Updated from 9:23 a.m. EST

Troubled military contractor

Lockheed Martin

(LMT) - Get Report

reported a sharp drop in fourth-quarter pro-forma earnings of 59 cents a diluted share as sales sagged.

For the quarter, Lockheed Martin, which announced a major restructuring on Thursday, reported net earnings of $293 million, or 76 cents a diluted share, compared with earnings of $125 million, or 33 cents a diluted share, in the year-ago period.

Not including gains of $41 million from the sale of the company's interest in

L3 Communications Holdings'

stock, $33 million from real estate gains and $28 million from divestitures, earnings came in at 59 cents a diluted share, in line with analysts' expectations.

Excluding nonrecurring and unusual items in fourth-quarter 1998, earnings per share were 75 cents a share.

Sales for the quarter dropped 2.8% to $7.0 billion. However, the company said its backlog was up for the first time in three years to $45.9 billion at the end of 1999 compared with $45.3 billion at the end of the previous year.

The company also announced that its board of directors approved a recommendation to cut the dividend from a quarterly payment of 22 cents per share to 11 cents a share, payable March 31 to shareholders of record on March 6.

"Consistent with our previously announced focus on reducing debt, it is prudent to change the dividend at this time," said Lockheed Chairman and CEO Vance Coffman in a statement.

Lockheed Martin was down 1/4, or 1%, at 19 3/16. It has fallen steadily from a 52-week high of 46 reached in May. (It closed down 9/16, or 2.9%, at 18 7/8.)

Jeffrey Pittsburg of

Pittsburg Institutional

, an institutional research and brokerage boutique, said he expected the shares to bounce higher, noting that the dividend cut as well as the recently announced restructuring moves signaled the company was getting back on the right track.

"The dividend cut is positive for them -- they're really trying to boost that EBITDA," he said, referring to operating cash flow.

Lockheed Martin's debt-to-capitalization ratio was at 64% at the end of 1999, compared with 63% at the end of 1998, as costs stemming from acquisitions and investments offset the $873 million the company generated in free cash flow in 1999.

Pittsburg, who does not do any underwriting, rates Lockheed a buy and said the company's stock could reach the high 20s or low 30s over the next 12 months as the impacts from the restructuring kick in.

Changing market conditions, new business losses and weak program performance have weighed on Lockheed Martin's performance.

The company said it expects earnings of about $1 a diluted share in 2000.

On Thursday after the close of trading, the Bethesda, Md.-based company announced that it was

reducing its workforce of 140,000 by 2% and establishing two new companies to streamline its aeronautical systems and space businesses, moves that will generate an estimated $200 million in annual savings.