Lockheed Martin Reports Second Quarter 2020 Results

Rhea-AI Summary

Lockheed Martin Corporation (LMT) reported Q2 2020 net sales of $16.2 billion, an increase from $14.4 billion in Q2 2019. Net earnings rose to $1.6 billion ($5.79 per share) compared to $1.4 billion ($5.00) a year earlier. Cash from operations also improved to $2.2 billion from $1.7 billion. The results included a $128 million non-cash impairment charge related to a joint venture sale. Lockheed Martin emphasized strong operational performance and ongoing commitment to national security amid the pandemic.

Positive

• Net sales increased by $1.8 billion year-over-year.
• Net earnings increased by $206 million from the previous year.
• Cash from operations improved by $514 million compared to Q2 2019.

Negative

• Incurred a $128 million non-cash impairment charge for a joint venture.

BETHESDA, Md., July 21, 2020 /PRNewswire/ -- Lockheed Martin Corporation (NYSE: LMT) today reported second quarter 2020 net sales of $16.2 billion, compared to $14.4 billion in the second quarter of 2019. Net earnings in the second quarter of 2020 were $1.6 billion, or $5.79 per share, compared to $1.4 billion, or $5.00 per share, in the second quarter of 2019. Cash from operations in the second quarter of 2020 was $2.2 billion, compared to cash from operations of $1.7 billion in the second quarter of 2019.

"I'm pleased to see continued strong operational and financial results this quarter as we remain focused on performing with excellence for our customers while protecting the well-being of our employees and keeping our supply chain strong during this global pandemic," said James Taiclet, Lockheed Martin president and CEO. "Our dedicated Lockheed Martin team, and strong portfolio, coupled with supportive governmental actions have positioned us to deliver vital national security solutions for our country and international partners, and long-term value for our shareholders."

Second quarter 2020 net earnings include a non-cash impairment charge of $128 million ($96 million, or $0.34 per share, after tax) for an investment in a joint venture that the corporation has entered into an agreement to sell.

Summary Financial Results

The following table presents the corporation's summary financial results.

	(in millions, except per share data)		Quarters Ended1		Six Months Ended
			June 28, 2020		June 30, 2019		June 28, 2020		June 30, 2019
	Net sales		$	16,220			$	14,427			$	31,871			$	28,763
	Business segment operating profit2		$	1,790			$	1,554			$	3,515			$	3,269
	Unallocated items
	FAS/CAS operating adjustment		469			512			938			1,024
	Other, net3,4		(173)			(58)			(245)			(2)
	Total unallocated items		296			454			693			1,022
	Consolidated operating profit		$	2,086			$	2,008			$	4,208			$	4,291
	Net earnings5		$	1,626			$	1,420			$	3,343			$	3,124
	Diluted earnings per share		$	5.79			$	5.00			$	11.87			$	11.00
	Cash generated from operations6		$	2,182			$	1,668			$	4,496			$	3,331
1	The corporation closes its books and records on the last Sunday of the calendar quarter to align its financial closing with its business processes, which was on June 28 for the second quarter of 2020 and June 30 for the second quarter of 2019. The consolidated financial statements and tables of financial information included herein are labeled based on that convention. This practice only affects interim periods, as the corporation's fiscal year ends on Dec. 31.
2	Business segment operating profit is a non-GAAP measure. See the "Non-GAAP Financial Measures" section of this news release for more information.
3	In the second quarter and first six months of 2020, the corporation recognized a non-cash impairment charge of $128 million ($96 million, or $0.34 per share, after tax) for its investment in the international equity method investee, Advanced Military Maintenance, Repair and Overhaul Center (AMMROC) which the corporation entered into an agreement to sell in July 2020.
4	In the first six months of 2019, the corporation recognized a previously deferred non-cash gain of $51 million ($38 million, or $0.13 per share, after tax) related to properties sold in 2015 as a result of completing its remaining obligations.
5	Net earnings in the first six months of 2019 included a benefit of approximately $65 million ($0.23 per share) from the discrete recording of additional tax deductions related to 2018 in the first quarter of 2019, based on proposed tax regulations released on March 4, 2019, that clarified that foreign military sales qualify as foreign derived intangible income.
6	Cash generated from operations in the second quarter of 2020 reflects the receipt of approximately $930 million of net accelerated progress payments due to the U.S. Government's increase in the progress payment rate from 80 percent to 90 percent, the deferral of $400 million of federal estimated income tax payments from the second quarter to the third quarter of 2020 pursuant to IRS guidance, and the deferral of $160 million for the employer portion of payroll taxes to 2021 and 2022 pursuant to the CARES Act. The corporation used the accelerated progress payments from the U.S. Government plus cash on hand to accelerate $1.3 billion of payments to its suppliers in the second quarter of 2020.

