Earnings Reports (July 22nd-26th)
Reviewing Earnings Results for Lockheed Martin (LMT) & Tesla (TSLA).
I've transitioned to exclusively logging my weekly activity and tracking my portfolio in real-time on Savvy Trader.
For those not yet in the loop, I invite you to join me on this journey. Subscribe using the link below to gain direct insights:
By subscribing, you'll engage directly with me regarding specific companies, access my performance in real-time (with data starting under a year), and get detailed views of my investments, real-time trading actions, cash positions, and more. This move is driven by my commitment to transparency. I believe that sharing my analytical insights and the reasoning behind my investment choices offers immense value, empowering you with the information you need to make informed decisions.
1. Lockheed Martin (LMT)
Strong Revenue Growth and Exceptional Cash Flow
Highlights:
YoY revenue growth of 9%, with Q2 2024 net sales reaching $18.1B.
Free cash flow surged, exceeding $1.5B in Q2 2024.
Increased full-year guidance reflecting heightened confidence in future performance.
Lockheed Martin (LMT) announced its Q2 2024 earnings on July 23, showcasing significant financial gains. The company achieved a 9% YoY rise in net sales, amounting to $18.1B. Despite this revenue growth, net earnings slightly dipped to $1.6B from the previous year's $1.7B, resulting in a diluted earnings per share (EPS) of $6.85. The management's revised full-year expectations underscore their optimism for sustained growth in the coming quarters. LMT has also started to concentrate on strategic areas like the F-35 program, hypersonics, and classified projects, which are pivotal for long-term growth and profitability.
Key Developments in Q2 2024
Business Segments: Lockheed Martin reported increased sales across its primary business segments in Q2 2024:
Aeronautics: Achieved net sales of $7.28B, a 6% increase from Q2 2023's $6.88B. The division's operating profit stood at $751M, with a 10.3% margin. The growth was primarily driven by higher sales volumes in the F-35 and F-16 programs.
Missiles and Fire Control (MFC): Net sales rose by 13% to $3.1B, propelled by production ramp-ups for the Guided Multiple Launch Rocket Systems and Long Range Anti-Ship Missile programs. The MFC segment's operating profit grew to $450M, achieving a 14.5% margin.
Rotary and Mission Systems: Reported a 17% increase in net sales, reaching $4.55B, with an operating profit of $495M. This growth was fueled by increased volumes in radar programs, new laser systems, and higher helicopter production volumes.
Space: Recorded net sales of $3.2B, a slight 1% increase. Operating profit improved to $346M, with margins rising to 10.8% from the previous year's 9.9%. The increase was driven by higher volumes in strategic and missile defense programs, despite declines in the national security space and commercial civil space sectors.
The F-35 program remains a cornerstone of Lockheed Martin’s performance. The company delivered its first Technology Refresh 3-configured F-35 aircraft and is on track to meet the 2024 delivery estimates of 75 to 110 units. FCF soared to $1.5B, bolstered by increased volume and better contractual milestone payments. The company's backlog reached nearly $158B (nice!), ensuring steady future revenue.
Future Outlook
LMT raised its full-year guidance, forecasting net sales between $70.5B and $71.5B and an EPS range of $26.10 to $26.60. The company's operating cash flow guidance remains strong at $7.75B to $8.05B, with free cash flow expected between $6B and $6.3B.
LMT delivered a solid quarter, reaffirming its position as a staple in my portfolio. I am optimistic about the company’s future and confident in its continued success.
2. Tesla (TSLA)
This week, Tesla (TSLA) announced their Q2 2024 earnings results. The performance in Q2 might seem underwhelming at first glance, but there's more beneath the surface. Despite slow growth in electric vehicle (EV) sales and what some are dubbing an "EV recession," TSLA's stock has surged over 50% in the last three months. It experienced a dip of over 10% following a disappointing earnings report, but the bigger picture is worth examining in my opinion.
Unpacking the Second Quarter
TSLA reported earnings of $0.52 per share for Q2, falling short of Wall Street's forecast of $0.61 and down 43% from the $0.91 per share earned in the same quarter last year. However, this figure includes a $622M restructuring charge due to employee layoffs. Excluding this charge, which investors hope is an anomaly, earnings per share would increase by approximately $0.14.
Revenue saw a modest 2% increase from the previous year, reaching $25.5B. However, competitive pricing and macroeconomic challenges led to a decline in gross margin, which dropped by 23 basis points to 18%. The automotive gross margin, excluding regulatory credits and leases, came in at 14.6%, below the anticipated 15.1%.
Despite these mixed results, and the pessimism you may hear across social platforms, several factors suggest a positive long-term outlook for TSLA.
Looking Ahead
Three key factors could reshape TSLA's future, making quarterly fluctuations less concerning for long-term investors:
Delayed but Promising Robotaxi Unveiling: CEO Elon Musk announced that the launch of the company's robotaxi has been postponed to October 10, from the initial date of August 8. This event is crucial for Musk's AI ambitions, with analyst Dan Ives of Wedbush Securities suggesting it could kickstart TSLA's AI narrative, potentially adding $1T in value over the next few years.
Affordable EV on the Horizon: The high-end EV market appears saturated, with consumers seeking more budget-friendly options. TSLA plans to introduce a more affordable model in early 2025, possibly sooner. This new model, integrating elements from existing platforms and the upcoming robotaxi platform, could significantly expand TSLA's market reach by appealing to mainstream consumers.
Potential Political and Economic Impacts: Musk's endorsement of former President Donald Trump in the upcoming election introduces uncertainties. For instance, TSLA's planned factory in Mexico could face challenges if Trump imposes tariffs on Mexican goods. Additionally, if Trump reduces or eliminates the Inflation Reduction Act EV tax credits, the company’s short-term profits might be affected, though Musk believes it would hurt competitors more.
The Bigger Picture
While the second quarter results may appear disappointing, it's essential to consider Tesla's broader trajectory. The anticipated developments in 2025, including the launch of a more affordable EV model and the robotaxi unveiling, are poised to be transformative. These advancements underscore the ongoing and likely unstoppable shift towards electric vehicles globally.
Moreover, Elon Musk’s recent endorsement of political figures and his involvement in various ventures outside TSLA have sparked debates about his focus. Critics have labeled Musk as "distracted," but this criticism overlooks his unique ability to juggle multiple high-stakes projects. From his first business endeavor, Musk has demonstrated exceptional multitasking skills, a rare talent that has consistently driven success (but it has worked for him!).
Despite the recent underwhelming performance of TSLA, it’s crucial to recognize that Musk is strategically investing in the next phase of hyper-growth, a stage visible only to true visionaries. The notion of Musk being "distracted" misses the mark, especially considering his track record. The current period, perceived by some as sluggish, is actually a strategic repositioning for future growth. Musk’s foresight into upcoming innovations like Optimus and robotaxis heralds the opening of largely untapped markets, promising substantial rewards for investors. Those who fail to grasp Musk’s long-term vision may heed his advice: sell the stock and move on. For believers in his vision, like myself, TSLA remains a cornerstone of the investment portfolio. Any dips in stock price at these levels present an opportunity to increase holdings.