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    LMT
    Earnings call· Mar 2025(Q1 FY25)

    LOCKHEED MARTIN CORP LMT

    Apr 22, 2025 Source

    Executive summary

    Lockheed Martin Q1 FY25 — Strong Start, Reaffirmed Guidance, and Strategic Pivot

    Lockheed Martin delivered a strong Q1 FY25, reaffirming its full-year guidance despite navigating the NGAD program decision and tariff headwinds. The company is strategically pivoting to its 21st Century Security vision, leveraging existing platforms like the F-35 with advanced digital technologies to provide cost-effective, high-value mission capabilities. This approach, combined with a substantial backlog and strong missile orders, positions Lockheed Martin for sustained long-term growth.

    Highlights

    5

    • Sales increased 4% year-over-year in Q1 FY25.

    • Generated $955 million in free cash flow in Q1 FY25.

    • Returned $1.5 billion to shareholders through dividends and share repurchases in Q1 FY25.

    • Secured up to $10 billion in future work from large missile program awards in Q1 FY25.

    • Segment operating profit increased 50% year-over-year for Missiles and Fire Control (MFC), or 13% normalized.

    Concerns

    3

    • Book-to-bill ratio was less than 1x in Q1 FY25.

    • Impacts from the Next Generation Air Dominance (NGAD) program decision are being accommodated in guidance.

    • Tariff headwinds are being mitigated or absorbed, with potential timing lags for cost recovery.

    Guidance & targets

    10
    CategoryTargetConfidence
    Full-year sales growth
    mid-single-digit growth
    high materiality
    High
    Full-year segment operating margin
    11%
    high materiality
    High
    Full-year free cash flow growth
    high single-digit growth
    high materiality
    High
    Full-year free cash flow
    $6.7 billion
    high materiality
    High
    F-35 deliveries
    170 to 190
    medium materiality
    High
    Capital investment
    over $10 billion
    high materiality
    High
    Shareholder returns
    at least $18 billion
    high materiality
    High
    F-35 Lot 18 contract definitization
    in the second quarter
    medium materiality
    High
    F-35 Lot 19 timing
    second half of the year
    medium materiality
    High
    JASSM/LRASM production ramp
    1,100 units
    medium materiality
    High

    Segment performance

    4
    SegmentRevenueYoYQoQMargin
    Aeronautics
    Sales increase primarily due to higher volumes on F-35 production contracts. Segment operating profit increased due to higher volume and higher profit booking rate adjustments, including favorable performance at completion on a classified contract.
    F-35 production contracts: higher volumesSingapore F-35A order: 8 jets, expanding program to 20
    		$7.1 billion3%—6% increase
    Missiles and Fire Control (MFC)
    Sales increased driven by higher volume on multiple tactical and strike missile programs (JASSM/LRASM, GMLRS, HIMARS). Operating profit improved significantly, primarily due to the absence of a $100 million loss recognized in Q1 2024. Normalized profit growth was 13%.
    JASSM/LRASM orders: ~$2 billionJASSM/LRASM production ramp: to 1,100 units in 2027COMET missile: 50% reduction in time to Preliminary Design Review (PDR)
    		—13%—50% increase
    Rotary and Mission Systems (RMS)
    Sales increased due to higher volume on the Canadian Surface Combatant and RADAR programs, and higher volume on Black Hawk at Sikorsky. Operating profit increased due to higher volume, profit rate adjustments, and favorable contract mix, including an intellectual property licensing arrangement.
    Canadian Surface Combatant: higher volumeRADAR programs: higher volumeBlack Hawk: higher volume
    		$4.3 billion6%—21% increase
    Space
    Sales decreased due to lower volume at National Security Space, partially offset by higher volumes in commercial civil space. Despite lower sales, operating profit increased due to higher profit rate adjustments, primarily from favorable performance at completion on certain commercial civil space programs, partially offset by lower ULA equity earnings.
    National Security Space: lower volume (OPIR program)Commercial Civil Space: higher volume (lunar programs)United Launch Alliance (ULA) equity earnings: lower (fewer launches, higher Vulcan initial costs)
    		—-2%—17% increase

    Operational metrics

    13
    Sales growth
    4%year-over-year
    Q1 FY25

    Company-wide sales growth.

    Segment operating margin
    11.6%
    Q1 FY25

    Company-wide segment operating margin.

