Lockheed Profit Beats Estimates; 2006 Forecast Raised

NEW YORK – Lockheed Martin Corp.(LMT), the No. 1 U.S. defense contractor, Thursday said fourth-quarter net profit rose a greater-than-expected 53 percent, helped by higher sales of information technology services and some one-time investment gains.

Lockheed, which makes F-16 fighter jets and Patriot missiles, but is moving to focus more on civilian technology, also raised its full-year 2006 profit forecast ahead of Wall Street estimates.

Its shares rose more than 3 percent to their highest level in three and a half years.

The Bethesda, Md.-based company said earnings rose to $568 million, or $1.29 per share, from $372 million, or 83 cents per share, a year earlier.

That beat Wall Street's average profit forecast of $1.15 per share, according to Reuters Estimates, helped by some one-time gains, largely from the sale of shares in telecommunications companies. The year-ago figure included a litigation charge.

"Order flow in the quarter was much better than we were expecting," said Patrick McCarthy at Friedman, Billings, Ramsey & Co. "Expectations for the fourth quarter for the defense industry in general was that orders would be fairly muted," he said, because of the delay in passing the 2006 defense budget and difficult comparisons with strong orders in the year-ago quarter.

Lockheed's revenue rose 3 percent to $10.2 billion, slightly below analysts' average estimate of $10.3 billion. Its backlog of contract work rose to $74.8 billion at the end of the year, up from $74 billion the year before.

Like rival Northrop Grumman Corp. (NOC), Lockheed has benefited from high defense spending, but some of its multibillion-dollar projects, like the F-35 Joint Strike Fighter jet, are now vulnerable to cuts as the Pentagon seeks to rein in spending growth.

In response, Lockheed is leading the charge among defense companies toward high-tech systems, a growth area as the U.S. government spends more on computerizing civilian, security and intelligence operations.

Lockheed signaled that it was looking to make acquisitions in the sector, where it already provides computer systems for government operations ranging from the U.S. Postal Service to the nation's air traffic control system.

"Absolutely, it's an area of focus," said Lockheed Chief Financial Officer Chris Kubasik in a telephone interview. "We've made ten acquisitions in the last several years and a majority have been in our systems and IT group. We'll continue to look at that."

Last year, Lockheed and a group of private equity firms backed away from a potential $12 billion deal to buy Computer Sciences Corp., according to people familiar with the matter, a move that would have boosted its federal technology work.

Looking forward, Lockheed raised its full-year 2006 profit forecast to a range of $4.50 to $4.75 per share, up from $4 to $4.25. Analysts, on average, expected $4.26.

The company kept its 2006 revenue forecast unchanged at $38 billion to $39.5 billion. Wall Street expected $39.3 billion.

Lockheed's shares rose $2.18 to $67.19 on the New York Stock Exchange, their highest since July 2002.

The shares are up more than 20 percent over the past 12 months and now trade around 15 times forecast 2006 earnings, at the low end of companies in the Amex Defense index.