Lockheed Martin Corp. President and Chief Operating Officer Peter B. Teets resigned yesterday as his embattled company admitted that its financial future is even darker than had been expected.
The Bethesda-based aerospace giant warned investors that it is likely to make less than half as much profit next year as it had predicted in June during its last painful financial confession. Teets took responsibility.
"The difficult times we have seen are not indicative of the company's real potential, and I feel I must step up to being accountable for our disappointing financial outlook for 2000," the 57-year-old former Martin Marietta executive said.
Industry observers were further shaken by the resignation of James A. "Micky" Blackwell, who ran the company's aeronautics operations and was considered its third-most prominent executive, after Teets and Chief Executive Officer Vance D. Coffman.
"I think if there was anyone who could have claimed to be Mr. American Aerospace, it would have been him," said aviation consultant Richard Aboulafia, who cited Blackwell's role in creating the F-22 fighter plane and in representing Lockheed Martin abroad.
Dain Hancock, who runs the company's jet fighter factory in Fort Worth, Texas, will replace Blackwell on Nov. 5.
Coffman said he will assume Teets' duties until a search committee can find a permanent replacement.
Wall Street greeted the day's news with dismay. Lockheed Martin stock burrowed to a 52-week low, losing $2.9375 to close at $20 a share.
Financial analysts harangued Lockheed Martin executives for more than 90 minutes on a telephone conference call, most of them pushing to see if the weak expectations for next year could get even worse.
"This is a painful process for all of us," Coffman responded. "Most of you have lost value and reputations, as have we, and rightly so. You are wondering if there are more surprises yet to come. [But] the revised outlook for 2000 is achieveable and credible."
Lockheed Martin has been racked with problems over the past year. Its space and missiles businesses were diminished by launch failures and delays. Its aeronautics business is limping from cost overruns and slow deliveries on the C-130J transport plane program.
Last month, Lockheed Martin announced a reorganization of the whole corporation, collapsing five business sectors into four, cutting out a layer of management and promising to fix a cultural bias toward cheapness over quality that was identified in a critical in-house review.
Yesterday, the company's newly named chief financial officer, Robert J. Stevens, said the wrinkles from those problems will stretch at least into next year. The space business, in particular, is going to be depressed for some time, Stevens said.
The company expects earnings of about $1 a share for next year, far below the $2.15 per share Lockheed Martin had predicted for 2000 in June. At the same time, free cash flow -- which is the amount of money left over after the company pays all its bills -- is seen as dwindling to less than $500 million next year. Earlier, Lockheed Martin had forecast $900 million.
Stevens conceded that it could get worse. For instance, those numbers assume that Lockheed Martin will sell 13 C-130J transport planes next year. So far, it has orders for two.
"Please appreciate that our planning is still under way," Stevens told the analysts. "We're going to manage this business for cash, we're going to improve our performance and we're going to restore our value and our reputation."
At least one analyst said afterward that he is "hopeful" Lockheed Martin is on the right track. "I would say parts of the company are broken, but not the entire company," said Byron Callan of Merrill Lynch in New York.
Teets took blame for that because his role as chief operating officer gave him day-to-day responsibility for the company. Blackwell's apparent sins were less clear.
While the departures of both men were termed retirements by the company, insiders said that they were forced to leave.
Rumors had swirled all week that top executives -- generally thought to be Teets and Coffman -- would be in danger when the Lockheed Martin board of directors met Thursday.
One industry official recalled seeing a hint of the pending action last week: Another executive asked Teets what sort of company Lockheed Martin would be when the reins passed to a new leader one day. "Teets smiled weakly and said, 'I don't know, but that might be a lot sooner than you expect,' " said the official, who asked not to be named.
Teets was said to have submitted his resignation Thursday as the board members convened.
Blackwell, on the other hand, got a call Thursday night after the board had met and was told -- unexpectedly -- to resign, said a source within the company.
Blackwell had been with Lockheed for 30 years and competed with both Teets and Coffman for the chief executive spot in 1997. After being passed over, Blackwell maintained a faithful following within the company as Teets and Coffman hit turbulence running the whole show.
Earlier this month, an e-mail surfaced on a Yahoo! Internet site that purported to contain notes from a meeting called by Blackwell in which a senior Pentagon official excoriated certain aspects of Lockheed Martin but praised much of the aeronautics side.
Insiders say the matter was deeply embarrassing to both the company and the Pentagon -- and that Blackwell was blamed for sharing the material with whoever displayed it on the Web site.
"That was the last straw," said the source within the company, who added that many employees view both resignations as the result of a low-key rivalry among all three men. "Now Vance has removed his only two threats," the source said.
Another company official who asked to remain anonymous said the actions had left workers feeling "disconcerted. I just don't recognize this company anymore. It's a very troubling time."
Asked whether the resignations will help resolve leadership problems, the official said that only Coffman can answer for the current state of affairs.
"It's like a coaching organization. You can only fire so many first-base coaches or third-base coaches," the employee said. "Someone has to take ultimate responsibility."
Lockheed Martin also announced its earnings yesterday for the third quarter of this year, posting net income of $217 million, or 57 cents per share, on overall sales of $6.2 billion.
That's down from net earnings of $318 million, or 83 cents per share, during the same portion of 1998, when sales were only slightly higher at $6.3 billion.