An order backlog is an important indicator for investors to understand how a manufacturing company’s revenue could grow in the future. These backlogs represent orders that were received, but haven’t been completed yet. The company will complete these orders in the future. The company doesn’t get the revenues until the orders are complete.
A high order backlog indicates high demand for the company’s products. It also indicates that the company has that amount of guaranteed revenue for the future.
As a result, for big defense manufacturing companies—like Lockheed Martin Corporation (LMT), The Boeing Company (BA), Raytheon Company (RTN), and General Dynamics (GD)—an order backlog is an important indicator that investors should track to understand how the future could unfold.
All of these companies are part of the Dow Jones U.S. Select Aerospace Index (ITA).
Lockheed Martin’s falling order backlog is a concern. The company’s orderbook fell from ~$82.6 billion as of December 31, 2013 to ~$76.5 billion at the end of 3Q14.
However, LMT still has the largest orderbook among its peers. The fall in the order backlog isn’t significant. It reflects the industry’s slow growth.
While the current fall in the orderbook isn’t a huge cause of concern for the company, LMT definitely needs to reverse the trend.