Tale of Two Companies: Lockheed and Boeing Face Similar Struggles

Boeing (BA) and Lockheed Martin (LMT) reported similar results for the most recent quarter -- lower earnings and higher anxiety.
Like other large concerns with significant numbers of former employees receiving pensions, they both reported write-downs due to the loss of the tax break for subsidizing retirees' prescription drug plans: Lockheed took a charge of 25 cents a share or $96 million and Boeing took a charge of $150 million or 20 cents a share.

Lockheed's reported earnings of $547 million, down 18 percent. Sales were $10.6 billion, slightly below expectations. For the year the company affirmed that it would make about $7.00 to $7.20 a share, also below expectations.

Lockheed has struggled with some major military programs. It has failed to meet cost and schedule requirements for the Joint Strike Fighter (JSF) contract, and lost billions in revenue when the VH-71 New Presidential Helicopter program was cancelled.

As for Boeing, it also saw net income fall -- to $519 million from the $610 million reported a year earlier. The good news is that this was well above analyst expectations of $467 million. Revenue was in line with expectations at $15.2 billion. Boeing struggled due to declines in aircraft sales and the costs of the new 787 program. When that gets off the ground, it could see big improvements in revenue, earnings and stock price.
On the military side, the company will see the end of two major aircraft programs, as F-22 and C-17 production winds down. It hopes to compensate by winning the $25 billion contract for the KC-X aerial tanker program, but will have to beat EADS North America.
For Boeing and Lockheed, as well as other big defense contractors such as Raytheon (RTN), Northrop Grumman (NOC) and General Dynamics (GD), the wild card is where defense budgets are going. Cuts in the military translate into more competition and fewer revenues to go around. Boeing may be able to compensate with airliner sales but the others cannot.

In the U.S., the 2011 defense budget remains substantial but current projections are that it plateaus after that. It may be that defense contractors will look back at 2010 and 2011 as the last of the good times.