    GAAP earnings per share
    $7.2814% increase
    Q1 FY25

    GAAP EPS increased 14% year-over-year.

    R&D and Capital Expenditures investment
    $850 million
    Q1 FY25

    Investment in independent research and development and capital expenditures.

    Shareholder return
    $1.5 billion
    Q1 FY25

    Total capital returned to shareholders in the quarter.

    F-35 fleet size
    more than 1,100 aircraft
    current

    Current global F-35 fleet size.

    F-35 total expected fleet size
    greater than 3,500 aircraft
    future

    Total expected global F-35 fleet size over time.

    F-35 production rate
    150+ per yearmaintained
    ongoing

    Company's ability to maintain F-35 production rate, even with potential U.S. buy cuts.

    Contract type mix
    40% cost type
    current

    Percentage of contracts that are cost type.

    Contract type mix
    60% fixed price
    current

    Percentage of contracts that are fixed price.

    MFC classified program loss
    $100 millionabsence of
    Q1 FY24

    The absence of this loss in Q1 FY25 contributed to MFC's profit increase.

    MFC margin improvement
    10 basis pointsyear-over-year
    Q1 FY25

    Normalized margin improvement for MFC.

    COMET missile PDR time reduction
    50%
    current

    Reduction in time required to get to a preliminary design review for the COMET missile, enabled by model-based engineering.

    Industry KPIs

    7
    MetricValueDetails
    Book to bill ratioless than 1xx
    Total company backlog$173 billionUSD
    Defense program awardsup to $10 billionUSD
    Program segment backlogup to $10 billionUSD
    Aftermarket services splitsustainment growth
    Unit deliveries by program170 to 190aircraft
    Production rates by program1,100 unitsunits

    Orderbook & backlog

    5
    Total backlog$173 billionQ1 FY25

    More than 2 years of sales.

    MFC orders (JASSM/LRASM)approximately $2 billionQ1 FY25

    For JASSM/LRASM Large Lot Procurement UCA and facilitization contracts, supporting production ramp to 1,100 units in 2027.

    RMS orders (Canadian surface combatant)6 years of future workQ1 FY25

    Supporting the implementation phase of the Canadian surface combatant River-class destroyer program.

    Missile program awardsup to $10 billionQ1 FY25

    Comprising future work for Precision Strike Missiles (PrSM), Terminal High Altitude Area Defense (THAAD), and Joint Air-to-Surface Standoff Missiles (JASSM)/Long Range Anti-Ship Missiles (LRASM).

    F-35 backlogapproximately 360 jetsend of Q1 FY25

    Product announcements

    2
    ProductTypeDetails
    Common Multi-Mission Truck (COMET) family of air vehicleslaunch
    LM 400 technology demonstration satellitemilestone

    Deals & partnerships

    4
    SingaporeF-35A aircraft order

    Singapore signed the letter of offer and acceptance for 8 F-35As, demonstrating continued international interest in the F-35.

    U.S. NavyTrident II D5 Life Extension missile contract modificationdecades into the future

    Lockheed Martin Space received a modification to their existing contract for the next generation of U.S. Deterrence at Sea, known as the Trident II D5 Life Extension. Lockheed Martin has provided this capability for 70 years.

    U.S. Government (classified)Classified program contract

    Lockheed Martin Space won a contract on a classified program to demonstrate highly advanced capabilities and cutting-edge technologies, with vehicles ready for scale production.

    Irving ShipbuildingCanadian Surface Combatant River-class destroyer program6 years

    Booked 6 years of future work supporting the implementation phase of the Canadian surface combatant River-class destroyer program, continuing partnership to upgrade the Canadian fleet.

    Capital programs

    1
    R&D and Capital Expendituresunderwayover $10 billion

    Benefit: maturation of innovative technologies, digital transformation, operational efficiencies

    Planned investment over the next three years to improve performance and provide multi-domain solutions.

    Risks & headwinds

    4
    Next Generation Air Dominance (NGAD) program decisionFY25 and beyond

    direct program impacts accommodated in 2025 outlook

    Mitigation: Applying developed technologies to enhance F-35 and F-22 platforms; evaluating broader business implications.

    Tariff headwindsFY25

    currently estimated 2025 profit impacts

    Mitigation: Mitigating potential cost increases and offsetting cash timing pressures; working closely with customers for recovery mechanisms (40% cost-type, 60% fixed-price with contractual clauses).

