Why Lockheed Martin Stock Is Falling Today

Key Points

• One-time charges led to a significant profit miss.

• Lockheed Martin still has a solid business, but there are few immediate catalysts.

• 10 stocks we like better than Lockheed Martin ›

Lockheed Martin's (NYSE: LMT) quarter was loaded with cost overruns and write-offs, causing the defense contractor to miss expectations.

Investors were disappointed, sending Lockheed shares down more than 5% as of 10:30 ET Tuesday.

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Image source: Lockheed Martin.

Charges eat into results

Lockheed Martin ranks as the world's largest defense contractor, but the company has come on hard times of late. The maker of the F-35 and a wide range of helicopters, missiles, and space systems has been shut out of recent high-profile awards, including the new fighter jet program that went to Boeing. Lockheed shares are down about 14% from their peak for the year.

The company's latest results are not helping reverse the momentum. Lockheed earned $1.46 per share in the quarter on revenue of $18.2 billion, missing Wall Street's consensus estimate for $6.52 per share in earnings on revenue of $18.6 billion.

There is a lot of noise in that earnings number. Quarterly results included $1.6 billion in program losses including $950 million on a classified aerospace project. Absent those charges, earnings would have come in at $7.29 per share.

Free cash flow was also soft. Lockheed used $150 million in cash, compared to an estimate for $1.2 billion in positive free cash flow, thanks to slower-than-expected F-35 deliveries.

Is Lockheed Martin stock a buy?

The charges were mostly one-time items, but unfortunately for investors there is no reason to believe things will improve anytime soon. Lockheed's book-to-bill, a measure of future business compared to current-quarter revenue, was an anemic 0.8x, with none of the company's four segments booking more business in the quarter than what they billed out.

Lockheed Martin remains a powerful franchise that should find new opportunities over time. But for now, investors are likely to have to be content with a 3% dividend yield as Lockheed works through these headwinds.

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Lou Whiteman has positions in Lockheed Martin. The Motley Fool recommends Lockheed Martin. The Motley Fool has a disclosure policy.