What Does Sudden Lockheed CFO Departure Mean For Prime?

Ken Possenriede
Credit: Lockheed Martin

Lockheed Martin surprised stakeholders late Aug. 3 when it announced the sudden departure of its chief financial officer (CFO), the second in almost as many years, as well as lower earnings per share (EPS) guidance for the year, albeit due to a one-time financial transaction.

More information may emerge Aug. 5 when Lockheed hosts an investor briefing conference, but until then stakeholders will have to study separate announcements issued late Aug. 3 that revealed the changes. According to Lockheed, CFO Ken Possenriede “has decided to retire immediately due to personal reasons.” Acting CFO John Mollard has taken over the duties.

Possenriede, who ends a 35-year career at Lockheed, did not comment as part of the Lockheed statement. Lockheed Chairman, President and CEO James Taiclet thanked him for his contributions. “Over the past 14 months, Ken has been an integral part of my successful transition as Lockheed Martin CEO,” Taiclet said.

Possenriede became CFO in February 2019, replacing Bruce Tanner in a move that surprised financial analysts at the time of its announcement. Observers took solace in the fact that Possenriede had a long career at Lockheed–as does Mollard, currently treasurer, with almost four decades, according to Lockheed. Ostensibly, Possenriede could have had another five years or so in Lockheed management.

But Wall Street analysts noted the abruptness of Possenriede’s departure. “The abrupt nature of the retirement combined with the two-sentence resignation letter does raise questions about the circumstances behind Mr. Possenriede’s departure,” Jefferies analysts Sheila Kahyaoglu and Greg Conrad said.

“Posenriede is very well regarded by the Street, and his decision to retire ‘for personal reasons’ right in front of tomorrow’s investor day is awkward,” Cowen analyst Cai von Rumohr said. “Given it has come so suddenly, we assume that Lockheed has not had time to prepare for a transition, particularly since he will be replaced by ‘acting’ CFO James Mollard, a longtime Lockheed vet.”

Still, von Rumohr noted that Lockheed’s operations appear under control and there are no apparent crises, so the timing of the transition may not be bad. And, Capital Alpha Partners analyst Byron Callan stressed that “abruptly resigning ‘for personal reasons’ ... may mean just that.”

Nevertheless, Callan pointed to second-quarter results, announced July 25, as proximate causes for the CFO transition. In the quarter, Lockheed booked a $225 million charge from a classified aerospace program. “Were there earlier warnings that were not caught or ignored on the program,” Callan asked, “Was the $225 million charge adequate?”

What is known is that separately, Lockheed on Aug. 3 announced it purchased group annuity contracts from Athene Holding, a financial services company specializing in retirement services, to transfer almost $5 billion of Lockheed’s pension obligations and related plan assets for roughly 18,000 U.S. retirees and beneficiaries to Athene. Retiree benefits will not change.

The deal did not require any additional funding. But Lockheed in the current third quarter will recognize a noncash, nonoperational settlement charge of $1.7 billion before taxes, spurring a $4.75 per-share hit to EPS related to the accelerated recognition of actuarial losses for the affected plans. Whole-year EPS now are projected to be $21.95-22.25. Operational forecasts were not altered.

Long term, the latest CFO transition adds uncertainty for some investors regarding the strategy at the Pentagon’s leading contractor by annual sales. Taiclet became chief executive in June 2020.

“Possenriede was a longstanding Lockheed leader and we imagine investors will wonder about whether his departure will affect strategy,” JPMorgan analysts led by Seth Seifman said. “In particular, CEO Jim Taiclet came to the role from outside the defense industry with a vision for Lockheed that (among other things), puts more emphasis on communications technology, including from the commercial world. There are good reasons to do this, but it is also a departure for Lockheed to some degree and we have occasionally struggled to understand the way forward. We assume investors will seek to understand how this CFO transition affects Lockheed’s pursuit of this agenda.”

Michael Bruno

Based in Washington, Michael Bruno is Aviation Week Network’s Executive Editor for Business. He oversees coverage of aviation, aerospace and defense businesses, supply chains and related issues.