Lockheed Martin Space Systems earnings down despite big ULA contribution
PARIS – Lockheed Martin on July 20 reported lower revenue and operating profit at its Space Systems division for the six months ending June 26 despite a large profit contribution by launch-service provider United Launch Alliance (ULA).
The company slightly raised is expected 2016 Space Systems revenue and profit forecast but said revenue and profit are likely to be down by about 5 percent each in 2016 compared to 2015.
Bethesda, Maryland-based Lockheed is a 50 percent shareholder, with Boeing Co., of ULA. Based in Centennial, Colorado, ULA is the principal provider of launch services to the U.S. Defense Department.
The two parent companies receive equity earnings from ULA based on the number of launches performed and the mix of rockets that are used. ULA operates the Atlas 5 and Delta 4 vehicles.
For the six months ending June 26, Lockheed reported equity earnings – mainly from ULA – totaling $170 million, compared to $119 million for the same period a year ago, Lockheed said in a July 20 filing with the U.S. Securities and Exchange Commission (SEC). These earnings alone accounted for 29 percent of the operating profit of the Space Systems division.
For just the three months ending June 26, equity earnings booked by Lockheed Martin totaled $120 million, triple the amount of a year ago and equivalent to 35 percent of Space Systems quarterly operating profit.
In a July 19 conference call with investors, Lockheed Martin Chief Financial Officer Bruce L. Tanner said the ULA contribution was “higher than planned… for instance, the ULA equity earnings that we got in the quarter.
“Some of this was just fortuitous in terms of the mix of launch vehicles, and also the pricing of the launch vehicles that we had in the quarter for ULA,” Tanner said. “For instance, we had a Delta Heavy launch, which is the most expensive launch vehicle that ULA produces, which went off in the second quarter. That helped the earnings.”
The full Space Systems division revenue for the six months ending June 26 was $4.35 billion, down 3.7 percent from the same period a year ago. Operating profit was down 5.5 percent, to $584 million, for an operating margin of 13.4 percent versus 13.7 percent last year.
In its SEC filing, the company said Space Systems booked reduced revenue from three showcase military satellite programs for which it is the prime contractor – the Space-based Infrared System (SBIRS), the Advanced EHF and the Mobile User Objective Systems (MUOS) narrowband communications system.
The revenue declines are mainly due to the fact that these programs are winding down their production cycles.
Lockheed said the division’s profit on the SBIRS and MUOS programs suffered from the comparison to previous quarters, when program managers were able to release management reserves and book them as profit when satellite development and delivery milestones were cleared.
The fifth and final MUOS satellite was launched June 24 aboard a ULA Atlas 5 rocket. On July 8, the U.S. Navy reported that the scheduled orbit-raising maneuver to put the satellite in geostationary orbit had been suspended because of an anomaly the Navy did not identify. The satellite was placed into “a stabilized, safe intermediate orbit to allow the MUOS team to evaluate the situation,” the Navy said.
The satellite is intended as an in-orbit spare. With the four previous MUOS satellites operating as planned, the glitch with the fifth will have no effect on the current operations of the MUOS constellation.
The company also reported a $25 million drop in profit relating to unspecified “performance matters” on its commercial satellite programs.