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Why Is Lockheed (LMT) Down 7.7% Since Last Earnings Report?

A month has gone by since the last earnings report for Lockheed Martin (LMT). Shares have lost about 7.7% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Lockheed due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Lockheed's Q1 Earnings Top Estimates, Sales Rise Y/Y

Lockheed Martin reported first-quarter 2023 adjusted earnings of $6.43 per share, which surpassed the Zacks Consensus Estimate of $6.07 by 5.9%. The bottom line, however, was in line with the year-ago quarter's figure.

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The company reported GAAP earnings of $6.61 per share in the first quarter of 2023 compared with $6.44 in the prior-year quarter.

Our model projected adjusted earnings of $6.15 per share for the same time frame.

Operational Highlights

Net sales amounted to $15.13 billion in the reported quarter, which surpassed the Zacks Consensus Estimate of $14.87 billion by 1.9%. The top line rose 1.1% from $14.96 billion in the year-ago quarter.

Our model projected net sales of $14.84 billion for the first quarter of 2023.

Backlog

Lockheed Martin's backlog as of Mar 26, 2023, was $145.09 billion compared with $150 billion at the end of 2022. The Aeronautics segment accounted for $53.30 billion of this amount, while Rotary and Mission Systems contributed $34.91 billion.

The Space Systems, and the Missiles and Fire Control segments contributed $29.44 billion and $27.45 billion, respectively.

Segmental Performance

Aeronautics: Sales declined 2% year over year to $6.27 billion primarily due to lower volume on production contracts for the F-35 program.

The segment’s operating profit decreased 1% year over year to $675 million. The operating margin expanded 20 basis points (bps) to 10.8%.

Missiles and Fire Control: Quarterly sales dropped 3% year over year to $2.39 billion. This was due to lower sales from the sensors and global sustainment programs, as well as marginal sales of $60 million from the tactical and strike missile programs.

The segment’s operating profit decreased 2% year over year to $377 million, while the operating margin expanded 10 bps to 15.8%.

Space Systems: Sales increased 16% year over year to $2.96 billion due to higher sales from strategic and missile defense programs, national security space programs, and commercial civil space programs.

The segment’s operating profit improved 13% to $280 million. The operating margin contracted 20 bps to 9.5% in the quarter under review.

Rotary and Mission Systems: Quarterly revenues dropped 1% to $3.51 billion on a year-over-year basis. The decrease was primarily due to lower sales from Sikorsky helicopter program, as well as various C6ISR (command, control, communications, computers, cyber, combat systems, intelligence, surveillance and reconnaissance) programs.

The segment’s operating profit declined 14% to $350 million in the reported quarter. The operating margin contracted 140 bps to 10% in the same time frame.

Financial Condition

Lockheed Martin’s cash and cash equivalents totaled $2.44 billion at the end of first-quarter 2023 compared with $2.55 billion at the end of 2022. Cash from operating activities amounted to $1.56 billion compared with $1.41 billion in the year-ago period.

Guidance

Lockheed Martin reiterated its financial guidance for 2023. The company expects revenues of $65-66 billion for 2023. The Zacks Consensus Estimate for full-year revenues is pegged at $65.71 billion, which is slightly lower than the mid-point of the company’s guided range.

LMT’s earnings per share are anticipated to be $26.60-$26.90 for 2023. The Zacks Consensus Estimate for the company’s full-year earnings of $26.86 per share is higher than the mid-point of the company’s guidance range.

Lockheed Martin expects a free cash flow of $6.2 billion for 2023.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision.

VGM Scores

At this time, Lockheed has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Lockheed has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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