MARKET OUTLOOK

Lockheed cautiously shakes off shutdown impact

As the U.S.’ largest defense contractor, Lockheed Martin looks relatively insulated from the five-week partial government shutdown ended Monday than many others in the market.

The company is however still taking the closure of many civilian agencies into account. At the bottom of its fourth quarter and 2018 year-end earnings release Tuesday, Lockheed included “the impact of government shutdowns” as a risk factor that may affect its performance, outlook and any forward-looking statements.

That addition suggests Lockheed was ready for questions on whether the shutdown impacted their business and if this is something they are taking into account for the future.

Two shuttered agencies in NASA and the Homeland Security Department are key civilian customers for Lockheed given the company’s sizeable space and cyber portfolios. But nearly 60 percent of Lockheed’s revenue last year stemmed from contracts with the Defense Department, which stayed open during the shutdown along with many intelligence agencies.

"The previous closure of these agencies did not have significant impact on this year's financial metrics, as the vast majority of our business is currently funded through the DOD’s FY (2019) appropriations bill," Lockheed CEO Marillyn Hewson said Tuesday during the company’s fourth quarter and year-end earnings call with investors.

"Should a budget impasse reoccur after the three week continuing resolution expires, it is possible we could see some delays in 2019 awards and orders," she added.

All publicly-traded government contractors disclose and detail in their risk factors for investors all sorts of uncertainties related to federal budgets being passed and signed into law.

There are the timing issues in getting those budgets done that have loomed over the market in recent years. But they also describe how business is impacted as funding priorities shift amid change in presidential administrations and which political party controls Congress.

For the time being, the disagreements between the Trump administration and Democratically-controlled House center around many nondefense agencies. President Trump’s budget proposals during his term so far have sought large civilian spending cuts, in direct opposition to what House Democrats favor.

Defense spending is a different story as DOD and intelligence budgets were passed on time for this current fiscal year. Trump’s budget requests have sought large defense spending increases.

As she has done in previous talks with investors, Hewson noted what she hears in her “discussions with members of Congress is the bipartisan support for defense spending.”

Lockheed posted revenue growth of 7.6 percent last year to $53.7 billion. The company is forecasting sales growth of nearly 5 percent this year to $55.75 billion-$57.25 billion amid that positive defense market outlook.

“The one area that I think we all are trying to watch is now how much pressure there will be on putting more spending in the domestic, nondefense side of spending,” she added.

About the Author

Ross Wilkers is a senior staff writer for Washington Technology. He can be reached at rwilkers@washingtontechnology.com. Follow him on Twitter: @rosswilkers. Also find and connect with him on LinkedIn.

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