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Lockheed’s Revised 2016 Outlook Post-Leidos Deal Tops Street Consensus

F35C launch on USS NimitzLockheed Martin (NYSE: LMT) unveiled revised full-year earnings and revenue guidance that exceeded Wall Street’s expectations Monday in the defense contractor’s first financial statement since the Aug. 16 spinout and merger of its former government services segment into Leidos Holdings (NYSE: LDOS).

GovCon Index– and S&P 500-listed Lockheed sees earnings of $12.10 per share and $46.5 billion in revenue for 2016 versus the average analyst forecast of $11.75 EPS and $46.36 billion in sales.

The Bethesda, Maryland-based contractor’s new guidance removes an entire year of results at $5 billion-$5.3 billion from the information systems and global solutions segment now part of Leidos.

Including IS&GS, Lockheed’s previous outlook had 2016 earnings at $12.15-$12.45 per share and $50 billion-$51.5 billion in revenue.

Lockheed sought to spin off or sell the business that provides information technology and technical services work to agencies and commercial businesses as part of efforts to increase its focus on larger defense and space platforms with higher margins.

Shares in Lockheed have declined 12.88 percent since the deal’s closure.

Lockheed said it is continuing to self-fund lots 9 and 10 of the F-35 fighter jet program to keep production on schedule as the company negotiates contracts with the Defense Department on both batches.

The company estimates $950 million of potential cash exposure and $2.3 billion in termination liability exposure for the lot 9 and 10 contracts.

Lockheed also said it expects net sales in 2017 to increase nearly 7 percent year-over-year versus the 2.8-percent analyst consensus with operating margin at 10-10.5 percent.

Third quarter earnings for Lockheed totaled $3.61 per share as revenue climbed 14.82 percent year-over-year to $11.55 million on higher contributions from the F-35 program and the Sikorsky helicopter business acquired for $9 billion in November 2015.

Wall Street analysts expected Lockheed to report $2.86 EPS at $11.45 billion in sales for the third quarter.

Aeronautics segment revenue including the F-35 climbed 6.8 percent year-over-year to $4.19 billion with $300 million higher sales of the fighter jet, while the rotary and mission systems division Sikorsky resides in jumped 54.76 percent to $3.34 billion with $1.2 billion in contributions from that subsidiary.

Net income for the July-September period rose from $865 million to $2.39 billion on contributions from the IS&GS divestiture.

The company also announced a 10-percent boost in its quarterly dividend to $1.82 per share and added $2 billion to its share repurchase initiative as stock buybacks for the third quarter totaled 1.2 million for $278 million.

Lockheed used a separate $1.8 billion special dividend from the IS&GS transaction to buy back 9.4 billion shares and cut 3 percent from its share count, which currently sits at 302.91 million outstanding with 262.29 million floating.

As of Monday’s close, shares in Lockheed are up 6.76 percent from the start of the year and have risen 9.74 percent over 12 months.

By comparison, the GovCon Index has added 5.01 percent on a year-to-date basis and climbed 4.94 percent for 52 weeks versus the S&P 500 composite index’s respective gains of 5.25 percent YTD and 3.67 percent over 12 months.

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