Lockheed Martin said its Space Systems division posted sharply higher operating-profit margins of 9.8 percent for the first three months of 2006, but that its Atlas rocket business and its commercial-satellite division remain no more than break-even operations.
While those businesses remain low margin operations, space and missile defense work for the U.S. Department of Defense were responsible for the division’s strong profit performance, said Lockheed Martin Chief Financial Officer Christopher E. Kubasik during an April 25 presentation of the company’s financial performance.
Lockheed Martin reported an operating profit of $193 million, up 26 percent from a year earlier, on net sales of $1.97 billion in the three months ending March 31. Sales were up 18 percent despite the fact that there were no launches in the quarter and only one commercial satellite delivery and one fewer Atlas rocket launch than a year ago.
In addition, the Lockheed Martin-led International Launch Services commercial-launch services company has suffered from the grounding of the Proton launch vehicle since a Feb. 28 failure. The vehicle is expected to return to service this summer. Besides the expected launcher activity this year, Lockheed Martin expects to deliver as many as seven satellites this year.
Despite this expected satellite and launcher activity later this year, Kubasik said the company is sticking with its previously announced estimate of between $7.5 billion and $8 billion for 2006 Space Systems revenue.
On the profit side, Kubasik said the four to six additional commercial satellite deliveries this year will generate “$400 to $500 million of revenue with no significant margins. So that in and of itself is dilutive.”
Kubasik also sought to correct what he said is a misconception that operating the Atlas rocket is a nicely profitably business — much as the now-retired Titan vehicle, used by the U.S. government, used to be. “Those just aren’t like they used to be five or 10 years ago,” Kubasik said of Atlas operations. “Those tend to be just above break even on the commercial side and on the government launches, which is why we’ve talked about the ULA joint venture.”
ULA, or United Launch Alliance, is a joint venture with Boeing that would combine Atlas and Boeing Delta rocket manufacturing for the government market. The alliance was proposed in May 2005 and has since been under review by U.S. government agencies.
Boeing Chief Financial Officer James Bell, in an April 26 conference call on Boeing’s financial results, said he expects ULA will clear U.S. Federal Trade Commission review by June and will not be affected by Boeing negotiations with the U.S. government on penalties Boeing will pay for illegally using Lockheed materials in bidding for a U.S. government launch contract.
“We would anticipate a resolution in the second quarter,” Bell said in the conference call. “It’s still making good progress.”
Northr op Grumman Space Technology President Alexis Livanos said his company’s concerns about ULA are being addressed by U.S. regulators and that Northro p Grumman now supports the merger.
Livanos said in April 20 remarks at the National Press Club in Washington that Northro p Grumman nonetheless wants the government to ensure that ULA will provide equal access, by all satellite builders, to launch-vehicle mating technology.
Lockheed Martin and Boeing both are major satellite prime contractors that compete with Northro p Grumman and in principle could use their ULA venture to make life difficult for other satellite builders.
Bell said Boeing has not reached an agreement with the U.S. government on what penalties the company should pay for violating regulations on hiring a former U.S. Air Force official, and for using Lockheed-proprietary documents in bidding for a U.S. Defense Department launch contract.
Bell said that because there has been no agreement on the amounts of a possible fine, Boeing is unable to estimate the effects of a fine on Boeing’s anticipated 2006 financial performance.
Staff writer Jeremy Singer contributed to this article from Washington.
