Lockheed tumbles 11% as supply chain woes hammer forecast

© Reuters. FILE PHOTO: Lockheed Martin's logo is seen during Japan Aerospace 2016 air show in Tokyo, Japan, October 12, 2016. REUTERS/Kim Kyung-Hoon

By Mike Stone

WASHINGTON (Reuters) -Lockheed Martin Corp dramatically lowered its sales expectations for this year and next on Tuesday, saying the COVID-19 pandemic has severely hobbled the top U.S. defense contractor's supply chain, sending its shares down more than 11%.

The pandemic has crippled many companies' ability to send and receive the parts and supplies they need to produce a wide range of products, creating shortages, reducing inventories and hammering profits.

Lockheed's chief financial officer said the problem worsened for them over the last two months, as the maker of the F-35 fighter jet lowered its 2021 revenue expectations by 2.5% to $67 billion and said next year's revenue could fall to $66 billion.

Lockheed's poor outlook, just 66 days from year-end, came after it reassessed its five-year business plan "given recent external and programmatic events," Chief Executive Jim Taiclet said in the earnings report that dashed hopes the United States' largest arms maker could muscle its way through the pandemic.

The reassessment means "a slight reduction in revenue in 2022 and roughly flat to low-single-digit growth rates in both revenue and segment operating profit over the next few years" as Lockheed prioritizes researching next-generation weapons systems like hypersonic weapons and returning cash to shareholders, the CEO added.

"Management laid out a meaningfully lower growth profile than previously indicated, and growth is a key metric in Defense right now," Seth Seifman, a JP Morgan analyst said in a research note, adding, "the potential silver lining the market may ultimately begin looking for here is that today's hit to the outlook is drastic enough to set up potential beats going forward."

On the call with analysts, Taiclet said the company's sales would go up again in 2023 and increase steadily through 2026.

He also said Lockheed now sees its planned purchase of rocket maker Aerojet Rocketdyne Holdings (NYSE:AJRD) Inc closing in the first quarter of 2022, a bit later than previously expected.

Support for the defense industry could be on the way as congressional committees are set to start their conference on the Biden administration's 2022 defense policy bill that outlines increased spending.

Lockheed, however, raised its earnings-per-share guidance for 2021 to $22.45, more than analyst estimates of $22.19, as operating profits rose 6.6% versus the same period last year.

The third quarter which ended on Sept. 26 showed sales at Lockheed's largest unit, aeronautics - which makes the F-35 fighter jet - down 2% from a year earlier, when the pandemic locked down many parts of the defense industry's supply chain.

Through Sept. 26, the unit made 90 F-35 deliveries, with 36 occurring in the third quarter. Lockheed aims to deliver 133 to 139 of the stealthy jets this year.

In 2022, Lockheed plans to deliver 151 to 153 of the fighter aircraft.

Lockheed's third-quarter revenue was $16 billion, 6.6% below analyst revenue estimate of $17.1 billion, Refinitiv data showed.