Lockheed Martin [LMT] on Tuesday reported better than forecast top and bottom-lines in its fourth quarter, posting strong sales growth and a slight dip in earnings as the company touted significant progress in 2022 in an ongoing transformation effort designed to expand the use of digital technologies and accelerate engineering and development to get solutions to customers faster at less cost.
The transformation effort, dubbed One LMX, was driven by a record $1.9 billion in internal research and development (IRAD) spending last year that resulted in most of the design work done for new business systems and processes, James Taiclet, chairman, president and CEO of Lockheed Martin, said during the company’s earnings call.
“This is our multi-year internal project to transform our business processes and systems from end-to-end, by implementing new digital tools in our operations, and expanding our use of model-based engineering to enhance our speed-to-market and our cost competitiveness,” Taiclet said.
Last October, during the company’s third quarter earnings call, Taiclet disclosed the One LMX effort and said hefty IRAD spending will continue into 2023 and that the initiative will help toward turning Lockheed Martin’s 21st Century Warfighting concept into reality. The concept seeks to leverage the latest digital and other technologies such as 5G and artificial intelligence for current and future weapons platforms and network solutions.
This year, the detailed design around One LMX will be completed as will implementation roadmaps, Taiclet said.
“And then we’ll transition to the system build and configuration phase over the next couple of years,” he said.
Net income in the fourth quarter dipped 7 percent to $1.9 billion, $7.40 earnings per share (EPS), against $2 billion ($7.47 EPS) a year ago, missing analysts’ estimates by a penny. Sales increased 7 percent to $19 billion from $17.7 billion.
All four of the company’s operating segments delivered higher sales on a variety of programs including F-35 and F-16 fighter production, C-130 production, classified programs in the Aeronautics and Space segments, the Precision Strike Missile, GMLRS, combat systems and radar programs, the CH-53K helicopter and Combat Rescue Helicopter programs, development of the Next Generation Interceptor, and NASA’s Orion spacecraft.
Income at the company’s operating segments was down slightly but severance and asset impairment charges at the Rotary and Mission Systems segment and lower pension income drove the overall decline in net earnings.
Sales in 2022 fell nearly 2 percent to $66 billion from $67 billion in 2021. Net income slid 9 percent to $5.7 billion ($21.66 EPS) from $6.3 billion ($22.76) a year ago. Free cash flow was $6.1 billion and backlog stood at $150 billion, up 11 percent from a year ago, on record orders.
Lockheed Martin delivered one fewer F-35 in 2022 than in 2021, 141 versus 142, due to an issue with the F135 engine at the end of the year. The company had expected to deliver 148 aircraft. Taiclet said plans remain to deliver 156 F-35s annually by 2025.
Production of the F-35 continues apace and Taiclet said that more than 90 percent of the revenue on the production portion of the program is realized “when the aircraft rolls out from the plant door.” He said the resumption of deliveries will await the finish of the mishap investigation by the government and engine supplier
Raytheon Technologies [RTX].
In 2023, the company as expected projects a decline in sales to between $65 billion and $66 billion and earnings between $26.60 and $26.90 EPS. Free cash flow is forecast to be at least $6.2 billion. The company expects to return to growth in 2024 as key programs ramp-up and supply chain issues ease, Taiclet said.
Classified work across Lockheed Martin was up 5 percent in 2022 and is expected to outpace growth elsewhere across the company over the next few years, he said.