Lockheed Martin’s 2Q16 operating profits
Compared to the 11.2% growth in sales, growth in Lockheed Martin’s (LMT) operating profits was more modest as margins worsened in some of the segments. Segment profits were up just 1.7% year-over-year to $1.4 billion. However, due to the impact of pension-related adjustments, consolidated operating profits increased 8.3% to $1.6 billion. The bulk of the increase in operating profits came from the Space Systems segment as well as the Information Systems and Global Solutions unit.
Operating profits in major segments
The aeronautics (XAR) segment is Lockheed Martin’s largest segment and contributed 33.6% to overall segment profits in 2Q16. Operating profits in the aeronautics (PPA) segment rose 7.6% to $478 million compared to 2Q15 figures due to a 6% increase in sales and a 20-basis-point expansion in operating margins to 10.9%.
Despite a 53% increase in sales from the inclusion of Sikorsky, operating profits in missile systems and training fell 23% year-over-year to $202 million due to a 600-basis-point decline in operating margins to 6.1%. The decline was due to transaction costs associated with the acquisition of Sikorsky, which was acquired from United Technologies (UTX) last November.
Operating profits in space systems
Despite a 3% decline in sales for the space systems segment, operating profits rose by 16% to $340 million due to a 250-basis-point expansion in operating margins to 15.3%. The expansion in margins was largely due to the favorable mix of launch vehicles and United Launch Alliance (or ULA) prices. The ULA is a joint venture of Lockheed Martin and Boeing (BA) formed to provide spacecraft launch services to the US government. Operating profits in 2Q16 were aided by the ULA’s most expensive launch, the Delta Heavy launch.