By Mike Stone and Ashwini Raj
(Reuters) – Lockheed Martin <LMT.N> said on Tuesday the spread of coronavirus has delayed shipments of vital supplies to its numerous businesses and will likely hurt its sales this year.
The Pentagon’s top weapons dealer reported quarterly results and said COVID-19 was hurting production in its biggest unit, its aeronautics division that makes the F-35 fighter jet.
Still, the defense contractor reported a better-than-expected quarterly profit even as it was forced to trim its sales outlook. Quarterly sales in its aeronautics unit rose 14%to $6.4 billion.
The U.S. defense sector is expected to see much less COVID-19 disruption due to generally stable cash flows compared with industrial markets, according to analysts. Early on in the pandemic the defense industry was deemed essential, giving those workers an avenue to continue production.
Lockheed’s earnings announcement disclosed that while earnings for the first quarter had not been impacted, “the corporation is beginning to experience some issues in each of its business areas related to COVID-19” such as supplier delivery delays and suspending access at work sites.
The Pentagon’s chief weapons buyer, Ellen Lord, said on Monday a three-month slowdown was now expected on major defense programs as a result of supplier operating challenges during the coronavirus pandemic.
For the aircraft the Lockheed makes, there was “likely going to be some production impacts” due to the pandemic, CFO Ken Possenriede said on a conference call with Wall Street analysts, potentially delaying F-35 deliveries.
Marillyn Hewson, the outgoing CEO, said that the company was also watching its international supply chain closely and could provide extra financial support to keep those businesses healthy.
The company said it now expects full-year sales in a range of $62.25 billion to $64.00 billion, down from $62.75 billion to $64.25 billion, forecast previously. Lockheed reaffirmed its 2020 earnings per share forecast of $23.80 – the mid point of the range.
“While defense companies like Lockheed Martin are not immune to coronavirus, the projected impact on the 2020 results looks very minor compared to what is likely to be seen elsewhere in the industrial sector,” analyst Robert Stallard of Vertical Research wrote in a note on Tuesday.
Stable demand along with the Pentagon increasing interim payments to defense contractors, and also paying them for sick time or quarantined employees are expected to buoy the defense industry as coronavirus hits the economy.
Shares of Lockheed fell 2% $375.54. Shares of Lockheed Martin fell as much as 49% during the economic fallout from the coronavirus from its 52-week high of $442.43 on Feb. 11, to $226.58 on March 23, before recovering.
Among the uncertainties Lockheed faces for its second-quarter results is the loss of an aircraft maintenance contract in the United Arab Emirates in April.
Net earnings rose to $1.72 billion, or $6.08 per share, in the first quarter ended March 29, from $1.70 billion, or $5.99 per share, a year earlier, beating analysts’ average estimate of $5.80 per share.
Revenue rose 9.2% to $15.65 billion and topped analysts’ expectation of $15.08 billion.
The company reposted that its tax rate was 15.4% in the first quarter compared to 12.4% in the first quarter of 2019.
(Reporting by Ashwini Raj and Ankit Ajmera in Bengaluru; Editing by Vinay Dwivedi and Nick Zieminski)