Lockheed Stock Falls 14% on Dour Earnings Forecast

Lockheed Martin Corp., its performance continuing to erode much more than previously thought, Wednesday projected a second-quarter loss and scaled back its profit outlook for this year and next.

It was the second time in six months that the nation’s biggest defense contractor caught Wall Street off guard with the severity of its problems, which mostly involve its cargo plane, rocket and commercial-satellite operations.

The revised outlook was “far worse than expected,” said analyst Byron Callan of Merrill Lynch & Co., and it sent Lockheed Martin’s stock plunging 14%. The forecast also renewed questions about the competence of Lockheed Martin’s management, and again underlined how some of the U.S. defense giants are struggling to emerge from their wave of post-Cold War merger activity in recent years.

Top management, led by Chief Executive Vance Coffman, “has lost a great deal of credibility with the investment community,” said Paul Nisbet, president of the aerospace consulting firm JSA Research in Newport, R.I.

“If they can’t give better guidance” about the depth of Lockheed Martin’s troubles, “they don’t have a very good feel for what’s going on at their own firm,” Nisbet said.

Coffman said the new outlook, which followed a massive review of Lockheed Martin’s operations, demonstrated that management is fully aware of the company’s woes and is taking steps to fix them. He noted that Lockheed Martin already has shaken up the executive ranks of its space operation, and has slashed about 8,000 jobs companywide this year alone.

“I am instilling a culture of accountability that is very much different than it has been in the past at this corporation,” Coffman said during a teleconference. “I am acutely aware of the severity of the problem and the damage that it does both to our credibility and our reputation.”

Lockheed Martin, a Bethesda, Md.-based concern with sales of $26 billion last year, builds the F-117, F-22 and F-16 fighter jets, along with the Atlas and Titan launch rockets, among other products. Its famed research unit, the Skunk Works, is in Palmdale.

Lockheed Martin blamed its problems mostly on lower production rates and delays of its C-130J military transport plane, a string of well-publicized failures involving its launch rockets, reduced orders for its commercial satellites and unexpectedly higher costs across a range of programs.

Many of those items were already known, mainly because Lockheed Martin had cited them six months ago when it projected sharply reduced growth for 1999.

But now Lockheed Martin is expecting a second-quarter loss of 10 cents to 15 cents a share, compared with the 73-cent per-share profit Wall Street had expected, according to a survey by Zacks Investment Resarch Inc.

Lockheed Martin also is now forecasting reduced earnings per diluted share of at least $1.50 for this year and $2.15 in 2000, excluding one-time gains and charges.

In response, the company’ stock tumbled $5.56 a share, to close at $34.88, in heavy New York Stock Exchange composite trading. The stock has now plummeted 40% since last fall, erasing more than $8 billion from the company’s total market value.

Todd Ernst, aerospace analyst at Prudential Securities Inc., said he’s concerned that Lockheed Martin could see even more disappointment ahead, because the company’s overall business, military and commercial, is showing little growth.

“I think there’s still a fair amount of risk in owning this stock,” Ernst said.

The biggest chunk of Lockheed Martin’s lower earnings stems from its C-130J program, where U.S. and international orders have been delayed, forcing Lockheed Martin to delay boosting up production, and costs have risen more than expected.

Lockheed Martin said it will build between 16 and 19 planes this year, and not 24 as earlier projected, and will remain that way into 2000.

The company also reduced the number of rockets it plans to launch in the next two years, and it said unexpectedly higher costs and fewer orders will shave profits from its commercial-satellite operation.

Boeing Co., which like Lockheed Martin became a defense behemoth after buying other companies, also is grappling with excessive costs, slumping earnings, a lackluster stock and production snags.

Boeing’s problems have centered on its commercial jetliner business, but their occurrence shortly after Boeing bought the defense lines of McDonnell Douglas and Rockwell International Corp. have raised suggestions that they contributed to Boeing’s struggle.

Regardless, Lockheed Martin’s future holds promise if it can solve its current troubles, analysts said. Many expect U.S. defense spending to rebound from its years of decline after the Cold War, which would benefit the industry leader.

Lockheed Martin also is a top contender to build the Joint Strike Fighter next-generation combat jet, and it’s agreed to buy Comsat Corp., a commercial-satellite services provider, for about $3 billion, to enhance its revenue in that market.

Coffman and other Lockheed Martin executives met Saturday with Pentagon officials in a meeting called by Jacques Gansler, undersecretary of defense for acquisition and technology, to go over the company’s defense programs. But the meeting was not called in response to the company’s problems, and Gansler will hold similar meetings with the other defense contractors, said Pentagon spokeswoman Cheryl Irwin.