FILE PHOTO: A formation of U.S. Air Force F-35 Lightning II fighter jets perform aerial maneuvers during as part of a combat power exercise over Utah Test and Training Range, Utah, U.S. November 19, 2018. Picture taken November 19, 2018. U.S. Air Force/Staff Sgt. Cory D. Payne/Handout via REUTERS
February 14, 2022
By Mike Stone
WASHINGTON (Reuters) -Lockheed Martin’s exit from its purchase of engine maker Aerojet Rocketdyne has refocused investors on the compounding list of problems at the companies, as pressure grows on Lockheed management to improve lagging performance.
Both Lockheed Martin Corp and Aerojet Rocketdyne Holdings Inc stocks were down on Monday after Lockheed walked away from the deal.
Following the deal’s collapse, Aerojet said it planned to deliver value to shareholders by advancing hypersonics and strategic, tactical and missile defense systems. Lockheed said the company will focus “on the most effective use of capital with the highest return on investment, including our ongoing commitment to return value to shareholders.”
Lockheed’s problems are stacking up, and exiting the deal dealt a loss to CEO Jim Taiclet who has not been able to deliver significant shares price appreciation since taking over in June 2020 in the midst of a global pandemic.
In October, management cut sales expectations for both 2021 and 2022, which sent shares down 12%.
The weapons maker said COVID-19 had hobbled its supply chain, but on its post-earnings call with analysts, Ron Epstein with Bank of America forced Taiclet to defend his leadership when he asked, “Where are you taking the company? And what’s the vision here? Because it really seems – and I know this may be – might sound unfair, but it seems a little bit rudderless right now.”
Lockheed’s strategy of facilitating the military “internet of things” has failed to gain traction with investors, analysts have said. Making matters worse, Lockheed’s premiere product the stealthy F-35 fighter jet could see softer demand from the U.S. Air Force in coming years. The jet makes up about a quarter of the company’s revenue.
In an interview on Monday, Epstein said, “Their strategy has to pivot. If the defense budget (is) growing low single digits and you have peer companies that are growing with low single digits and you’re not, most likely the market’s not going to be pleased with that.”
Cowen analyst Cai Von Rumohr said in a note on Monday that while Lockheed had indicated it could still do mergers, “It’s more likely to seek small technology accelerators rather than larger transactions that might face stiffer regulatory hurdles.” Von Rumohr said in the near-term it was possible that the Bethesda-based company could increase its share buyback.
At Aerojet, a top shareholder seeks to revamp the board of directors.
On February 1, Warren Lichtenstein, Aerojet’s executive chairman of the board, launched a proxy fight to replace three members of Aerojet’s board of directors. He wants to ensure the company has the ability to succeed without the deal.
Aerojet said it was looking into Lichtenstein’s effort.
(Reporting by Mike Stone in WashingtonEditing by Nick Zieminski)
Source: One America News Network
