Aerospace & Defense ETFs Gain Despite Mixed Q2 Earnings

The impact of the coronavirus outbreak can be seen on economic health, with the airlines being the worst-hit sector. The virus spread has dampened air travel plans amid travel restrictions imposed by the government. Airlines’ top lines have suffered a material impact as passenger revenues form the largest component of their total revenue base. However, with reopening of global economies and resuming business activities, the sector might get support from increased travel demand.

Meanwhile, the second half of 2020 is expected to face the brunt of the pandemic as the outbreak continues to aggravate in the United States. Per the International Air Transport Association (IATA), recovery in traffic has been slower in this period than expected as global passenger traffic will not return to pre-crisis levels until 2024, a year later than expected. However, the Trump administration is supporting the proposal for another $25 billion in federal aid to protect jobs in the sector. It is worth noting here that the previous $25-billion rescue package under the Coronavirus Aid, Relief and Economic Security (CARES) Act would preserve airline jobs through Sep 30.

The pandemic has largely impacted operations of major players in the defense sector as well. Some defense manufacturers had either shut down production or are operating with a constricted workforce. Moreover, deliveries of finished products were largely affected by travel restrictions and social-distancing measures.

Earnings in Focus

On Jul 21, Lockheed Martin LMT reported second-quarter 2020 adjusted earnings of $6.13 per share, beating estimates by 7.4% and revenues of $16.22 billion surpassed estimates by roughly 6.4%. The numbers improved from earnings and revenues of $5 and $14.43 billion, respectively, a year ago.

Also, the company’s cash and cash equivalents totaled $2.86 billion as of Jun 28, 2020, compared with $1.51 billion at the end of 2019.

For 2020, Lockheed Martin has updated its financial guidance. The company currently expects revenues of $63.50-$65 billion versus the prior range of $62.25-$64 billion. Earnings per share are currently projected in the band of $23.75-$24.05 for 2020 compared with the earlier range of $23.65-$23.95. 

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