Defense stocks began rolling out fourth quarter results this week, with Raytheon and Lockheed Martin taking the lead. Northrop Grumman reported early Thursday. NOC stock fell on Thursday after an initial jump following its results. RTX stock and LMT stock traded higher.
The U.S. defense budget ballooned to all-time highs in the budget deal sealed by Congress in December. But Republican lawmakers stalling the debt ceiling increase, aiming to reduce government spending, could potentially affect defense spending this year, Goldman Sachs analyst Noah Poponak wrote in a research note last week.
The earnings reports come after the Department of Defense doled out a number of high-value contracts to defense companies in late December.
Lockheed Martin
Wall Street forecast the F-16, F-22 and F-35 fighter jet maker to report its third quarterly earnings decline in the last four periods, following an earnings leap in Q3. Revenue was seen rising for the second quarter in a row after falling for two consecutive reports.
Expectations: Wall Street expected Lockheed Martin earnings to edge down 1% to $7.41 per share on 3% revenue growth to $18.3 billion, according to FactSet.
Results: Earnings slipped to $7.40 per share while revenue grew 7.3% to $19 billion.
Lockheed Martin's backlog increased 11% to $150 billion in Q4, led by a 15% jump in its Aeronautics division to $56.63 billion. Its Q4 Aeronautics sales rose 7% to $7.6 billion, driven by a higher volume of F-35 production contracts. And the company generated $1.2 billion in free cash flow for the period.
For the 2023 fiscal year, Lockheed expects earnings to range from $26.60 to $26.90 per share on $65 billion to $66 billion in sales. Wall Street forecasts earnings of $26.93 per share on $65.74 billion in revenue.
Meanwhile, the Biden administration plans to request congressional approval for a $20 billion sale of new F-16 jets to Turkey, the Wall Street Journal reported on Jan. 13. The sale would include 40 new planes and kits to overhaul 79 jets in Turkey's existing fleet. The White House will also request a separate sale of next-generation F-35 fighters to Greece. In December, Lockheed was awarded just over $1 billion to expedite production as it works to deliver 118 Lot 18 F-35 Lightning II fighter jets by next January.
LMT stock is rebounding from 200-day support within a seven-week base. Shares are well below the buy point of 499.05, according to MarketSmith. LMT stock rose 1.2% on Thursday, putting shares up 3.7% for the week.
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Raytheon
Waltham, Mass.-based Raytheon is one of the largest manufacturers of guided missiles, air defense systems, drones, satellites and warfare technology. In late December, the U.S. announced it will supply Ukraine with Raytheon-made Patriot Air Defense Systems to assist in the war against Russia as part of a $1.85 billion military aid package. Ukraine has suffered barrages of Russian missile strikes in the past months that have destroyed power grids and vital infrastructure. The Biden administration had been apprehensive about providing such defense systems to prevent provoking Moscow. In total, America has provided Ukraine with $27.5 billion in various military aid since Russia's invasion last February.
Raytheon's earnings growth slowed for seven quarters before Raytheon reported a 4% decline in Q3. But analysts expected its positive streak to resume in Q4. Revenue growth was predicted to accelerate for the second quarter in a row following eight periods of growth.
Expectations: Raytheon earnings were seen rising 15% to $1.24 per share while revenue climbed 6.7% to $18.2 billion.
Results: Raytheon earnings rose nearly 18% to $1.27 per share. Revenue gained about 6%, to $18.09 billion.
Raytheon's Missile & Defense segment led its quarterly results, driven by orders for equipment to Ukraine. During Q4, RMD had a book-to-bill ratio of 1.48, and sales increased 6% to $4.1 billion.
Management guided 2023 revenue to between $72 and $73 billion, vs. a FactSet consensus of $72.32 billion. Full year adjusted earnings are seen ranging from $4.90 to $5.05 per share, while analysts predict 5% growth to $5.02 per share.
RTX stock headed for a fifth straight advance on Thursday, rising 0.24% in trading. The stock is recovering after a bounce off its 200-day moving average, and back in buy range above a 98.12 buy point in a cup with handle base.
Northrop Grumman
Virginia-based Northrop Grumman provides counter-artillery equipment, radars and surveillance aircraft and systems. It also manufactures F-35 fighter jets with Lockheed Martin, which are some of the company's biggest revenue generators. In Q4, Northrop's earnings recovered after four straight declines. And revenue rose for the second consecutive quarter after falling four quarters in a row.
Expectations: Analysts expected Northrop Grumman report a 9.7% earnings increase to $6.58 per share on 11.8% revenue growth to $9.66 billion.
Results: Adjusted earnings leapt 25% to $7.50 per share as sales jumped 16% to $10 billion.
The results were led by a 23% jump in sales for Northrop's space systems segment, which rose to $3.28 billion for the quarter. Defense systems revenue increased 20% to $1.66 billion and mission systems sales grew 16% to $2.9 billion.
Northrop received $9.1 billion in contract awards in Q4 and its total backlog sits at $78.7 billion.
For fiscal 2023, the company expects adjusted earnings to range from $21.85 to $22.45 per share on $38 billion to $38.4 billion in revenue. Analysts forecast adjusted earnings of $22.49 on $37.88 billion in sales, according to FactSet.
NOC stock is trading near July lows after reaching all-time highs in late October following its long run-up going back to Nov. 2021. NOC stock fell 4.3% Thursday following the results. Northrop Grumman stock is down almost 16% from a November high, and also up 16% over the last year.
Will GOP Debt War Extend To Pentagon?
House Republicans are ramping up efforts to stall any increase to the federal debt ceiling until Congress' budget deal, reached in December, sees some significant cuts. In order to secure votes electing him to Speaker of the House, Kevin McCarthy agreed with others in the GOP to "a budget framework that caps discretionary spending at fiscal 2022 levels," according to Politico.
That would require significant negotiation with the White House, which has said it will not negotiate over the debt ceiling. McCarthy's pact is not clear on whether cuts would include the Defense Budget.
If the Pentagon is included in the GOP's spending targets, "reverting to last year's budget levels would amount to a roughly 10 percent cut, wiping out a $75 billion increase enacted last month," according to Politico.
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