Lockheed Martin (LMT.N) announced its 2024 profit forecast, which fell below Wall Street’s expectations, as the company’s largest aeronautics division, responsible for producing the F-35 jets, grapples with supply chain disruptions.
Despite this, shares briefly surged by 2% in pre-market trading, settling back down after the company posted better-than-expected results for 2023.
The U.S. defense industry has witnessed a surge in orders due to increasing tensions between China and the Philippines, the ongoing Russia-Ukraine conflict, and conflicts in the Middle East.
However, the sector continues to grapple with disruptions caused by the ongoing pandemic, affecting labor and supply chains.
Lockheed Martin reported that its production rate was adversely impacted by shortages of processor assemblies, solid-rocket motors, castings, and forgings.
The F-35 program was hit the hardest, with net sales falling by $275 million in the fourth quarter compared to the previous year.
Payments for some F-35s are also being delayed as they await software updates.
Analysts express concerns about the persisting risks associated with supply chain disruptions, which may not abate quickly.
Lockheed Martin, based in Bethesda, Maryland, forecasts 2024 profits to be in the range of $25.65 to $26.35 per share, falling short of analysts’ average expectation of $26.62, according to LSEG data.
The company reported fourth-quarter net income of $1.87 billion, a 2.4% decrease from the previous year. However, on a per-share basis, profits increased from $7.40 to $7.58.
Sales in Lockheed’s largest aeronautics business dipped by 0.3%, and total company sales fell by 0.7% to $18.87 billion in the quarter ending on December 31st.
Lockheed’s Missiles and Fire Control unit, responsible for the High Mobility Artillery Rocket System (HIMARS), saw a 3.5% decrease in revenue, amounting to $3.17 billion.
Chief Financial Officer Jay Malave revealed that capital expenditures would remain high in 2024 as the company continues to invest in the production of high-demand weapons systems, particularly in Ukraine.
These systems include the Guided Multiple Launch Rocket System (GMLRS), HIMARS, Joint Air-to-Surface Standoff Missile (JASM), and Long Range Anti-Ship Missile LRASM, earmarked for use in the Pacific theater.
Lockheed Martin’s earnings serve as an indicator for the broader arms sector, with Northrop Grumman (NOC.N) and General Dynamics (GD.N) expected to report their quarterly results later this week.
Lockheed anticipates 2024 sales ranging from $68.50 billion to $70 billion, surpassing analysts’ average expectations of $68.66 billion.