Defense contractor Lockheed Martin (NYSE: LMT) posted strong earnings this morning for its first quarter of $1.75 per share, well ahead of the $1.63 analysts had been expecting.Looking at the quarter's revenue figures, we see a nice year-over-year jump, climbing to $9.98 billion from $9.28 billion. In addition, the company lifted its full-year earnings forecast by 10 cents to $7.15 to $7.35 per share.
The company had good earnings, and lifted full year estimates, so why is the stock falling in today's action? It could be in reaction to the fact that the company's biggest division, its jet business, showed a drop in sales in the period. During the quarter, this business fell since Lockheed is in the middle of a transition from its older fighter jets to newer models such as the F-35 and F-22.
The rest of 2008 should continue to be tough on the company's jet business, and this is the primary thing that have investors spooked with today's earnings release. But despite the weakness in its aeronautics division, overall the company put in a good quarter, with increases in its other divisions: electronic systems, space systems, and information systems.
Analysts may also have been looking to see the company boost its earnings forecast by more than the 10 cents that it actually did. In a statement regarding this, the company's Chief Financial Officer, Bruce Tanner, blamed the recent interest rate cuts that the Federal Reserve has instituted.
In it's fight to fend off a looming recession, the Fed has been forced to reduce interest rates dramatically this year, and it is assumed that more cuts are on the horizon. The main impact that this has on companies such as Lockheed is the reduction in gains that the company is able to make on its cash holdings. Lockheed, with roughly $3 billion in cash on the books, has definitely noticed the pinch from lower interest rates.
Wall Street has looked past the company's estimate beating earnings numbers, and pushed shares of the company down a little over 2% so far in early trading.
Michael Fowlkes has worked as a stock trader for seven years and spent the last four years working as an analyst for the online investment advisory service Investor's Observer.
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