Cuts in military spending hit Lockheed Martin

Waning US military spending hit Lockheed Martin, the world's biggest military contractor by sales, in the first quarter as declining maintenance work and lower aircraft deliveries helped drive net income down 5.9 per cent and net sales down 5 per cent.

The declines were most marked in the core aeronautics business, where operating profit fell 6 per cent to $371m, on sales down 7 per cent to $3.13bn. The declines reflected both lower deliveries of the C130, C5 and F16 aircraft and lower "sustainment activities" - maintenance and repair-related work - which is higher when aircraft are on operational duty.

However, net income - $878m or $2.74 per share, on $10.1bn sales - exceeded analysts' expectations of $2.50 per share and the company marginally raised expectations for full-year earnings. The forecast went up from a range of $10.80 to $11.10 per share to a $10.85 to $11.15 range.

Marillyn Hewson, chief executive, said the company continued to deliver "solid performance" for its customers and "strong results" for its shareholders.

"We remain focused on successfully competing in the global marketplace and delivering industry-leading affordable products and technologies to our customers," she said.

Like other big US military contractors, Lockheed Martin has faced a mixture of across-the-board spending cuts known as sequestration and the longer term decline in military spending as the Iraq and Afghanistan wars have wound down. The cuts were quickest to hit relatively short lead-time items such as the companies' services businesses.

The effects have been far slower to feed through to longer term items such as Lockheed's F35 fighter programme, the world's biggest military procurement project. Net sales for F35 production - part of the aeronautics division - were $175m up on last year's first quarter, thanks to increased production volumes, while operating profits from production of the aircraft rose $25m.

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In Missile Systems and Fire Control, operating profit fell 18 per cent to $292m on sales down 15 per cent to $1.5bn. The declines reflected fewer deliveries of missiles, such as the company's Hellfire missile system, and fire control systems.

The only segment to enjoy an increase was Space Systems, where operating profits grew 13 per cent to $288m on sales up 5 per cent to $1.95bn. The company attributed the increases to $105m in higher sales for the Orion programme - the construction of a new space ship for future crewed missions to Mars and other distant objects.

The company also gained a further $90m net sales from acquisitions in Space Systems, while there was a $75m decline in net sales for government satellite contracts. US government satellite business is expected to decline in the next few years as work to replace ageing satellites runs out.

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