2020 Financial Outlook

The following table and other sections of this news release contain forward-looking statements, which are based on the corporation's current expectations. Actual results may differ materially from those projected. It is the corporation's typical practice not to incorporate adjustments into its financial outlook for proposed acquisitions, divestitures, ventures, changes in law, or new accounting standards until such items have been consummated, enacted or adopted. For additional factors that may impact the corporation's actual results, refer to the "Forward-Looking Statements" section in this news release. 

	(in millions, except per share data)		Current Guidance1		April 2020 Outlook
	Net sales		$63,500 - $65,000		$62,250 - $64,000
	Business segment operating profit		$6,900 - $7,050		$6,800 - $6,950
	Net FAS/CAS pension adjustment2		~$2,090		~$2,090
	Diluted earnings per share		$23.75 - $24.05		$23.65 - $23.95
	Cash from operations		≥$8,000		≥$7,600
1	The corporation's 2020 financial outlook reflects the currently expected impacts related to COVID-19, however, the ultimate impacts of COVID-19 on the corporation's financial outlook for 2020 and beyond remains uncertain.
2	The net FAS/CAS pension adjustment is presented as a single amount and includes total expected 2020 U.S. Government cost accounting standards (CAS) pension cost of approximately $1,975 million and total expected financial accounting standards (FAS) pension income of approximately $115 million. CAS pension cost and the service cost component of FAS pension expense are included in operating profit. The non-service cost components of FAS pension expense are included in non-operating income (expense). For additional detail on the corporation's FAS/CAS pension adjustment, see the supplemental table included at the end of this news release.

COVID-19

The global outbreak of the coronavirus disease 2019 (COVID-19) was declared a pandemic by the World Health Organization and a national emergency by the U.S. Government in March 2020 and has negatively affected the U.S. and global economies, disrupted global supply chains, resulted in significant travel and transport restrictions, including mandated closures and orders to "shelter-in-place" and quarantine restrictions, and created significant disruption of the financial markets. Lockheed Martin has taken measures to protect the health and safety of its employees, work with its customers and suppliers to minimize disruptions and support its community in addressing the challenges posed by this ongoing global pandemic. The pandemic has presented unprecedented business challenges, and the corporation has experienced impacts in each business area related to COVID-19, primarily in increased coronavirus-related costs, delays in supplier deliveries, impacts of travel restrictions, access to some locations, and the impacts of remote work and adjusted work schedules. Despite these challenges, the corporation and U.S. Government's proactive efforts, especially with regard to the supply chain, helped to partially mitigate the disruptions caused by COVID-19 on the corporation's operations in the second quarter. In addition, favorable contract award timing and strong performance more than offset the impacts of COVID-19 on the corporation's financial results in the first half of 2020. Given the results year-to-date and expectations for the remainder of 2020, the corporation is updating its 2020 guidance for net sales, segment operating profit, earnings per share and cash from operations to reflect the recent performance across all four business areas. However, the ultimate impact of COVID-19 on the corporation's financial outlook in 2020 and future periods remains uncertain. The corporation's 2020 outlook assumes, among other things, that its production facilities continue to operate and it does not experience significant work stoppages or closures, it is able to mitigate any supply chain disruptions and these do not worsen, and it is able to recover its costs under U.S. Government contracts and government funding priorities do not change. While these are the corporation's current assumptions for its 2020 outlook, they could change because the future impact of COVID-19 on the corporation's operations and financial performance, including the corporation's ability to execute programs in the expected timeframe, remains uncertain and will depend on future developments, including the duration and spread of the pandemic and related actions taken by the U.S. government, state and local government officials, and international governments to prevent and manage disease spread, all of which are uncertain and cannot be predicted.

