United States budget cuts are expected to have a large impact on Lockheed Martin Corporation’s performance in Q2 and Q3, warns Chief Financial Officer Bruce Tanner. While the company reported sales and revenue that exceeded expectations for Q1, government cuts are expected to take a toll in the latter half of the year. CFO Bruce Tanner believes that the negative impact will manifest itself in Q2 and Q3.
Lockheed Martin Corporation is known as the largest defense contractor for the United States. The company provides military-grade machinery and weapons to the Pentagon, including fighter jets and missiles. Despite lower revenues, first quarter earnings increased according to the report, yet the CFO warns of the negative impact that sequestration budget cuts will have.
The defense contractor is up 14 percent from this time last year with $2.33 per share compared to $2.03. The first quarter netted a total of $761 million versus $668 million. What’s so surprising about these statistics is that they exceeded analyst expectations that were set at $2.04 per share. CFO Bruce Tanner notes that the $46 million tax credit helped boost research and development. Charges and expenses that were supposed to lower the total revenue were actually offset by the credit.
However, spending cuts that went into effect March 1, 2013 are expected to take a noticeable toll. CFO Bruce Tanner explains that it will take approximately 6 months for all of the sequestration cuts to be realized, so the negative effect might not be realized for another six months or year from now.
Despite the cautions and unease from these budget cuts, Lockheed Martin Corporation still expects greater earnings per share, even with lighter sales. As the Bethesda, Maryland-based company struggles with budget cuts handed down from the United States government, this is a reminder to CFOs everywhere about the challenges that budget constraints present.
Corporate managers are no strangers to the stress of workplace reductions. Since 2008, global instability and the rise of technology have made it harder to improve margins while defending the strength of the bottom line. However, CFO Bruce Tanner set the example by voicing his concern. In the time of budget cuts and reductions, it’s important for CFOs to keep communication lines open. Transparency as well as welcoming feedback makes it easier to make tough decisions and maintain a positive atmosphere.