Lockheed Martin Corporation

Ladies and gentlemen, thank you for standing by, and welcome to the Lockheed Martin fourth quarter and full year 2019 earnings results conference call. At this point, all the participant lines are in a listen-only mode. There will be an opportunity for your questions. Instructions will be given at that time. If you should require any assistance during the call, please press star zero, and Operator will assist you offline. As a reminder, today's call is being recorded. I'll turn the conference now over to Mr. Greg Gardner, Vice President of Investor Relations. Please go ahead, sir.

Thank you, John, and good morning. I'd like to welcome everyone to our fourth quarter 2019 earnings conference call. Joining me today on the call are Marilyn Hewson, our Chairman, President, and Chief Executive Officer, and Ken Posner-Reed, our Executive Vice President and Chief Financial Officer. Statements made in today's call that are not historical fact are considered forward-looking statements. and are made pursuant to the safe harbor provisions of federal securities law. Actual results may differ materially from those projected in the forward-looking statements. Please see today's press release and our SEC filings for a description of some of the factors that may cause actual results to differ materially from those in the forward-looking statements. We have posted charts on our website today that we plan to address during the call to supplement our comments. These charts also include information regarding non-GAAP measures that may be used in today's call. Please access our website at www.lockeedmartin.com and click on the Investor Relations link to view and follow the charts. With that, I'd like to turn the call over to Marilyn.

Thanks, Greg. Good morning, everyone. I hope you had a good start to the new year. Welcome to our fourth quarter 2019 earnings call as we review our results, strategic new business activities, key accomplishments, and our outlook for 2020. I will begin by expressing my gratitude to our entire Lockheed Martin team for a remarkable 2019. Over the course of the year, the corporation achieved extraordinary sales growth, earnings performance, strong cash generation, and record backlog. And it was through their dedication and commitment that we were able to deliver these results. Kim will discuss our financials in more detail and provide our outlook for 2020 But I'd like to begin by discussing a few of the highlights from 2019 that drove our strong performance. Notably, for the second year in a row, all four of our business areas grew sales, earnings, and backlog, with each contributing to our record cash from operations. Sales in the fourth quarter exceeded last year's fourth quarter by 10% and pushed 2019 growth to 11% over our 2018 results. Missiles and fire control had the highest overall growth in 2019, exceeding the prior year by 20%. Deliveries of tactical and strike weapons, development work on new hypersonic and classified programs, and PAC-3 missile production were the strongest contributors to the increase. Aeronautics also saw strong sales growth in the quarter and year, with 2019 annual sales finishing 12% above 2018, led by our F-35 program, which grew 14% in 2019. In space, the Next Generation Overhead Persistent Infrared, or NextGen OPIR contract, the GPS-3 satellite production program, and recent hypersonic winds continue to provide increased sales volume, as the business area exceeded their 2018 top line by 11%. And rotary emission systems finished the year 6% over 2018, driven by increases in shipbuilding, radar, and logistics programs. Our segment profit grew nearly $700 million year over year, resulting in a segment profit margin of 11% and earnings per share of $21.95. which was another high-water mark for the corporation. This quarter, our backlog increased $6.6 billion and is now approximately $144 billion, reaching a record level for the fifth consecutive year. And we had a strong quarter of cash flows, allowing us to use $1 billion to pre-fund our required 2020 pension contribution and a portion of our 2021 payments. and still generate over $7.3 billion of cash from operations for the entire year. Had we not made this discretionary payment to our pension trust, we would have delivered over $8.3 billion in operating cash, well in excess of our greater than $7.6 billion objective. 2019 was an extraordinary year across the corporation, with our team achieving record results in sales, earnings, EPS, cash from operations, and backlog. The strength of our portfolio has us well positioned to continue delivering mission success for our customers and outstanding value to our stockholders. Before reviewing significant accomplishments from each business area, I will start with an update on the F-35 program, which had an especially successful quarter and year. During the fourth quarter, our F-35 team delivered 51 fighter jets, bringing the total deliveries in 2019 to 134 aircraft, exceeding our joint government and industry target of 131 aircraft, a nearly 50% improvement from last year and a 200% increase from 2016. Since the program's inception, we have delivered 491 production aircraft with 347 jets being provided to U.S. forces and the balance of 144 planes being delivered to our partner nations and international foreign military sales customers. Keeping with the F-35, we are pleased that we finalized our agreement for Lots 12 and 13 this quarter. recognizing orders of approximately $5 billion and adding 112 aircraft to our backlog, bringing our backlog to 374 planes. We anticipate finalizing lot 14 in early 2020. Our joint industry and government team had established a longstanding objective of offering the F-35A model at a flyaway cost of $80 million in lot 14, and we were able to improve on that target one year ahead of schedule. The lot 14 unit price is now below $78 million, which allows us to offer this remarkable fifth-generation fighter at a price equal to or lower than legacy fourth-generation aircraft. Internationally, we were very excited to see Norway declare initial operational capabilities with its fleet of F-35 conventional takeoff and landing aircraft. Since the first F-35 model arrived at Erland Main Air Station in 2017, the Norwegian Air Force has conducted a rigorous operational testing program in unique winter and northern environmental conditions and has deemed it ready for combat. Norway is the third European country