Lockheed Profit Exceeds Forecasts

Lockheed Martin Corp., the largest defense contractor, said second-quarter profit rose 29% as it cut costs, and the company raised earnings estimates for this year and next.

Net income rose to $144 million, or 33 cents a share, from $112 million, or 29 cents, a year earlier, despite a 4% decline in sales to $5.96 billion that reflected weakness in a several units.

The results exceeded the 29-cent average estimate of analysts polled by First Call.

Lockheed, maker of the F-16 fighter jet and a contender for the massive Joint Strike Fighter contract, continues to benefit from a cost-cutting program it began to reduce debt incurred through a series of acquisitions in the 1990s. The company has retired more than $3 billion in debt since January, including $1.1 billion in the second quarter. Interest expense dropped 18% to $180 million.

“Throughout the ‘90s, they made all of these acquisitions and weren’t able to integrate them,” said Thomas Leritz of Banc of America Capital Management, which owns Lockheed shares. “[Now] they are really focused on improving their balance sheet.”

The Bethesda, Md.-based company said it expects 2001 earnings to be 30% to 35% higher than the $1.07 a share it reported for 2000 because of improved free cash flow, lowered interest expense and better operational performance. Lockheed had earlier predicted profit growth of 25% to 30% this year.

“Orders were a little light in the first half of this year,” said Christopher Kubasik, Lockheed’s chief financial officer, “However, we continue to expect that orders will increase in the second half of the year.”

The company based those expectations in part on the timing of C-130J airlifter deliveries and Atlas satellite launches.

For 2002, Lockheed said earnings should grow by 20% over 2001.

Analysts were expecting a profit of $1.38 for this year and $1.66 next year, according to First Call/Thomson Financial.

In the latest quarter, Lockheed reported sales declines in the space systems, aeronautics, systems integration and technology services segments.

The company also announced a realignment of the space systems unit, which makes and launches satellites, where sales fell 2% to $1.75 billion.

The company plans to move some operations to Newtown, Pa., from Sunnyvale, Calif. About 70 employees will be moved and another 100 will be offered jobs elsewhere at Lockheed facilities in California, said spokesman Steve Tatum.

Sales in the aeronautics unit fell 16% to $1.06 billion as a result of fewer deliveries of F-16s and C-130Js, and lower volumes on other aircraft programs.

Sales in the global telecommunications unit, which maintains government satellite networks, climbed 121% to $245 million, including revenue from Comsat Corp., which Lockheed bought last year, although the unit’s loss widened.

“That subsidiary is a continuous consumer of cash and has not produced a profit despite the acquisition of Comsat,” said Paul Nisbet, an analyst with JSA Research Inc., who has a “hold” rating on Lockheed’s shares.

Shares of Lockheed rose $1.50 to $38.85 on the New York Stock Exchange.

Other earnings, excluding one-time gains or charges unless noted, include:

* American International Group Inc., the world’s largest insurer by market value, said that second-quarter profit rose 16% to $1.66 billion, or 70 cents a share, as increased earnings from its worldwide life insurance operations offset higher losses from storms in the United States. The results matched analysts’ average forecast. Revenue rose 10% to $12.58 billion, boosted by higher overall premiums in both life and general insurance operations.

* Chubb Corp. said second-quarter earnings fell 21% to $142.4 million, or 80 cents a share, hurt by storm-related losses and bigger-than-expected homeowners claims. The results surpassed the 77-cent estimate of analysts that was lowered last month when the company warned of profit weakness.

* Celgene Corp., a biotechnology company that’s developing cancer and immune-system therapies, said its loss narrowed to $2.4 million, or 3 cents a share, from a loss of $5.9 million, or 9 cents, as more doctors prescribed its Thalomid drug to treat cancer. Analysts were expecting a break-even quarter. Revenue rose 21% to $23.9 million.

* IBP Inc., which will be acquired by chicken producer Tyson Foods Inc., said second-quarter profit fell 8.7% to $42 million, or 40 cents a share, from $46 million, or 43 cents, in the year-ago quarter, IBP said. Revenue rose to $4.4 billion from $4.3 billion.

* Kellogg Co.’s second-quarter profit fell 24% to $114.6 million, or 28 cents a share, matching expectations, as the company spent more to integrate Keebler Food Co. into its operations. Sales rose 20% to $2.34 billion, helped by the Keebler acquisition. The company also raised its profit forecast for the full year.

* Starbucks Corp. said fiscal third-quarter profit rose 34% to $46.8 million, or 12 cents a share, matching forecasts, as coffee costs fell and customers bought higher- priced frozen drinks. Sales rose 19% to $662.8 million.

* Starwood Hotels & Resorts Worldwide Inc. said second-quarter net profit fell 10% to $107 million, or 52 cents per share, missing forecasts of 55 cents, hurt by a decline in business travel amid the economic slowdown. Revenue declined 2.6% to $1.11 billion.

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Earnings Reports

A sampling of companies reporting quarterly earnings Thursday, ranked by year-over-year earnings-per-share (EPS) growth, compiled by First Call/Thomson Financial.

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Year-over-year growth and percentage changes are based on earnings-per-share figures and may differ from percentage changes based on total profit.

For more information on First Call, check www.firstcall.com.