By Shivansh Tiwary and Mike Stone
(Reuters) - Lockheed Martin (NYSE:LMT) forecast its 2024 profit below Wall Street expectations on Tuesday, as the U.S. defense contractor's largest aeronautics segment that makes the F-35 jets faces supply chain disruptions.
Shares were down by about 3% in mid-day trading in New York after the company's CEO said profits from F-35 jets could be depressed into the third quarter.
U.S. defense firms are seeing a notable increase in orders amid escalating tensions between China and the Philippines, the ongoing conflict between Russia and Ukraine, and in the Middle East. However, pandemic-related disruptions in labor and supply chains are weighing on the sector.
The company said in October its production rate was affected by low availability of processor assemblies, solid-rocket motors, castings and forgings, and its F-35 program had taken the worst hit.
Net sales from the F-35 program fell $275 million in the fourth quarter from a year earlier. Final payments for some F-35s, a keystone for the Aeronautics business' margin, have been delayed by several months because a software update on recently built jets needs final testing and approval.
During a post earnings call with analysts, CEO Jim Taiclet said these payments, expected by June 30, could continue to be delayed into the third quarter.
Some analysts have raised concerns around the risks associated with supply chain disruptions, which they fear are not likely to dissipate quickly.
DEFENSE INDUSTRY BELLWETHER
Lockheed's earnings are seen as a bellwether for the arms sector. Rivals Northrop Grumman (NYSE:NOC) and General Dynamics (NYSE:GD) are due to report quarterly results later this week.
Bethesda, Maryland-based Lockheed on Tuesday forecast 2024 profits in the range of $25.65 to $26.35 per share. Analysts on average are expecting a profit of $26.62, according to LSEG data.
It also reported fourth-quarter net income of $1.87 billion, down 2.4% from a year earlier. On a per share basis, however, profit rose to $7.58 from $7.40.
Sales in the company's largest aeronautics business declined 0.3%, while total sales for the company fell 0.7% to $18.87 billion in the quarter ended Dec. 31.
Revenue at its Missiles and Fire Control unit, which makes the High Mobility Artillery Rocket System (HIMARS), fell 3.5% to $3.17 billion.
Capital expenditures will remain elevated in 2024, Chief Financial Officer Jay Malave told Reuters in an interview, because the company will continue to invest in building out production for weapons systems that are in high demand in Ukraine, such as the Guided Multiple Launch Rocket System (GMLRS), HIMARS and others, which the Pentagon has said would be used in the Pacific theatre, such as the Joint Air-to-Surface Standoff Missile (JASM) and Long Range Anti-Ship Missile LRASM.
Lockheed expects 2024 sales in the range of $68.50 billion to $70 billion, above analysts' average expectations of $68.66 billion.