Bring it home (7/29/22)

Good morning, and happy Friday. Welcome to the 273 of you who joined us this week. Payload is now fewer than 800 readers away from an arbitrary but important round number. Once we pass the milestone, we’ll share the number with you.

In today's newsletter:📊 A&D earnings 🦾 Mars robots💥 Rocket reentry

Was this email forwarded to you? Sign up here.

Earnings Szn Is in Full Swing

It’s been a five-coffee-a-day week for analysts tracking the “primes” and publicly traded contractors that make up the US defense and aerospace (A&D) industrial base and sell fighter jets, weapons systems, and advanced spacecraft to the Pentagon.

Of the US’ prime contractors, Lockheed posted Q2 earnings last week, with Northrop Grumman, Raytheon, General Dynamics, and Boeing reporting over the past few days. ICYMI, here’s our Boeing and Airbus recaps.

The outlook? Quite the mixed bag–let’s dive in.

Looking back to last Tuesday with $LMT…

Lockheed missed on top- and bottom-line expectations, with revenue falling 9% year-over-year (YoY) to $15.4B (vs. ~$16B est) and earnings per share (EPS) of $1.16 (vs. $1.88 est).

• The company also lowered guidance for the full year on both revenue and EPS, attributing the adjustment to supply chain disruptions and sluggish F-35 sales.

• The stock showed support, however, after Lockheed reported reaching a “handshake” agreement with the Pentagon on a three-year, $30B deal to build ~375 F-35s.

LM Space: Q2 revenue decreased 11% YoY to $2.8B, with operating profit dropping 20% YoY to $268M. Management cited the timing and mix of ULA launches, of which Lockheed owns $50%, along with lower profit rate adjustments.

Notably Lockheed does not expect the recent increase in DoD budgets or European defense spending to have much impact on its 2023 outlook (due to the long-cycle nature of defense).

Rolling right along to $RTX

Raytheon was a mixed bag with revenue of $16.3B, missing expectations ($16.7B est) but beating on earnings ($1.16 actual vs. $1.12 est). Raytheon reiterated full-year guidance of $67.8B–$68.8B in annual revenue. It also bought back $1B worth of RTX shares in Q2, and plans to purchase $2.5B over the course of 2022.

Under the hood, earnings expectations for Raytheon’s Intelligence & Space (I&S) division ($348M actual vs $468M est) were down. Management attributed the dip to lower I&S “net program efficiencies” (in other words, execution issues).

• I&S sales dropped 6% YoY to ~$3.6B

• Operating profit margin was 8.8%, down 210bps YoY.

Raytheon closed out Q2 with a backlog of $161B, of which $96B was from its commercial aerospace order book.

Now, on to $NOC

Northrop Grumman’s Q2 was also a mixed bag, with a top-line miss ($8.8B in actual revenue vs. $9.1B est) and bottom-line miss, with EPS of $6.06 (vs. $6.10 est). A bright spot in the Q2 results was Northrop’s Space Systems division, which reported $3.8B of revenue (vs. $2.9B est).

+ While we’re here: Investors are keeping a close eye on the new antitrust review of the Orbital ATK acquisition. Politico reported last week that the FTC is weighing legal action against Northrop for supposed violations of a 2018 settlement that allowed the company to acquire Orbital ATK, the dominant supplier of large solid rocket motors.

• The commission could seek to toughen the terms of the settlement deal or sue to overturn it entirely, per Politico.

In one of the most watershed A&D consolidation plays in recent memory, Northrop acquired Orbital ATK back in June 2018. Orbital ATK is one of the two key solid rocket motor manufacturers in the country (the other being Aerojet Rocketdyne).

The FTC says Northrop violated settlement terms by slow-rolling negotiations with Boeing on a recent rocket motor deal, after promising fair treatment of its competitors. Northrop CEO Kathy Warden said this week she doesn’t believe the scrutiny will adversely affect Northrop’s underlying business.

Got time for $GD?

General Dynamics’ revenues of $9.2B (vs. $9.4B est) missed forecasts, with management citing the supply chain issues that have been plaguing the entire industry. But EPS of $2.75 (vs. $2.72 est) beat expectations, driven primarily by strong sales from the firm’s Aerospace unit and deliveries of its flagship Gulfstream plane.

• Aerospace revenue jumped 15% YoY to $1.87B.

• Investors were particularly keen on hearing about whether the FAA would lift the G500/G600 landing restriction by the end of September and management discussed a possible removal by as early as mid-month.

“Demand in the quarter was very strong in Aerospace, with margins showing steady improvement year over year.” CEO Phebe Novakovic said.