    Full-year continuing resolutionFY25

    operating under a full year continuing resolution

    Mitigation: Allows for new awards and transfer of funds across programs; actively engaged with customers to provide best value solutions.

    Chinese export controls on rare earth metalsnear term

    not expected to impact current delivery commitments for remainder of calendar year

    Mitigation: Constrained by law from using Chinese inputs; supply chain specifies non-Chinese sources; existing stockpiles; advocating for U.S. sources.

    What to watch in Q2 FY25

    5

    F-35 Lot 18 contract definitization

    Q2 FY25
    Currentpending
    Targetdefinitized

    Why it matters

    Definitization is expected to unlock cash currently tied up in working capital, impacting free cash flow.

    And we anticipate definitizing the Lot 18 contract in the second quarter which we expect will unlock cash currently tied up in working capital on the balance sheet.

    Q&A highlights

    6

    Has Lockheed Martin received a debrief on the NGAD decision, and will the company protest the award?

    Lockheed Martin received a classified debrief and will not protest the NGAD decision. Instead, it will apply the developed technologies to enhance the F-35 and F-22, aiming for 80% of sixth-gen capability at 50% of the cost by supercharging the F-35 chassis.

    “We are not going to protest the NGAD decision of the U.S. government. We are moving forward and moving out on applying all the technologies that we develop for our NGAD bid on to our embedded base of F-35 and F-22.”

    asked by David Strauss · answered by James Taiclet

    2 min read6 chapters

    Detailed Narrative

    01

    21st Century Security Strategy and Golden Dome Initiative

    Lockheed Martin's 21st Century Security strategy, integrating existing and new platforms with digital technologies like AI and 5G, is tailored for the President's Golden Dome initiative. This strategy aims to extend the life and capabilities of platforms like the F-16, F-35, and F-22, making them affordable and relevant in an evolving threat environment. The company is actively engaged with customers to provide best-value solutions for the 2026 presidential budget request, particularly for Golden Dome, leveraging its at-scale production capabilities for systems like THAAD and PAC-3.

    02

    NGAD Decision and F-35 Enhancement

    Following a classified debrief on the Next Generation Air Dominance (NGAD) program decision, Lockheed Martin will not protest the award. Instead, the company plans to apply technologies developed for its NGAD bid to enhance its F-35 and F-22 platforms, aiming for 80% of sixth-generation capability at 50% of the cost. This involves supercharging the F-35 chassis with advanced sensors, stealth countermeasures, and tracking systems, leveraging co-funded investments from the U.S. government, allies, and Lockheed Martin.

    03

    Missile Programs and Production Ramps

    The company secured significant awards in Q1 FY25, totaling up to $10 billion in future work for advanced missile programs including Precision Strike Missiles (PrSM), Terminal High Altitude Area Defense (THAAD), and Joint Air-to-Surface Standoff Missiles (JASSM)/Long Range Anti-Ship Missiles (LRASM). MFC is ramping up production for several products, with JASSM/LRASM targeting 1,100 units by 2027. These programs, along with the Trident II D5 Life Extension, are expected to drive high single-digit to double-digit growth through the end of the decade.

    04

    Operational Excellence and 1LMX Transformation

    Lockheed Martin is focused on operational execution, driving cost competitiveness, quality, and schedule. The 1LMX end-to-end business process transformation, underway since 2022, has already increased HIMARS production, accelerated software deployment, and enabled model-based engineering with digital twins. The debut of the COMET missile, which reduced preliminary design review time by 50% through model-based engineering, exemplifies the benefits of 1LMX.

    05

    Tariff and Supply Chain Resilience

    The company is mitigating or absorbing tariff headwinds🌐, with mechanisms in place to recover costs for the 60% of contracts that are fixed-price. Management expressed confidence in its ability to meet current delivery commitments despite potential rare earth metal export controls from China, citing legal constraints against Chinese inputs, existing stockpiles, and a focus on developing U.S. and non-adversary sources for critical materials.

    06

    New CFO Priorities and Capital Allocation

    Evan Scott, the new CFO, emphasized maintaining momentum, ensuring no gaps in priorities, and continuing the consistent focus on delivering shareholder value. The company plans to invest over $10 billion in R&D and capital expenditures and return at least $18 billion to shareholders via dividends and repurchases over the next three years, while also funding required pension contributions.

    AI-generated summary of the company’s earnings call. Not investment advice.