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    LMT
    Earnings call· Dec 2025(Q4 FY25)

    LOCKHEED MARTIN CORP LMT

    Jan 29, 2026 Source

    Executive summary

    Lockheed Martin Q4 FY25 — Record Backlog and Production Ramps Drive Strong Performance

    Lockheed Martin concluded FY25 with robust demand, achieving record backlog and strong sales growth driven by key programs like F-35 and PAC-3. The company is strategically increasing internal investments in R&D and production capacity, notably through new long-term framework agreements for missile systems, to meet evolving defense priorities. While facing some program-specific profit adjustments, management anticipates continued momentum and significant growth in FY26, underpinned by a disciplined capital allocation strategy.

    Highlights

    5

    • Achieved a record high backlog of $194 billion at year-end FY25, representing approximately 2.5x annual sales and 17% YoY growth.

    • Delivered 6% year-over-year sales growth for the full year FY25.

    • Generated $6.9 billion in free cash flow for FY25, exceeding prior expectations.

    • Delivered a record 191 F-35 fighter jets and 620 PAC-3 MSE interceptors in FY25.

    • Secured landmark 7-year framework agreements for PAC-3 MSE and THAAD interceptors, enabling a more than tripling of PAC-3 MSE production capacity from ~600 to 2,000 per year.

    Concerns

    3

    • Full-year FY25 EPS was $21.49, down 4% from the prior year, primarily due to increased interest expense, a higher tax rate, and higher operating FAS/CAS expense.

    • Rotary and Mission Systems (RMS) operating profit decreased 31% for FY25, driven by a $610 million decrease in profit booking rate adjustments due to losses on CMHP and TUHP programs.

    • Aeronautics segment operating profit decreased 17% for FY25, driven by lower profit booking rate adjustments related to classified program losses and unfavorable C-130 adjustments.

    Guidance & targets

    22
    CategoryTargetConfidence
    Consolidated Sales Growth
    5% organic growth
    high materiality
    High
    Consolidated Segment Operating Profit Growth
    more than 25%
    high materiality
    High
    Consolidated Segment Operating Profit Margin
    10.9%
    high materiality
    High
    Adjusted EPS
    $29.35 to $30.25
    high materiality
    High
    Free Cash Flow
    $6.5 billion to $6.8 billion
    high materiality
    High
    Capital Expenditures
    $2.5 billion to $2.8 billion
    medium materiality
    High
    Capital and Independent R&D Investment
    approaching $5 billion
    high materiality
    High
    F-35 Production Rate
    156 aircraft per year
    medium materiality
    High
    F-35 Deliveries
    in line with the production rate
    medium materiality
    High
    Aeronautics Sales Growth
    low single-digit overall growth
    medium materiality
    Medium
    Skunk Works and F-35 Sustainment Sales Growth
    potential for double-digit growth
    medium materiality
    Medium
    Missiles and Fire Control (MFC) Sales Growth
    14% year-over-year sales growth
    high materiality
    High
    Missiles and Fire Control (MFC) Sales CAGR
    at least double digit
    high materiality
    High
    Rotary and Mission Systems (RMS) Sales Growth
    low single-digit range
    medium materiality
    Medium
    Space Sales Growth
    approximately 5% year-over-year
    medium materiality
    High
    Aeronautics Segment Operating Profit Margin
    9.8%
    medium materiality
    High
    Missiles and Fire Control (MFC) Segment Operating Profit Margin
    consistent with 2025 levels
    medium materiality
    High
    Rotary and Mission Systems (RMS) Segment Operating Profit Margin
    10.5%
    medium materiality
    High
    Space Segment Operating Profit Margin
    slightly above 10%
    medium materiality
    High
    PAC-3 MSE Production Capacity
    2,000 per year
    high materiality
    High
    PAC-3 MSE and THAAD Multiyear Agreements Status
    up and running under the framework agreement with appropriations by this year 2026
    high materiality
    High
    Pension Requirement
    at least $1 billion
    medium materiality
    High

