Lockheed Martin (NYSE:LMT) beat the Street in the first quarter, but the maker of military aircraft is bracing for the impact of U.S. government budget cuts that it said could eliminate $825 million in sales this year.
Lockheed Martin, the world’s largest defense contractor by revenue, updated its forecast to call for a 2% decline in full-year sales as a result of sequestration. The company’s previous guidance did not take into account the across-the-board budget cuts, while the current forecast excludes items such as any potential severance payments or restructuring of existing Pentagon programs.
The company also said its customers “have not yet informed [Lockheed] of specific decisions taken in response to sequestration except in some very limited circumstances.” The Pentagon is by far Lockheed Martin’s biggest customer.
“Accordingly, the corporation's high level estimate of the potential 2013 impact of sequestration included in its current outlook contains several significant assumptions,” including its estimate of the expected sequestration impacts to both Department of Defense and non-DoD budgets for the rest of calendar-year 2013. Lockheed is also assuming that the Pentagon could delay or defer new program starts, as opposed to modifying or restructuring existing programs already under contract.
The Pentagon recently furloughed civilian staff and slowed procurement, while contractors will likely feel the brunt of the cuts starting next year since much of the defense budget for 2013 is already funded.
Over the next few years, Lockheed Martin said its plans to increase the share of sales from overseas from 17% to about 20%.
The company did back its 2013 EPS outlook of $8.80 to $9.10 after reporting on Tuesday higher-than-expected earnings in the latest period.
Its first-quarter profit climbed to $761 million, or $2.33 a share, versus $668 million, or $2.03 a share, in the year-earlier period. Sales fell to $11.1 billion from $11.3 billion, as Lockheed’s aeronautics unit saw reduced aircraft deliveries.
Analysts were looking for per-share earnings of just $2.04 and revenue of $10.3 billion.
Shares of Lockheed Martin were trading 1.86% higher at $97.63 in early morning trading.