Cash Activities

The corporation's cash activities in the second quarter of 2020 included the following:

• paying cash dividends of $671 million, compared to $622 million in the second quarter of 2019;
• repurchasing 0.7 million shares for $259 million; compared to repurchasing 0.6 million shares for $219 million in the second quarter of 2019. In the second quarter of 2020 the corporation also received and retired an additional 0.4 million shares upon settlement of the accelerated share repurchase agreement entered into in the first quarter of 2020 for no additional consideration;
• making capital expenditures of $343 million, compared to $249 million in the second quarter of 2019;
• no net proceeds from or repayments of commercial paper, compared to making net repayments of $400 million in the second quarter of 2019.

In May 2020, the corporation received net proceeds of $1.13 billion from a $1.15 billion debt issuance of senior unsecured notes, consisting of $400 million aggregate principal amount of 1.85% Notes due 2030 and $750 million aggregate principal amount of 2.80% Notes due 2050. In June 2020, the corporation used the net proceeds from the May 2020 debt offering plus cash on hand to redeem $750 million of the outstanding $1.25 billion in aggregate principal amount of the 2.50% Notes due 2020, and $400 million of the outstanding $900 million in aggregate principal amount of the 3.35% Notes due 2021. As a result of these transactions, as of June 28, 2020, the corporation's debt balance remained unchanged.

Segment Results

The corporation operates in four business segments organized based on the nature of products and services offered: Aeronautics, Missiles and Fire Control (MFC), Rotary and Mission Systems (RMS) and Space. The following table presents summary operating results of the corporation's business segments and reconciles these amounts to the corporation's consolidated financial results.

	(in millions)		Quarters Ended		Six Months Ended
			June 28, 2020		June 30, 2019		June 28, 2020		June 30, 2019
	Net sales
	Aeronautics		$	6,503			$	5,550			$	12,872			$	11,134
	Missiles and Fire Control		2,801			2,411			5,420			4,761
	Rotary and Mission Systems		4,039			3,768			7,785			7,530
	Space		2,877			2,698			5,794			5,338
	Total net sales		$	16,220			$	14,427			$	31,871			$	28,763
	Operating profit
	Aeronautics		$	739			$	592			$	1,411			$	1,177
	Missiles and Fire Control		370			327			766			744
	Rotary and Mission Systems		429			347			805			726
	Space		252			288			533			622
	Total business segment operating profit		1,790			1,554			3,515			3,269
	Unallocated items
	FAS/CAS operating adjustment		469			512			938			1,024
	Other, net		(173)			(58)			(245)			(2)
	Total unallocated items		296			454			693			1,022
	Total consolidated operating profit		$	2,086			$	2,008			$	4,208			$	4,291

FAQ

What were Lockheed Martin's Q2 2020 net sales?

Lockheed Martin's Q2 2020 net sales were $16.2 billion.

How much did Lockheed Martin earn in Q2 2020?

Lockheed Martin earned $1.6 billion in Q2 2020.

What was Lockheed Martin's diluted earnings per share in Q2 2020?

Lockheed Martin's diluted earnings per share in Q2 2020 were $5.79.

What contributed to the increase in cash from operations for Lockheed Martin in Q2 2020?

The increase in cash from operations was due to approximately $930 million of net accelerated progress payments.

Did Lockheed Martin incur any impairment charges in Q2 2020?

Yes, Lockheed Martin incurred a $128 million non-cash impairment charge.