    Segment performance

    4
    SegmentRevenueYoYQoQMargin
    Aeronautics
    Q4 sales primarily driven by higher sales on classified programs due to absence of Q4 2024 losses, and higher volume/favorable contract mix for F-35. Q4 operating profit driven by higher profit booking rate adjustments due to absence of classified reach-forward losses. Full-year profit impacted by lower profit booking rate adjustments related to classified program losses and unfavorable C-130 adjustments.
    Adjusted sales growth: ~4% YoY (Q4 FY25)Adjusted operating profit growth: slightly increased YoY (Q4 FY25)Full-year sales: $30.3 billionFull-year sales growth: 6% YoYFull-year segment operating profit decrease: 17% YoYAdjusted full-year segment operating profit growth: 4% YoYFull-year segment operating profit margin: 6.9%Adjusted full-year segment operating profit margin: 9.9%
    		—6%——
    Missiles and Fire Control (MFC)
    Q4 sales driven by higher volumes from production ramps for Precision Fires programs and existing PAC-3 contracts. Q4 operating profit primarily from absence of classified program loss recognized in Q4 2024. Full-year sales and profit driven by production ramps on JASSM/LRASM and Precision Fires programs, and existing PAC-3 contracts.
    Operating profit increase: $1.3 billion YoY (Q4 FY25)Full-year sales: $14.5 billionFull-year sales growth: 14% YoYFull-year segment operating profit increase: $1.6 billion YoYFull-year segment operating profit margin: 13.8%
    		—18%—$535 million
    Rotary and Mission Systems (RMS)
    Q4 sales primarily from higher volume at IWSS radar programs and River Class Destroyer, and higher production volume on Sikorsky Black Hawk programs. Q4 operating profit decreased due to unfavorable profit adjustments on Black Hawk programs and absence of an intellectual property license benefit from Q4 2024. Full-year sales increases offset by charges on CMHP and TUHP. Full-year operating profit driven by $610 million decrease in profit booking rate adjustments from CMHP and TUHP losses.
    Operating profit decrease: 9% YoY (Q4 FY25)Full-year sales: $17.3 billionFull-year sales comparison: comparable to 2024Full-year operating profit decrease: 31% YoYAdjusted full-year operating profit growth: 3% YoYFull-year segment operating profit margin: 7.6%Adjusted full-year segment operating profit margin: 11.3%
    		—8%——
    Space
    Q4 sales primarily driven by higher volume on strategic and missile defense programs (NGI, FBM), Transport Layer, and Orion programs. Q4 operating profit decreased due to lower equity earnings from ULA. Full-year sales driven by higher volume on NGI, FBM, and Orion programs, partially offset by decrease for national security space programs. Full-year operating profit resulted from favorable at-complete performance on commercial civil space programs and higher overall sales volume, partially offset by lower ULA equity earnings.
    Operating profit decrease: 4% YoY (Q4 FY25)Full-year sales: $13 billionFull-year sales growth: 4% YoYFull-year operating profit: $1.3 billionFull-year operating profit growth: 10% YoYFull-year segment operating profit margin: 10.3%
    		—8%——

    Operational metrics

    27
    Consolidated sales growth
    9%YoY
    Q4 FY25

    Consolidated sales were $20.3 billion.

    Consolidated segment operating profit growth
    up considerablyYoY
    Q4 FY25

    Consolidated segment operating profit was $2.1 billion.

    Consolidated segment operating profit margin
    10.1%
    Q4 FY25

    Segment operating profit margins for Q4 FY25.

    Non-operating pension charge
    $479M
    Q4 FY25

    Related to follow-on pension transaction, impacting EPS.

    Tax accounting benefit
    $109M
    Q4 FY25

    Due to favorable resolution of tax accounting issues, partially offsetting pension charge.

    RMS profit booking rate adjustments decrease
    $610MYoY
    FY25

    Primarily due to losses recognized on CMHP and TUHP in Q2 FY25, driving a 31% decrease in RMS operating profit for the year.

    Discretionary pension contributions
    $860M
    FY25

    Made in FY25, prefunding the required 2026 pension.

    Capital and independent R&D investment
    $3.5B
    FY25

    Investment in support of transformative innovation and increased production capacity.

    F-35 production rate
    5x fastervs any other allied fighter
    Q4 FY25

    Highlighting the program's scale and maturity.

    PAC-3 MSE production increase
    >60%
    last 2 years

    Steadily increasing production since 2023.

    FAS/CAS expense
    highervs prior year
    FY25

    Contributed to lower EPS in FY25.

    Interest expense
    increasedvs prior year
    FY25

    Contributed to lower EPS in FY25.

    Tax rate
    highervs prior year
    FY25

    Contributed to lower EPS in FY25.

    Aeronautics adjusted sales growth
    ~4%YoY
    Q4 FY25

    Adjusting for impacts of classified program charges and C-5 contract resolution benefit in Q4 2024.

    Aeronautics adjusted segment operating profit growth
    increased slightlyYoY
    Q4 FY25

    Adjusting for classified charges and C-5 claim resolution benefit in Q4 2024.

    Aeronautics adjusted segment operating profit growth
    4%YoY
    FY25

    Adjusted for classified program losses in both FY24 and FY25.

