Lockheed Expects Double-Digit Profit Growth for Space Division in 2006

by












  Space News Business

Lockheed Expects Double-Digit Profit Growth for Space Division in 2006

By PETER B. de SELDING
Space News Staff Writer
posted: 30 January 2006
03:41 pm ET


Lockheed Martin expects double-digit revenue growth in its Space Systems division in 2006 in part because it will deliver five to seven commercial satellites to customers this year and launch a total of up to nine Atlas and Proton rockets combined, Robert J. Stevens, Lockheed Martin’s chief executive officer, said Jan. 26.

In a Jan. 26 statement of 2005 financial results and a conference call with financial analysts, Bethesda, Md.-based Lockheed Martin reported that overall it will report a pretax gain of $95 million in the first quarter of 2006 following the sale this month of 12 million shares of stock in mobile satellite services-fleet operator Inmarsat, and the sale of its share of the Space Imaging LLC satellite remote sensing company.

The company reported increased 2005 sales and profits for its Space Systems business, which includes missile defense contracts, despite having delivered no commercial satellites during the year. Lockheed Martin recognizes revenues only once a rocket is launched or a satellite is delivered to the customer. The company also launched fewer rockets than in 2004.

Nevertheless, the company said its Space Systems division in 2005 posted an operating profit of $609 million — up 25 percent over 2004 — on sales of $6.82 billion. Sales increased by 7 percent over 2004. The division’s profit margin for the year was 8.9 percent, compared to 7.7 percent in 2004.

Chief Financial Officer Chris Kubasik said the Space Systems business regularly has boosted its profitability in the past five years and likely would boost its margins still further. “In 2001 Space Systems was at 4.7,” Kubasik said of the Space Systems business’s profit margin. “I remember all those questions about: Could you ever get to five?”

No commercial satellites were delivered in 2005, compared to four in 2004. Similarly, the company booked revenues from nine launches of Atlas, Russian Proton and Titan rockets in 2005, compared to 11 in 2004. The Titan vehicle was retired in 2005.

Government satellites and the company’s Strategic and Defense Missile Systems business — both included in the Space Systems division — more than made up for the dip in the commercial satellite and launcher-related businesses.

Lockheed Martin has remained active in the commercial satellite manufacturing business in recent years and booked four new orders in 2005. But because of the timing of satellite deliveries, the commercial-satellite manufacturing business reported a loss for the year, Kubasik said. Sales, general and administrative costs continued to be incurred, but no satellite revenues were recognized from an accounting standpoint.

That will change in 2006 with the expected delivery of five to seven satellites, but the commercial satellite business remains one with profit margins “in the low single digits,” Kubasik said.

It is the government market that provides Lockheed Martin with its high-margin sales. Despite questions about the scope and schedule of certain U.S. Defense Department programs, the company expects the government business to grow in 2006.

Not for the first time, Stevens singled out the Space Based Infrared System (SBIRS) missile-warning satellite project as a continuing source of difficulty, particularly with respect to software design.

“We did have some disappointments that were not in keeping with expectations or our standards,” said Stevens, who is also the company’s chairman and president. “Even though the HEO [highly elliptical orbit] payloads have been delivered, and the GEO [geostationary orbit] satellites are making progress, the time required to complete these milestones on the SBIRS program has clearly been disappointing.”

Comments: pdeselding@compuserve.com