Top weapons maker Lockheed Martin (NYS: LMT) recently posted first-quarter numbers that beat Street expectations. This was a significant development in an economy where most defense contractors are bearing the brunt of a shrinking military budget.
Let's find out what worked for Lockheed.
A quick look at the quarter
During the quarter, the company's revenue increased to $11.3 billion, a 6% rise from the prior-year period. The bottom line also grew by an impressive 26% to $668 million, translating into earnings from continued operations of $2.02 per share, which comfortably beat analyst estimates of $1.71 per share.
The highlight of the quarter was the 18% revenue growth in Lockheed's aeronautics segment, a business which has contributed around one-third of the company's revenue. Money flowed into this unit as the company increased deliveries of its F-16 and C-130 aircraft and offered more supplementary support services. A boost in orders and production of Lockheed's F-35 fighter jets also added to the already improved revenue.
It's a commonly known fact that the Department of Defense is cutting down on orders and trimming its budget -- a worrying sign for several defense companies. For instance, General Dynamics (NYS: GD) , a defense contractor that is heavily reliant on the U.S. government for most of its orders, recently reported a decrease in its top and bottom lines in the first quarter, mainly because of lower volumes and a slow business environment.
Lockheed, too, is facing a tough situation. The government is delaying some orders of Lockheed's F-35 fighter jets by as long as five years, with an aim to accomplish savings to the tune of $15.1 billion. This will obviously weaken top-line growth for Lockheed Martin, as well as peer Northrop Grumman (NYS: NOC) -- a company that accounts for about 25% of the F-35 program.
On the upswing
However, Lockheed is looking at the military requirements of other nations as well. It has signed valuable contracts with Japan and the UAE. Moreover, the company's exposure to space, electronics, and information systems seems to provide some protection against reduced defense orders. Lockheed also recently won a $1.05 billion contract from the U.S. Navy to provide digital cockpits and integrated mission systems for its helicopters. Overall, I'm hopeful about Lockheed and its ability to withstand possible defense cuts.
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At the time thisarticle was published Navjot Kaur does not own shares of any of the companies mentioned in this article. The Motley Fool owns shares of Lockheed Martin, Northrop Grumman, and General Dynamics. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
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