Lockheed Martin Corporation Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Quarterly Results: Reported $18 billion of sales, invested $800 million in infrastructure and innovation for growth, and returned $1.3 billion to our shareholders in the second quarter. Also recognized losses of $1.8 billion across several legacy programs.
• Combat Operations Effectiveness: Recent highly effective performance of many mission-critical Lockheed Martin systems led to customers directing acceleration of production and development of advanced technologies.
• Budget and Customer Environment: Ongoing program review identified risks on major legacy programs, leading to charges. Customer direction to accelerate production and develop advanced tech, with ongoing program review process reevaluating financial position on legacy programs.
• F-35 Program Update: Delivered 50 aircraft in the quarter, bringing total F-35 deliveries to 97 so far in 2025. On track for 170 to 190 deliveries in 2025. Strong international demand with UK, Belgium, Denmark planning to procure additional F-35s.

Segment Performance

• Aeronautics: Second quarter sales at Aero increased 2% year over year to $7.4 billion. The increase was primarily due to higher volumes on F-35, mainly on production contracts and was partially offset by $360 million of lower volume from the classified program loss. Excluding the impact of the classified program loss, sales would have been up mid-single digits year over year. Segment operating profit decreased significantly year over year in the second quarter primarily due to the $950 million loss on a classified program.
• Missiles and Fire Control (MFC): Sales at MFC in the quarter increased 11% from the prior year, to $3.4 billion driven by higher volume on multiple tactical and strike missile programs including JASSM LARASM, HIMARS and PRISM. Segment operating profit in Q2 improved by 6% year over year driven by higher volume and favorable mix.
• Rotary and Mission Systems (RMS): Sales at RMS declined 12% in the quarter to $4 billion primarily driven by the loss impacts of $665 million related to the CMHP and TUHP programs at Sikorsky. Excluding the program loss impacts, operating profit at RMS would have been comparable year over year.
• Space: Space sales increased 4% year over year. Due to higher volume at Commercial Civil space primarily on the Orion program and at Strategic and Missile Defense. Driven by next generation interceptor and fleet ballistic missile programs. Space operating profit increased 5% compared to Q2 2024.

Guidance

• Reaffirmed sales guidance of $73.75 billion to $74.75 billion.
• Segment operating profit expected to be in the range of $6.6 billion to $6.7 billion with an implied midpoint margin of 9%.
• Lowered earnings per share estimate to a range of $21.70 to $22.
• Maintained free cash flow guidance of $6.6 to $6.8 billion for 2025, with 2026 free cash flow closer to $6 billion.

Risks

• Legacy Programs: Took charges on legacy programs like Sikorsky's Turkish utility helicopter program (TUHP) and Canadian Maritime Helicopter Program (CMHP), and Aeronautics classified program due to reevaluation of financial position and new developments.
• Tax Matters: IRS asserts $4.6 billion additional income tax owed related to tax accounting method change, with ongoing appeals and legal proceedings.
• Cash Flow Timing: Impacted by timing items such as delay in F-35 lot eighteen nineteen award, tariff impacts, and receivables timing.

Question and Answer

Q: Why should investors feel comfortable derisking problem programs, particularly the Aero classified one?

A: Reconstituted program review team for classified aeronautics program with wider expertise from across the company, reassessed cost increase trends, rebaselined assumptions, and will continue robust oversight including senior management participation.

Q: Administration's FY26 request for DoD shows reduction in F-35 aircraft. Why?

A: President's budget is first step in congressional process; house arms appropriations committee marked up to 22 jets, senate Armed Services Committee marked up to 57 jets, with appropriations committees having final say on numbers, hopeful for increase by end of budget process.

Q: Golden Dome opportunity?

A: No contracts out yet, but working on architecture and advancements in counter UAS, with government not having announced anything yet that can be tied to backlog.