Sizing it all up

If you had “inflation,” “supply chain,” and “labor issues” on your buzzword bingo card for this week’s A&D calls, please come forward to collect your winnings.

Here at Payload, we’ve commented on A&D’s outperformance over other industries and indices, and prognosticated that it may stay that way for a while. But A&D players are feeling the heat, ranging from broader macro headwinds to rising interest rates to a tougher stance on consolidation from the Pentagon and the White House.

Now, it’s almost time to turn our attention toward the space SPACs and their financial results…Anyone making money yet?

Projected Robotic Population Increase for Mars

There’s been a changing of the robotic guard responsible for bringing samples of Mars rocks back to Earth. Perseverance and a pair of Ingenuity-esque helicopters will now play a greater role in ferrying the samples back home.

Mars sample return: NASA and ESA have together hatched a plan to bring samples of Mars rock back home by 2033. The Perseverance rover has been neatly sealing up samples on its journey through the Jezero Crater to send to Earth, where scientists will be able to study actual material from Mars for the first time.

There are a lot of moving parts (and possible points of failure) when it comes to bringing anything home from Mars. First, the samples aboard Perseverance must be transferred to the Sample Retrieval Lander, which will host the Mars Ascent Vehicle (MAV).

MAV will then launch into Mars orbit, where the Earth Return Orbiter will be waiting to receive the samples. The orbiter will make the long journey back to Earth and release an entry capsule that NASA and ESA will collect once it touches down. No big deal.

The handoff: The space agencies’ changes will occur before the samples ever leave the Red Planet. The prior version of the sample return mission included a second, smaller rover that would land with the Sample Retrieval Lander, go on a Martian road trip to meet Perseverance, secure the rocks, and bring them back. But Perseverance has proven its efficacy up there, and now the plan is for the old, staid rover to do the work itself.

Two new Mars helicopters, inspired by Ingenuity, will accompany the lander as a backup plan if Perseverance can’t make the journey.

Share this story with a future Mars resident:

In Other News

• CHIPS and Science passed the House. The semiconductor and science R&D bill includes the 2022 NASA Authorization Act, and will now be sent to President Biden’s desk to be signed into law.

• ISRO, the Indian space agency, says its commercial arms have netted $279M from launching commercial payloads.

• Rocket Lab ($RKLB) and NRO’s next launch is scheduled for next Tuesday. The NROL-199 mission is nicknamed “Antipodean Adventure”...major props to whoever at Rocket Lab is naming these missions.

• Firefly’s Alpha rocket is vertical on the pad in Vandenberg, as the company nears its second orbital launch attempt.

Weekend Recs

🗑️The White House’s Office of Science and Technology Policy, or OSTP for short, has released a national orbital debris implementation plan. Perfect beach reading for the weekend.

🐠Check out Unseenlabs’ case study on detecting illegal, unreported, and unregulated fishing in the Arabian Sea by monitoring radiofrequency signals from space.

🏭 We enjoyed Rotoiti Consulting’s three-pager on microgravity experimentation services. Well worth a read.

🚀ICYMI, tune in to this week’s Pathfinder 0009 with Relativity’s Tim Ellis on YouTube, Spotify, or Apple.

🐦 And space tweet of the week goes to...

The View from Space

Here's a photo from ESA of astronaut Samantha Cristoforetti conducting her first spacewalk. This was the first European spacewalk conducted by a European woman.

Heads up...

The first stage of China’s Long March 5B, which launched the Wentian module to the Tiangong space station, is set to make an uncontrolled reentry over the weekend. The Aerospace Corporation, US military, and EU are tracking CZ-5B R/B, the booster in question.

• Aerospace Corp’s projected reentry window is July 30 at 8:24pm ET ± 16 hours.

• The DoD Space Track’s reentry window is July 30 at 2:39pm ET ± 15 hours at ~latitude 39.1, longitude 148.9 (northern California). Precisely predicting the ultimate location of reentry at this point is a fool’s errand, though, given the vast range of possible outcomes.

• Finally, the EU SST’s window is July 31 at 1:42am ET ± 13.5 hours.

Per Space Track: “No one can pinpoint the exact reentry point into the Earth’s atmosphere until within hours or minutes of its reentry, so time and latitude/longitude estimates may vary substantially.”

“Currently, the rocket body could reenter anywhere along the blue or yellow paths, with the yellow satellite icon indicating the center of the reentry window,” per Aerospace Corp.The reentry window will narrow and predicted reentry location will get more precise as the stage gets closer to falling back to Earth.

But let’s close out the week on a more chipper note. As the Atlantic wrote last year in the lead-up to another uncontrolled Chinese rocket reentry, “No one knows where the discarded piece of hardware might land, but there's no reason to panic.”