Lockheed Space Sales Reflect Reduced Work on Shuttle, Orion

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PARIS — Lockheed Martin reported July 26 lower revenue but higher operating profit in its Space Systems division for the three- and six-month periods ending June 30 compared with the previous year and trimmed its forecast for the division’s sales for the remainder of the year.

Lockheed also said a one-time charge of $48 million taken in the three months ending June 30 for severance payments following recent Space Systems division staff reductions likely would be made up by the end of this year in adjustments in the company’s government contracts.

Most of the company’s space business is with the U.S. government and operates under cost-plus contracts, rather than fixed-price terms that characterize most commercial business.

In a conference call with investors and a filing with the U.S. Securities and Exchange Commission (SEC), Bethesda, Md.-based Lockheed reported Space Systems division revenue of $2.01 billion for the three months ending June 30, down 3.3 percent from last year. For the six months ending June 30, sales were $3.86 billion, down 2.8 percent from the same period a year ago.

But Space Systems reported an operating profit margin of 13.1 percent of revenue, up from 11.8 percent a year ago for the three-month period. For the first six months of 2011, the operating-profit margin was 12.5 percent, compared with 11.3 percent a year earlier.

Lockheed Martin Chief Financial Officer Bruce L. Tanner said during the conference call that the Space Systems division’s usual operating profit margin is around 11 percent. It has been higher so far this year because of an increased number of launches conducted by United Launch Alliance (ULA) of Denver, the Boeing-Lockheed joint venture that provides Atlas and Delta rocket launches for U.S. government customers.

ULA’s equity earnings flow directly to Lockheed Martin’s operating profit line. For the three months ending June 30, ULA and Houston-based United Space Alliance — the Lockheed-Boeing joint venture that handles U.S. space shuttle operations — contributed $80 million to Lockheed Martin Space Systems’ operating profit, or about 30 percent of the total. For the same period a year ago, the two joint ventures contributed a total of $65 million.

For the first six months of 2011, ULA and United Space Alliance contributed a combined $130 million to Lockheed Martin Space Systems, up from $120 million a year earlier.

ULA’s share of the contribution so far in 2011 has been far higher than United Space Alliance’s, mainly because of declining work on the U.S. space shuttle, which made its last flight in July and is being retired.

For the Space Systems division, revenue this year has been down because of decreased work on NASA’s Orion crew-transport vehicle, revenue from which fell by $180 million in the first six months of 2011 compared with 2010. Also contributing to the decline was the phasing out of work on the shuttle’s external fuel tank, for which Lockheed Martin is prime contractor.

Lockheed’s ballistic and defensive missile work for the U.S. government, some of which is managed inside the Space Systems division, as well as contracts on U.S. government satellites, helped offset the drop in the Orion and shuttle work, the company said.

Lockheed Martin Chief Executive Robert J. Stevens said during the conference call that the layoffs in the Space Systems division, and similar head-count reductions in the company’s Aeronautics division, were necessary to tailor the company’s cost basis to its likely business from the U.S. Defense Department and other major customers.

“It is imperative that our cost structures be as low and as affordable as possible to provide affordable solutions,” Stevens said.

In its SEC filing, Lockheed Martin said the decision to reduce the Space Systems head count “primarily reflects program life cycles, where several … major programs are transitioning out of development and into production.”

Stevens said the company would not hazard a guess as to where U.S. government spending might head in the coming years given the still-unresolved debate in Washington over how to tackle the nation’s debt.

For 2011, Lockheed Martin has slightly lowered its forecast for Space Systems revenue. Three months ago the company thought the division would generate sales of between $8.1 billion and $8.45 billion. It now estimates 2011 Space Systems revenue at between $8 billion and $8.25 billion.