There's no business like the arms business, here's how the Pentagon's top weapon supplier did

This thoMatt Cardy/Getty ImagesA F-35B aircraft approaches a KC-130J Super Hercules aircraft to re-fuel as it flies over the North Sea having taken off from RAF Fairford on July 1, 2016

WASHINGTON — On Tuesday, Lockheed Martin beat on both the top and bottom lines in its quarterly earnings — a result that comes after President Donald Trump criticised America’s priciest weapons system and the crown jewel in the defence giant’s portfolio: the F-35 Lightning II.

Here’s some background prior to Tuesday’s earnings …

On October 26, 2001, the Pentagon awarded Lockheed Martin a contract worth more than $200 billion to build the next-generation stealth strike-fighter.

The Pentagon’s request was colossal: Develop a supersonic fifth-generation aircraft with the capability to replace four existing US military aircraft but also to be used by multiple international partners.

What’s more, design three variants of the fighter in order to accommodate the unique needs of each sister-service branch: the F-35A for the Air Force, F-35B for the amphibious Marine Corps, and F-35C for the Navy.

F35Courtesy of Lockheed MartinThe F-35 Lightning II fighter production facilities at Lockheed Martin Fort Worth, Texas.

Having already engineered stealth aircraft — F-117A Nighthawk and F-22 Raptor — Lockheed Martin was playing on their home court.

Fast forward to today, the F-35, valued at an acquisition cost of $379 billion, has become one of the most challenged programs in the history of the Department of Defence. It has experienced setbacks that include faulty ejection seats, software delays, and helmet-display issues.

On December 12, Trump said the cost of the fifth-generation jet was “out of control.” The message sent Lockheed Martin’s stock down from $251 at the opening bell to $245.50, before it rebounded to a little more than $253 a share.

Similarly, on December 22 — a day after meeting separately with the CEOs from Lockheed Martin and Boeing — Trump announced via tweet that he asked Boeing to “price-out a comparable F-18 Super Hornet.”

Once more, the tweet sent shockwaves through the defence industry. Shares of Lockheed Martin fell 2.0% to $247.75 after hours, while Boeing shares rose 0.7% to $158.52.

Lockheed Martin CEO Marillyn Hewson, who has spoken twice with Trump prior to his inauguration, said the F-35 is “absolutely unmatched” in capability during an earnings call on Tuesday.

“I mean, it’s basically a game changer,” Hewson said. “It brings for our country, for our military as well as for our allies around the world an unmatched capability — absolutely unmatched. And recognising that, his [Trump’s] focus is on how do we drive that the cost down aggressively.”

Adding that the meetings with Trump have been “very productive,” Hewson noted that the defence giant has a lot of ideas on how to cut costs in the future.

In the meantime, the Department of Defence and Lockheed Martin will continue negotiations on LRIP-10, a contract worth $9 billion for the delivery of 90 F-35 jets.

“We’re very close to a deal that would allow us to close LRIP-10 in the near-term and so I expect that will be very soon,” Hewson said.

Now for the earnings …

F35 israelLockheed MartinIsrael’s first F-35A Lightning II fighter jet is revealed during a ceremony.

For the quarter that ended December 31, Lockheed Martin earned an adjusted $3.25 per share on revenue of $13.75 billion.
Analysts were looking for adjusted EPS of $3.05 on revenue of $13.03 billion.

Considered a bellwether for the US defence sector, Lockheed Martin said net earnings in Q4 rose to $959 million compared to $817 million, in Q4 of 2015.

“We attained the highest sales, earnings per share, and cash from operations that we’ve ever achieved,” Bruce Tanner, Lockheed Martin’s executive VP and CFO, said during an earnings call.

Despite significant snags in developing the fifth-generation jet, sales in Lockheed Martin’s
aeronautics business, the company’s largest segment, rose 23% to $5.41 billion thanks to an increase in F-35 sales. Revenue in its mission systems segment surged 36% due to the addition of helicopter manufacturer Sikorsky.

Lockheed Martin acquired Sikorsky, which notably manufacturers UH-60 Black Hawks and the presidential helicopter, for a cool $9 billion in 2015 from United Technologies Corporation.

Meanwhile, Boeing, Northrop Grumman, Raytheon and General Dynamics are due to report quarterly earnings this week.

NOW WATCH: This is how pilots train to fly the F-35 — America’s most expensive fighter jet

NOW WATCH: Money & Markets videos

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.