Lockheed Martin (LMT) Q1 2017

posted in: Earnings Call, Notes | 0

Marillyn A. Hewson – President and CEO

They hope for increased defense spending

“At this time, government spending remains limited by the continuing resolution that is set to expire on April 28. As you know, the continuing resolution, or CR, limits funding to prior year’s levels and prohibits new programs from starting. Discussions are underway to extend the CR as Congress continues to debate the regular appropriations bills. We are hopeful that these discussions result in an approved FY 2017 Defense Appropriations Act as we feel a further lack of budget clarity could have longer-term consequences for our armed forces and our industry..”

…and the hope seems justified

“There are however, several encouraging indications that our nation’s leaders are aligned with the need for a focus on defense spending. First, the House recently passed the FY 2017 appropriations bill, and it is currently residing with the Senate. This bill…supports vital equipment procurement, with increased spending called out for BLACK HAWK helicopters, as well as additional F-35s. Similarly, we are pleased to see President Trump’s 2017 supplemental defense appropriations submission and the administration’s initial FY 2018 budget outline, or skinny budget; both request funds in excess of the Budget Control Act caps.”



Bruce L. Tanner – Executive Vice President and Chief Financial Officer

In sum

“Our first quarter performance was mixed with a couple of earnings charges detracting from strong performance elsewhere in the business. Our cash performance was strong in the quarter and we expect that performance to carry over to a higher full year outlook than we provided last quarter. We continue to provide significant cash returns to our stockholders and we’re not giving up on trying to overcome our early setbacks and making 2017 a year we can be proud of .”

Due to product lifecycle, the CR will have delayed impact

“…the work that we’re performing today was from several fiscal years ago. It takes about three years or so to go through the F-35 lifecycle from sort of the initial dollar award to the first aircraft delivery. So, as Marillyn said, I wouldn’t expect to see, especially in 2017, much of an impact, if anything, even should CR be extended.”

On the new revenue recognition standard

“…(the) revenue recognition standard that becomes effective January 1, 2018…I’m starting to get insight into sort of rev rec the old way, if you will, and rev rec the new way. Our expectation and what we’ve disclosed in the Ks and the Qs is that we wouldn’t expect to see a large change relative to our sales and/or earnings even though we are going to be changing some contracts that are currently on a delivery-based or what we call units-of-delivery-based method of sales recognition to a cost-to-cost methodology. So that will have some impacts on sort of our opening balance sheet under the new rev rec approach, as well as sort of our opening backlog position, but I wouldn’t think the sort of the run rate if you will, of sales and earnings going forward would be a material difference at all and that’s sort of what I’m seeing as I look at the data so far.”