Lockheed Martin, the world’s biggest defense contractor, earned impressive revenue and earnings in Q1 2016 Out of every defense contracting dollar, nine cents goes to Lockheed Martin. But, there is much to criticize in Lockheed’s performance. Here, in brief, are six reasons to criticize:
First: Lockheed’s revenue for Q1 2016 rose to $11.7 billion from revenue the previous quarter of $10.11 billion. But, that is not organic growth. Rather, Lockheed acquired Sikorsky Helicopter. As noted in a previous column, this is an industry that dearly needs competition to protect the public. Unfortunately, Lockheed sets the pattern for massive concentration in the industry. After its 9% share come four other huge suppliers: Boeing (6.4%), General Dynamics (4.8%), Raytheon (4.2%), and Northrop Grumman (3.3%). Who is next? United Technologies, which had owned Sikorsky. So Lockheed’s acquisition takes a concentrated defense contracting industry and concentrates it further.
Second, Lockheed does not concentrate on research spending As the Wall Street Journal’s Doug Cameron wrote about the Q1 earnings, “Lockheed and peers balk at any suggestion from the Pentagon that its research spending may lag warfighters’ needs.” But, Lockheed engaged in stock buybacks to the tune of half a billion dollars. That was funding, taken from the Treasury in contract payments, and pocketed (in a way to avoid taxes) rather than invest in research.
Third, Lockheed has engaged in massive layoffs – about 1,000 employees. These are good jobs, that the United States needs. We have heard in this election, in both parties, the discontent of the public that companies like Lockheed eliminate good jobs even while taking major funding and advantages from the public. Buybacks do not look pretty when juxtaposed with layoffs.
Fourth, Lockheed certainly does not treat itself as a public trust when it comes to CEO pay. Lockheed’s CEO Marillyn Hewson’s total compensation was valued at $20.2 million this past year, 12.8 percent higher than the year prior. There are a lot of struggling workers in this economy who did not get a 12.8% raise lately.
Fifth, Lockheed’s single biggest item is the F-35. This has had defects from A to Z. Even now, its costly Alis logistics system is glitch-ridden. The Defense Department’s official FY2017 budget boosted F-35 sales. Yet even so, the “wish lists” of the services boosted F-35 sales even more. And, the current House committee markup will likely grant those wish lists. These defense funds would be a lot better spent on readiness.
Sixth, there is no secret what keeps Lockheed at a rich price-earnings ratio. Jim Cramer commented in a report about how Lockheed’s shares were up 1.5% after earnings. He said: “Defense is a big theme going into the election.” I write often on the level of defense contractor waste, including Lockheed’s. It is too bad that instead of dealing with the waste, the presidential race seems headed for an outcome supporting even bigger stock buybacks and CEO pay for Lockheed.