    Aeronautics adjusted segment operating profit margin
    9.9%
    FY25

    Adjusted for classified program losses.

    MFC segment operating profit increase
    $1.3BYoY
    Q4 FY25

    Primarily from the absence of the loss recognized on a classified program in Q4 2024.

    MFC segment operating profit increase
    $1.6BYoY
    FY25

    Primarily driven by the absence of the $1.4 billion loss recognized on a classified program in 2024.

    RMS operating profit decrease
    9%YoY
    Q4 FY25

    Mainly due to unfavorable profit adjustments on Black Hawk programs and absence of an intellectual property license arrangement from Q4 2024.

    RMS adjusted operating profit growth
    3%YoY
    FY25

    Adjusted for CMHP and TUHP program losses in FY25.

    RMS adjusted segment operating profit margin
    11.3%
    FY25

    Adjusted for CMHP and TUHP program losses.

    Space operating profit decrease
    4%YoY
    Q4 FY25

    Due to lower equity earnings from United Launch Alliance (ULA).

    Space operating profit increase
    10%YoY
    FY25

    Primarily resulting from favorable at-complete performance on certain commercial civil space programs.

    MFC margin dilution from multiyear agreements
    no more than 20-30 bps
    initial phase

    Expected during the ramp-up phase of the 7-year multiyear agreements for PAC-3 and THAAD.

    MFC sales growth with multiyear agreements
    double-digit
    initial phase

    Expected to occur even with initial margin pressure from multiyear agreements.

    F-35 sustainment investment
    $1Badditional
    future

    To improve mission capable rates across the fleet and address prior underfunding of spare parts and repair capacity.

    Industry KPIs

    8
    MetricValueDetails
    Book to bill ratio1.2
    Total company backlog$194BUSD
    Defense program awardsLandmark 7-year framework agreement for PAC-3 MSE; similar framework agreement for THAAD; >$15B F-35 awards; contract for 31 THAAD interceptors; largest production contract for IRST21 Block II pod system; >$1B contract for 18 SDA Tranche 3 Tracking Layer satellites
    Program segment backlog>$15BUSD
    Aftermarket services splitdouble-digit growth%
    Unit deliveries by program191 F-35 aircraft; 620 PAC-3 MSE interceptors; 750th HIMARSunits
    Production rates by program2,000 per yearunits
    Production capacity expansionmultibillion-dollar investmentUSD

    Orderbook & backlog

    5
    Total backlog$194Bend of FY25

    up $17.3B (17% YoY)

    Represents about 2.5x annual sales.

    Book-to-bill ratio1.2FY25

    Resulted from over $65 billion in orders during the second half of the year.

    Orders received>$65BH2 FY25
    F-35 program awards>$15BQ4 FY25

    Includes definitized Lot 18 and 19 contracts, FY26 air vehicle sustainment contract, and contract modification for Lots 20 and 21 production aircraft.

    Space Development Agency Tranche 3 Tracking Layer contract>$1BQ4 FY25

    For 18 satellites, providing next-generation missile tracking capabilities.

    Product announcements

    5
    ProductTypeDetails
    X-59 aircraftmilestone
    HELIOS weapon systemmilestone
    GPS III and Tranche 1 Transport Layer satelliteslaunch
    Autonomous Black Hawk (U-Hawk)milestone
    JAGM (Joint Air-to-Ground Missile) reconfigured for Saildroneexpansion

    Deals & partnerships

    3
    Department of WarLandmark 7-year framework agreement for PAC-3 MSE interceptors7 years

    First implementation of a long-term multiyear agreement, supporting the Department of War's Acquisition Transformation Strategy. Expected to be up and running under framework with appropriations by FY26.

    Department of WarFramework agreement for THAAD interceptor

    Similar framework agreement to PAC-3 MSE. Expected to be up and running under framework with appropriations by FY26.

    SaildroneArming autonomous surface ships with reconfigured JAGM missiles

    LMT reconfigured a JAGM missile for surface-to-surface application and developed a quad launcher for installation on Saildrone's autonomous ships.

    Capital programs

    2
    Munitions acceleration center facilityunderwaymultibillion-dollar investment
    Start: Q1 FY26

    Benefit: accelerate munition production, building facilities across 5 states

    Includes breaking ground on a brand-new facility in Camden, Arkansas. Part of a broader effort to increase production capacity.

    F-35 sustainment system strategic internal investmentunderway$1B

    Benefit: improve mission capable rates across the F-35 fleet

    An additional investment with an emphasis on the aircraft sustainment system, addressing prior underfunding of spare parts and repair capacity.

