Lockheed Martin reports lower sales but expects demand to increase
WASHINGTON — Lockheed Martin’s chief executive said Tuesday the U.S. and its allies are “changing gears” toward higher defense spending that will boost the company’s future sales — but it will take time.
Jim Taiclet said Russia’s invasion of Ukraine in February and China’s more aggressive actions and rhetoric turned a “relatively benign global security environment” on its head in a matter of months. However, it’s unclear exactly what that will mean for Lockheed, he said.
“The clutch isn’t engaged yet,” Taiclet said. “And the engaged clutch means that contracts are in place, there’s a clear demand signal out there, the US Congress — in the case of the United States — has allocated funds, and we’re producing … with a supply chain that’s robust enough to support it.” .”
“It will take two to three years for the clutch to kick in, and that goes for our allies too, because not only do they have to go through their own processes internally, they then have to go through them in general [U.S.] foreign military sales process,” he added.
The assessment came during a muted earnings conference call; The contractor disclosed its ongoing supply chain challenges and reported significantly lower sales and profits. According to Lockheed, quarterly sales totaled $15.4 billion, down 9% from the same three-month period last year. Profit fell to $309 million from $1.8 billion last year.
Lockheed cut its guidance for full-year earnings per share by 19% to $21.55, which the company said reflects a $1.5 billion pension payment and other one-time items. The company lowered its 2022 revenue guidance to $65.3 billion from $66 billion.
Although news broke Tuesday morning that Lockheed had reached a handshake deal with the Pentagon for three lots of F-35 Joint Strike Fighters, the contract was not finalized or included in the earnings report.
Sales for the quarter were “lower than expected due to the delay in contracting the F-35 and the impact on the supply chain,” Taiclet said. “We expect supply chain challenges to continue for the remainder of the year and we have reduced our outlook for 2022 to reflect this.”
A number of countries in Europe have committed to increased defense spending, and Congress appears on track to increase the FY23 budget beyond the Biden administration’s demand. Lockheed has also advocated streamlining the approval process for US foreign military sales, which involves the State Department, the Pentagon and Congress, to expedite expected deals.
“The demand and the situation that our customer base is facing has changed dramatically in the last three, four months,” Taiclet said.
International customers have expressed interest in Lockheed fighter jets, and the government announced a $4.2 billion deal with Jordan for the F-16 in February. A recent $1.6 billion deal with Saudi Arabia to manufacture THAAD interceptor missiles helped bolster Lockheed’s missile and fire control segment last quarter.
Since the US military has sent Ukraine its Javelin anti-tank weapons, which Lockheed makes jointly with Raytheon Technologies, and the Lockheed-made M142 High Mobility Artillery Rocket Systems, the company said it expects sales of these systems to increase. Taiclet said Lockheed is also increasing production of its Patriot Advanced Capability-3 surface-to-air missile.
“The question is how much higher can we make it in the next few years?” he said. “The reality today is none of that is under contract. And so we try to get a better understanding with the timing of when those contracts are finalized and then get a better understanding of our supply chain capability to determine when we can actually deliver.”
The US and other NATO countries have supplied Ukraine with a range of weapons, and US President Joe Biden has exercised his authority to receive donations from US military stockpiles 14 times. But those transfers have also raised concerns about the defense industry’s access to critical components and other potential kinks in the supply chain, particularly as the Pentagon seeks to replenish its supplies.
Taiclet said it was “too early to tell” how the US would replenish equipment it sent to Ukraine, and the company is awaiting decisions from the armed forces, the Pentagon and the Biden administration.
“There are some initiatives underway by some services in the Department of Defense to put more energy into replenishment, but this is early in their process, so we don’t have full transparency,” he said. “We support it of course and make sure they understand what the capacities are over the next two or three years to reach higher volumes.”
Joe Gould is senior Pentagon reporter for Defense News, covering the intersection of national security policy, government and the defense industry.