Defense stocks report Q2 results: Here's what to know

Key Concepts:

• Defense industry earnings
• Northrop Grumman's performance
• RTX's performance
• Lockheed Martin's performance and profit forecast cut
• Pentagon's shift towards lower-cost systems
• Impact of tariffs on defense companies
• International defense spending growth
• Weapons mix shift

Defense Industry Earnings Overview

The defense sector presents a mixed performance picture this morning as earnings reports are released.

Northrop Grumman

• Northrop Grumman is performing well, showing a rise after beating expectations and raising guidance.
• The company is benefiting from its Sentinel ballistic missile and B-21 bomber programs.

RTX

• RTX is experiencing a decline, down about 2% in premarket trading.
• The company trimmed its full-year profit guidance due to higher costs associated with steel and aluminum tariffs.
• Despite these challenges, defense demand remains strong for RTX.
• RTX benefits from missile defense via Patriot systems.

Lockheed Martin

• Lockheed Martin is the biggest mover, down about 7%.
• The company is facing pretax losses of $1.6 billion on programs and other charges of $169 million, impacting earnings.
• This has triggered a cut in the 2020 profit forecast.
• Lockheed's CFO, Evan Scott, attributes this to portfolio reviews and does not expect more charges in the near future.
• Scott stated, "We've just recommitted to our portfolio and are investing for growth and creating shareholder value."

Shift in Weapons Mix and Pentagon Priorities

• The Pentagon is looking to acquire more lower-cost systems that are faster to produce, such as drones.
• Lockheed Martin is adapting to this shift by looking to "bring more of those new technology companies into our supply chain" and seeking partnership opportunities with new entrants.
• Despite the shift, there is still a need for complex, big-ticket systems.
• Examples of relevant systems include fifth-generation fighter jets like Lockheed's F-35, nuclear modernization with Northrop, and missile defense via Patriot systems for RTX and Lockheed.

U.S. and International Defense Spending

• U.S. defense spending is growing, benefiting all companies in the sector.
• The Golden Dome project is now receiving funding.
• International sales are also growing as Europe and other regions increase their defense budgets.

Lockheed Martin's Adaptation

• Lockheed Martin is looking to get ahead of the phasing out of legacy defense programs.

Conclusion

The defense industry is experiencing a period of transition, with some companies thriving while others face challenges. Lockheed Martin is adapting to shifting Pentagon priorities by investing in new technologies and seeking partnerships. Overall, the industry is benefiting from growing U.S. and international defense spending, but companies must navigate changing demands and cost pressures to maintain profitability.