The War In Ukraine Is Finally Starting To Pay Off For Big Defense Contractors

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Micaela Burrow Investigative Reporter, Defense
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The two largest U.S. defense contractors saw a boost in sales as the Pentagon accelerated weapons orders to fill the gap left by billions in weapons and equipment sent to Ukraine, the companies said Tuesday.

Lockheed Martin and Raytheon Technologies posted fourth quarter 2022 earnings Tuesday that came in still slightly below earnings from the same period in 2021, attributing the downturn to labor shortages and supply chain issues that suppressed earnings throughout 2022, statements show. However, the two largest beneficiaries of $6.6 billion in Department of Defense (DOD) contracts awarded to industry as part of the Ukraine war response are picking up the pace compared to the previous quarter, according to The Wall Street Journal.

“We’ve got the orders, we’ve got the capacity,” Raytheon CEO Greg Hayes said on an investor call Tuesday to break down the company’s quarterly earnings report. “We just need to bring the materials in.” (RELATED: Congress Just Gave The Weapons Industry A Massive Paycheck. Here’s What That Means For US Defense)

Lockheed reported quarterly sales of $19 billion, 3% above internal forecasts, netting $1.9 million in profit compared to $2.05 billion the prior year. Raytheon earned $1.4 billion in the fourth quarter of 2022 compared to $685 million in the same period in 2021, with sales skyrocketing nearly 6% to $18.1 billion, results that beat Wall Street expectations, The Associated Press reported.

Lockheed and Raytheon make up the lion’s share of contracts associated with $27 billion in U.S. security assistance committed to Ukraine since the war started 11 months ago, the WSJ reported.

Remaining top defense contractors General Dynamics and Boeing will report fourth quarter 2022 earnings Wednesday, and Northrop Grumman will follow on Thursday.

Lockheed CFO Jay Malave said on the investor call that the Pentagon has sped up contract awards, adding that suppliers also accelerated deliveries in the last quarter of 2022.

“The whole value chain has been able to operate at a higher level,” he said.

However, some of those contracts will take years to see results, according to the WSJ. Lockheed will need at least two years to double production of HIMARS rocket launchers and Javelin missiles, which are a joint program with Raytheon.

Analysts estimated that the timeline to refill the U.S. arsenal of weapons sent to Ukraine could take up to eight years for some systems, including Javelins, even when companies operate at emergency production capacity. DOD leaders voiced frustration over the industry’s seeming inability over recent years to fulfill their pledges in weapons and equipment production according to an agreed-upon timeline.

Defense companies continue to attribute growing production backlogs to difficulty finding workers and global factors disrupting the acquisition of critical raw materials and components. Lockheed reported a $150 billion backlog in 2022, and Raytheon’s backlog reached $175 billion with $69 billion of that coming from defense.

Lockheed forecasted total yearly profit for 2023 at $26.60 to $26.90 per share, below Wall Street’s average estimate of $26.96, according to Reuters.

Raytheon is seeking to cut costs by merging its missiles and defense division with the previously independent intelligence and space division, Hayes said during the quarterly earnings call, according to Defense One. The move will also sharpen Raytheon’s advantage in competition for Pentagon contracts, executives said.

Raytheon’s missile and defense division saw lower operating profits but increased sales 6% to $4.1 billion in the fourth quarter, the earnings statement shows.

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