Lockheed Awaits UK Regulatory Review Over Leidos Deal; IS&GS 2016 Forecast Lifted

lockheed martinLockheed Martin (NYSE: LMT) has one pending regulatory review remaining in the U.K. over the merger of its information systems and global solutions business with Leidos Holdings (NYSE: LDOS) ahead of the deal’s intended closure in either the third or fourth quarter, Lockheed CEO Marillyn Hewson told investors Tuesday.

Both companies agreed in January on a deal to combine Lockheed’s IS&GS segment, which posted $5.6 billion in 2015 revenue, into the Reston, Virginia-based services contractor Leidos that recorded $5.1 billion in sales last year.

The Federal Trade Commission has cleared the combination under its Hart-Scott-Rodino regulatory review and the U.K. is looking at potential combination impacts from the deal there, Hewson said in that call with investors to discuss the company’s first quarter financial results.

On top of Lockheed’s overall earnings forecast lift, the company also increased its 2016 revenue outlook for the IS&GS segment to between $5 billion and $5.3 billion from the prior $4.9 billion-to-$5.2 billion guidance in part on extended performance for contracts under protest and transition periods for programs out of its portfolio.

Chief Financial Officer Bruce Tanner told analysts the company is working under contracts that were re-competed but currently under protest, which gives the company opportunity to continue its work as the incumbent on the predecessor.

“The older contracts are at the… the higher margin on the incoming contract. So it is good for us from both a sales perspective and more importantly on the margin side because of that, ” Tanner said.

First quarter sales in the IS&GS segment totaled $1.33 billion to register a nominal 4.3-percent decline from the same period in 2015 with an operating margin at 8.2 percent, down from the 10.4 percent reported for the January-March period last year.

As of 2:30 p.m. Eastern, shares in Lockheed — a GovCon Index company — were up 2.03 percent in intraday trade at $230.90 versus the 52-week high of $231.45.

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