Lockheed Martin Profit Outlook Disappoints As Supply, Labor Squeeze Persists

By Deborah Mary Sophia and Mike Stone

(Reuters) -U.S. weapons maker Lockheed Martin Corp on Tuesday forecast annual profit below Street expectations, hurt by lingering supply bottlenecks and higher costs, though a generous defense budget helped it beat fourth-quarter estimates.

The defense contractor said it expected a profit of $26.60 to $26.90 per share in 2023. The average analysts’ estimate has been $26.96, according to Refinitiv.

Shares were little changed in pre-market trading, up 1% to $446.69.

“We signaled way ahead of time that 2023 was going to be kind of a steady state year from a revenue perspective,” Lockheed Chief Executive Jim Taiclet said in an interview, adding that he aimed to grow free cash flow per share by 5% in 2023.

Supply chain snags brought on by the pandemic have squeezed margins at defense suppliers, although those constraints are now easing even as the companies continue to grapple with labor shortages.

Analysts have warned that defense spending could slow in 2023 after it reached peak levels as the United States and its allies bulked up budgets following Russia’s invasion of Ukraine last year.

The election of Kevin McCarthy as the U.S. House speaker and his promise to curb spending has also raised concerns about the near-term outlook for defense companies such as Lockheed, Raytheon Technologies Corp and Northrop Grumman Corp, which derive much of their revenues from the U.S. government.

Lockheed forecast 2023 revenue between $65 billion and $66 billion, compared with market estimates of $65.74 billion.

Net sales at the aeronautics unit – Lockheed Martin’s largest, which makes the F-35 – jumped 7% to $7.64 billion in the fourth quarter, but the segment’s operating margin shrank to 10.7% from 11.5% a year earlier.

Bethesda, Maryland-based Lockheed Martin posted adjusted net income of $7.79 per share for the three months ended Dec. 31, compared with analysts’ estimate of $7.39 per share.

It reported fourth-quarter net sales of $18.99 billion, above expectations of $18.27 billion.

(Reporting by Deborah Sophia in Bengaluru and Mike Stone in Washington; Editing by Bradley Perrett and Mark Porter)