Will Solid Orders Boost Lockheed Martin's (LMT) Q4 Earnings?

Lockheed Martin Corporation (NYSE:LMT) is set to release fourth-quarter and 2017 results on Jan 29, before the opening bell.

Order procurement continues to be a primary growth driver for this defense major’s fourth-quarter results. The company is expected to overcome the weakness in operating profits in the quarter to be reported.

Let's take a detailed look at the factors influencing Lockheed Martin’s quarterly results.

Slew of Contract Wins: Key Catalyst

Being the largest defense contractor in the United States, Lockheed Martin enjoys a solid inflow of contracts from the Pentagon and its overseas clients, courtesy of its varied defense and military product offerings.

Among the contracts that this defense major won in the fourth quarter, the significant ones include a $7-billion deal for its Aeronautics business division secured for offering comprehensive F-22 air vehicle sustainment, a $945-million contract for the production of PAC-3 Missiles, and a $419-million modification contract for the procurement of Trident II (D5) missile production.

The company also won a $260-million modification contract to upgrade four P-3B aircraft and a $158.5-million contract for the second phase of the German Navy P-3C Mission System Refresh program.

Such a steady flow of orders will certainly boost Lockheed Martin’s quarterly sales. The Zacks Consensus Estimate for fourth-quarter sales is pegged at $14.8 billion, reflecting year-over-year growth of 7.27%.

Operating Profit: A Solid Show

During the third quarter, Lockheed Martin’s segment operating profit suffered timing-related shortfall. However, the company's fourth-quarter results are expected to show an improvement in the same. Impressively,
management has raised the 2017 operating profit outlook by $20 million and total operating profit view by $240 million. In particular, the company lifted its profit outlook for Aeronautics, Space Systems as well as Missiles and Fire Control segments by a collective $35 million. For the Rotary and Mission Systems unit, the company foresees a drop in operating profits.

In line with this, our consensus estimate predicted 16.3% growth in fourth-quarter operating profit for Aeronautics business segment.

Other Factors at Play

Segment-wise, management has raised the sales outlook for the company’s Space Systems, Rotary and Mission Systems as well as Missiles and Fire Control business units. However, the sales outlook for the
Aeronautics business was slashed owing to an updated forecast of subcontractor production costs that were incurred in previous quarter.

On the bright side, Lockheed Martin lifted its earnings per share outlook by 55 cents based on the increase in segment operating profits and the improvement in unallocated items. In line with this, the ZacksConsensus Estimate for fourth-quarter earnings is pegged at $4.06 per share, reflecting a 24.9% increase year over year.

Lockheed Martin Corporation Price and EPS Surprise

Lockheed Martin Corporation Price and EPS Surprise | Lockheed Martin Corporation Quote

What Our Zacks Model Unveils

Lockheed Martin has the right combination of two main ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — that increase the odds of an earnings beat.

Zacks ESP: Lockheed Martin has an Earnings ESP of +0.31%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Lockheed Martin carries a Zacks Rank #2.

Please note that we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Other Stocks to Consider

Here are a few other companies in the Aerospace-Defense sector that have the right combination of elements to post an earnings beat this quarter.

Boeing (NYSE:BA) is expected to report quarterly results on Jan 31. The company has an Earnings ESP of +0.25% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Huntington Ingalls Industries (NYSE:HII) has an Earnings ESP of +3.43% and a Zacks Rank #2. The company is expected to report quarterly results on Feb 15.

Leidos Holdings (NYSE:LDOS) has an Earnings ESP of +0.85% and a Zacks Rank #3. The company is slated to release fourth-quarter results on Feb 22.

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