UPDATE 5-Lockheed sees contract cuts, delays hurting 2011

* Q3 EPS cont ops $1.55 vs estimate $1.53

* Program cancellations, pension expense could hurt 2011

* UK cuts illustrate global risks for defense

* Shares close modestly lower
(Updates share price)

By Karen Jacobs

ATLANTA, Oct 19 (BestGrowthStock) – Defense contractor Lockheed
Martin Corp (LMT.N: ) posted a lower quarterly profit on Tuesday
and said contract delays and cancellations in the tough
environment for global defense spending could hurt 2011
results.

The maker of fighter jets also cut its 2010 full-year
forecast, citing costs for executive buyouts and the loss of
sales from a unit it is selling.

“The longterm growth prospects remain a challenge,” said
Peter Arment, an analyst with Gleacher & Co. (For a graphic on
Lockheed’s quarterly results, see:
http://r.reuters.com/ves29p )

Lockheed, whose F-35 Joint Strike Fighter is the Pentagon’s
costliest program at a projected $382 billion, and its U.S.
defense peers have been overshadowed by concern that earnings
growth will be hard to come by as governments are pressured to
contain deficits.

The U.S. Defense Department has been scrutinizing costs of
Lockheed’s F-35 jets as it steps up a drive to make weapons
programs more affordable.

Underscoring the global risks, Britain unveiled sweeping
defense cuts on Tuesday [ID:nLDE69I1XN], and Lockheed said it
expected that country to cut the number of Joint Strike
Fighters it will buy below original plans. British officials
said on Tuesday there had been no decision on how many of the
jets would be ordered.

Morningstar analyst Anil Daka said the market has been
pricing in low growth for defense companies, and added profit
margins will likely come under pressure across the sector in
the current belt-tightening environment.

Defense companies are all “trading at the high
single-digits kind of P/E multiples,” Daka said. “That tells
you that even the market itself is not expecting any huge
improvement in EPS over the near term.”

Lockheed shares closed down 57 cents at $69.47 on Tuesday
as other defense stocks weakened. The S&P Aerospace & Defense
Index (.GSPAERO: ) slid 1.6 percent.

CONTRACT DELAYS SEEN

The world’s largest defense company said contract delays
and cancellations could result in flat operating income next
year and a sales increase in the low-single-digit percentage
range.

“There have been a number of delays in programs being
awarded this year and seemingly could carry over into next
year,” Lockheed Chief Financial Officer Bruce Tanner said in an
interview on Tuesday. He said that Lockheed had earlier
projected 2011 sales growth at the mid-single-digit level.

For example, Tanner said an award in the Navy’s Littoral
Combat Ship competition that Lockheed is vying for had been
expected earlier this year but now could come in November.

Lockheed also said that declining interest rates would
likely raise pension expenses for next year.

For the third quarter, net earnings fell 28 percent to $571
million, or $1.57 a diluted share, from $797 million, or $2.07
a share, a year earlier.

Special items in the quarter included a 32-cents-a-share
charge tied to executive buyouts under a voluntary program.
Earnings from continuing operations came to $1.55 a share,
compared with $1.53 a share expected by analysts, according to
Thomson Reuters I/B/E/S.

Revenue rose 6 percent to $11.38 billion, compared with
$11.59 billion expected by analysts.

Lockheed, which has clamped down on its own spending and
put two business units up for sale this year, said it now
expects per-share profit from continuing operations of $6.75 to
$6.95 a share this year, compared with a prior forecast of
$7.15 to $7.35 a share.

The company said the charge for the voluntary executive
buyout program and the removal of results for the Enterprise
Integration Group (EIG) that is being sold accounted for the
2010 forecast revision.

Last week, Lockheed said it would sell EIG, which advises
government agencies on weapons platforms, to a private equity
firm for $815 million. [ID:nN13242658]

Lockheed shares have fallen about 8 percent this year,
underperforming the S&P Aerospace & Defense Index, which is up
about 9 percent.
(Reporting by Karen Jacobs; editing by Derek Caney, Dave
Zimmerman, Matthew Lewis and Andre Grenon)

UPDATE 5-Lockheed sees contract cuts, delays hurting 2011