes, with the expected benefits countering continuing uncertainty over the path of a Pentagon budget process delayed by disagreements among lawmakers.

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Lockheed, the world's largest defense company by revenue, expects to lag the sales growth of some peers this year but counter this by paying $5 billion into its pension fund, boosting free cash flow until 2021.

The maker of F-35 combat jets and Thaad missile-defense systems reported forecast-beating quarterly earnings alongside a modest boost to its 2018 guidance.

Rivals including Northrop Grumman Corp. and Raytheon Co. last week said they would use part of the profit tailwind from lower tax rates to boost investment in new weapons systems and take advantage of rising U.S. and international military budgets increase. Raytheon is also prefunding its pension.

Corporate tax rates for defense companies have dropped to around 19% from an average of 27%.

With profit margins in the sector already at historically high levels, the prospective windfall from tax overhaul has also triggered a debate about whether the Pentagon will try to claw back some of the gains by demanding even lower-cost bids for weapons.

Some executives, such as Northrop CEO Wes Bush, has said such a move would remove incentives for industry to invest more, and the subject is expected to come up on Lockheed's upcoming investor call.

Lockheed reported a loss of $642 million for the December quarter compared with a profit of $988 million a year earlier as it booked a $1.9 billion charge for tax adjustments. On an adjusted basis, the company said it made $1.2 billion, or $4.30 a share. Analysts polled by Thomson Reuters were expecting adjusted earnings per share of $4.07.

Sales rose 10% in the quarter to $15.1 billion and ended the year just shy of $50 billion after adjustment for new accounting rules. They are forecast to rise up to as much as $51.5 billion this year.

Write to Doug Cameron at doug.cameron@wsj.com and Allison Prang at allison.prang@wsj.com

(END) Dow Jones Newswires

January 29, 2018 09:59 ET (14:59 GMT)

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