Lockheed profit on target, up 12% $1.79 a share

busy time ahead


January 21, 1998|By Greg Schneider | Greg Schneider,SUN STAFF

Lockheed Martin Corp. matched analysts' expectations for earnings during a complicated fourth quarter of 1997, beating the year-ago fourth-quarter mark by 12 percent, aside from one-time gains and losses.

All eyes now are on how the company handles its pending acquisition of Northrop Grumman Corp., expected to close early this year.

"The big story will start to come around the middle of the first quarter, when we get the government's response to the merger and sort of the detailed [integration] plan of Lockheed's management. Then it's going to be a question of performance," said Roger Threlfall of J. P. Morgan Securities.

The Bethesda-based defense giant made a profit of $363 million on sales of $7.88 billion during the quarter, not counting a series of one-time factors. That was up from net income of $323 million on sales of $7.66 billion for the corresponding portion of 1996.

The results equaled $1.79 per share, fully diluted, compared with $1.49 during the corresponding period of the previous year.

The maker of the F-22 and F-16 fighter planes, the C-130J transport plane and Atlas and Titan rockets finished 1997 with yearly sales of just over $28 billion, up from $26.8 billion for 1996.

Because of several divestitures, the company's backlog slipped to an estimated $47 billion from $50.4 billion at the end of the previous year.

The fourth quarter's numbers are clouded by several unusual factors -- most prominently the sale of the Middle River Aero-structures plant, a computer subsidiary and the interest in a satel- lite network to General Electric Co.

Lockheed Martin also gave GE $1.6 billion in cash as part of that transaction, in which Lockheed Martin regained control of a huge chunk of preferred stock that GE got during a long-ago acquisition.

The transaction resulted in a tax-free gain of $311 million for Lockheed Martin, an amount offset by a series of unrelated charges totaling $303 million.

Securities and Exchange Commission guidelines also required Lockheed Martin to factor the GE transaction into its calculation of net income available to shareholders. Under the guidelines, the carrying value of the preferred stock had to be subtracted from the fair value of the assets transferred to GE, and the resulting $1.8 billion deficit taken off earnings per share.

Assuming no dilution, that calculation represented an effective $7.84 loss per share.

At the same time, factoring in the one-time costs and gains made fourth-quarter earnings drop to $371 million, a 20 percent decline from the similarly adjusted net earnings of $465 million for fourth-quarter 1996.

That year's fourth quarter included a net after-tax gain of $351 million from the spinoff of Martin Marietta Materials, as well as after-tax charges of $209 million.

"There is a lot of noise in this report, a lot of adjustments, a lot of moving parts," said analyst Threlfall. "But, overall, they were pretty good earnings. I'm impressed with their ability to generate cash flow."

The company reported $900 million in free cash flow for 1997. Vice Chairman and Chief Executive Officer Vance D. Coffman said Lockheed Martin is on target to achieve the $2.6 billion in annual savings that it has anticipated from the digestion of recent acquisitions.

The pending $11.6 billion acquisition of Northrop Grumman, which should boost revenue by about $8 billion, will create even more efficiencies, Coffman said.

Wall Street greeted yesterday's earning report with polite applause, sending shares up 43.75 cents to $100.125.

Pub Date: 1/21/98

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