Lockheed to Prune Top Jobs - Analyst Blog

Lockheed Martin Corp. (LMT) announced its intent to reduce head count at the director and vice president levels, aiming at curtailing its overhead costs through a new program. Financial incentives are being offered to leave the company by Feb 1, 2011. First quarter ending, Lockheed Martin employed roughly 136,000 people worldwide.

The largest US defense contractor remains focused on fulfilling customers’ demand by improving its performances and lowering costs. The overhead reduction program is one of the company’s many programs undertaken recently, including the divestiture of two units and major business reorganization.

During the first quarter earnings call, Lockheed Martin maintained its net sales expectation of $46.25 to $46.75 billion for 2010 and revised down its earnings per share expectation to $7 to $7.20. The Zacks Consensus Estimate for the second-quarter 2010 is $1.78 per share and for fiscal 2010 is $7.27 per share.

Lockheed Martin is the largest provider of IT services, systems integration, and training to the U.S. Government. Apart from serving the Department of Defense and other federal agencies, the company derives its business from international government and from commercial sales of its products, services and platforms. In 2009, roughly 85% of the company’s total revenue came from the U.S. Government, while 13.0% from sales to foreign government and the rest 2.0% from commercial sources.
 
The future prospects of Lockheed Martin, to a large extent, depend upon defense spending. The U.S defense department expressed its intention to cut down on defense spending and save $100 billion over the next five years. Such cost reductions will impact the future prospects not only of Lockheed Martin but also that of other defense contractors. Prime competitors of the company include Boeing Co. (BA), Northrop Grumman Corp. (NOC), and Raytheon Co. (RTN).
 
We currently maintain a Neutral recommendation on the stock.