    Risks & headwinds

    5
    Aero classified program complexitynext few years

    no additional charges reported in Q4 FY25

    Mitigation: Proactive monitoring and management of potential risk with highest level of executives involved; monthly monitoring to identify risks and opportunities timely.

    F-35 sustainment underfunding

    $1 billion strategic internal investment

    Mitigation: Committing additional internal investment to double down on spare parts and repair capacity to improve mission capable rates.

    RMS program lossesFY25

    $610 million decrease in profit booking rate adjustments

    Mitigation: Adjusted RMS operating profit growth of 3% YoY for FY25, indicating underlying performance despite the charges.

    MFC margin dilution from multiyear ramp-upinitial phase

    no more than 20-30 bps

    Mitigation: Expected to be temporary, leading to double-digit sales growth and opportunities to exceed historical MFC margins over time.

    EPS decline in FY25FY25

    down 4% to $21.49

    Mitigation: Driven by increased interest expense, higher tax rate, and higher operating FAS/CAS expense. FY26 EPS guidance projects significant recovery.

    What to watch in Q1 FY26

    5

    PAC-3 MSE and THAAD Multiyear Agreements

    FY26
    CurrentFramework agreements announced, awaiting definitization and appropriations.
    TargetDefinitized contracts awarded and appropriations secured.

    Why it matters

    These agreements are foundational for future MFC growth and margin potential, and their formalization will validate the new procurement strategy.

    We expect both of those programs to be up and running under the framework agreement with appropriations by this year 2026.

    Q&A highlights

    7

    Is the capital deployment strategy changing due to increased CapEx and executive orders? Should investors expect a new normal for returning FCF to shareholders? How does vertical integration factor in?

    Management will continue a disciplined and dynamic capital allocation. New long-term contracts create stable, accretive growth opportunities for internal investment (CapEx, R&D). They are also exploring M&A opportunities. The process remains the same, but the conditions and opportunity set have changed, leading to more internal investment.

    “The process remains the same, but the conditions have changed on the availability of accretive investments that we can make in our company.”

    asked by Scott Mikus · answered by James Taiclet

    2 min read5 chapters

    Detailed Narrative

    01

    Strategic Investments and Production Ramps

    Lockheed Martin is significantly increasing internal investments, with capital and independent R&D approaching $5 billion in 2026, a 35% year-over-year increase. This includes a multibillion-dollar investment over the next three years to accelerate munition production, building facilities across five states, such as a new munitions acceleration center in Camden, Arkansas. These investments are crucial for tripling PAC-3 MSE production capacity from approximately 600 to 2,000 per year, driven by unprecedented🌐 demand and new long-term framework agreements with the Department of War.

    02

    F-35 Program Strength and Investment

    The F-35 program continues to demonstrate strong demand, securing over $15 billion in awards during Q4 FY25, including definitized Lot 18 and 19 contracts and sustainment agreements. The company delivered 191 F-35 aircraft in FY25, exceeding expectations. Lockheed Martin is committing an additional $1 billion strategic internal investment for F-35 sustainment to improve mission capable rates, focusing on Block 4 capability improvements and addressing prior underfunding of spare parts and repair capacity.

    03

    Advanced Technology and Innovation

    Lockheed Martin is actively pursuing disruptive technologies across all business areas. Examples include the successful control of a drone wingman from an F-22 cockpit, the first flight of the X-59 quiet supersonic aircraft, and the development of an operable space-based interceptor for Golden Dome by 2028. The company is also collaborating with new entrants like Saildrone to arm autonomous surface vessels with reconfigured JAGM missiles, enhancing deterrence capabilities by combining proven weapons with novel platforms.

    04

    Multiyear Contracts and Financial Impact

    The landmark 7-year framework agreements for PAC-3 MSE and THAAD interceptors are expected to stabilize growth opportunities. While initial ramp-up may cause slight MFC margin dilution (no more than 20-30 bps), it is projected to lead to double-digit sales growth for MFC and create opportunities for margins to exceed historical levels over time⏳. These agreements include make-whole provisions to mitigate risks from changes in procurement strategy, ensuring consistent ROI and cash flow perspective.

    05

    Capital Allocation Strategy and Pension

    The company maintains a disciplined and dynamic capital allocation approach, with new long-term contracts and R&D opportunities presenting accretive investment avenues. The strong underlying operating cash flow of over $9 billion in FY25 allowed prefunding of the 2026 pension requirement. The 2027 pension requirement is at least $1 billion, and management may opportunistically prefund it if strong cash flow continues in 2026, demonstrating flexibility in managing financial obligations.

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