Defense Companies Win Record Orders

The two largest U.S. defense contractors said ongoing supply chain challenges are hampering efforts to deliver on record weapons orders. These orders are driven by the conflict in Ukraine and the need to tackle China’s military expansion.

Lockheed Martin Corp. is a leading aerospace and defense contractor. The company's products and services include aircraft, missiles, and space systems. Lockheed Martin also provides logistics and training support services.

The worker shortages have hindered production, while the Pentagon has sped up purchases of weapons headed to Ukraine. Raytheon Technologies Corp. RTX 2.42%

The company said that it would be the end of the year or beyond before production of some materials returns to prepandemic levels.

The two companies have been the biggest beneficiaries of the $27 billion in military equipment committed by the U.S. to Ukraine, in terms of contracts awarded. So far, $6.6 billion is under contract to industry, though the full amount has not yet been disbursed.

Executives have cited shortages of labor and components as well as the need for more certainty that orders will follow if companies invest more to boost capacity.

Sales in the defense sector fell at both companies last year compared with the previous year, according to quarterly results released Tuesday.

Raytheon Chief Executive Greg Hayes said that the company has the orders and capacity to meet demand, but that they are limited by the availability of materials.

Jay Malave, Lockheed Martin's chief financial officer, said that the company is seeing an increase in the number of contracts being awarded.

‍"The DOD has accelerated their speed to get them where they want to be," he said.

Lockheed Martin has said that it would take two years to double production of Javelin antitank missiles and Himars rocket launchers. Both of these weapons are being widely used by Ukraine in its conflict with Russia.

Mr. Malave said that suppliers increased their production pace in the final quarter of last year, which helped boost Lockheed Martin's quarterly sales to $19 billion. This is about 3% above the company's internal planning.

He said that the whole value chain has been able to operate at a higher level, though metrics such as on-time deliveries didn't improve much in the fourth quarter and labor shortages continue to pinch production.

Lockheed Martin reported a net profit of $1.91 billion for the quarter ended Dec. 31, compared with $2.05 billion a year earlier. Per-share profit slipped to $7.40 from $7.47, just short of the consensus forecast of analysts polled by FactSet. However, the company's order backlog topped $150 billion, which bodes well for its future prospects.

Lockheed Martin has not changed its existing guidance for flat sales in 2023, forecasting a return to growth in 2024 when the supply chain improves.

Raytheon's profit increased to $1.4 billion in the quarter ended December 31, compared with $685 million in the same quarter the previous year. Per-share profit rose to 96 cents from 46 cents, and sales increased by almost 6% to $18.1 billion, lifted by commercial aerospace engines and parts.