Lockheed Martin Corporation Q1 FY2026 earnings call

• High demand for defense technologies and space exploration capabilities. - Recent win of $1.5 billion contract with Peruvian Air Force for F-16 fighters. - Artemis II mission with Orion spacecraft was near-flawless. - Platforms performed well in active conflict zones. - Plans to quadruple production of PRISM and expand production of PAC-3 and THAAD interceptors. - Announced $4.8 billion contract to accelerate PAC-3 production. - Investing in facilities for expanded production. - Backed over 120 companies with Venture Fund. - Top focus areas: enhancing/accelerating execution, innovation, partnerships, international demand, and growing workforce.

Aeronautics: First quarter sales decreased 1% year over year, segment operating profit decreased 14% compared to prior year. Missiles and Fire Control: Sales increased 8% from prior year, segment operating profit increased 8% year-over-year. Rotary Emission Systems: Sales decreased 8% year over year, operating profit decreased 19% compared to prior year. Space: Sales increased 7% year over year, operating profit decreased 26% compared to prior year.

• 2026 financial outlook remains consistent with mid-single-digit sales growth, profit of 8.4 to 8.7 billion, and free cash flow range of 6.5 to 6.8 billion. - Expect margins to improve over the course of the year with gains in the second half. - Full-year cash guidance remains, with higher cash flow weighted towards latter half of the year. - IRS favorable guidance on corporate alternative minimum tax strengthens confidence in reaching upper end of cash flow range.

• Unfavorable performance adjustments at aeronautics associated with F-16 and C-130. - Supplier constraints and integration challenges on C-130. - Cost growth on some RMS programs and material timing issues. - Risk management related to multi-year munitions acceleration agreements, including clawback mechanisms and supply chain pinch points. - Classified program risks with ongoing scrutiny and need for proper contract structuring.

Q: Focus on F-35, reorient on program, role in modern warfare, outlook for production and sustainment.

A: F-35's performance in active operations is definitive, uniquely capable as fifth-gen platform, demand from US and allies heightened.

Q: Additional color on aeronautics and RMS results, adverse profit adjustments.

A: F-16 had rework and schedule delay but back on track, F-35 production margins accretive; RMS had cost growth and material timing issues.

Q: Talk about multi-year contracts in missiles and fire control, risk side.

A: Team effort with government and suppliers, risk-managed arrangement with clawback mechanisms and inflation-based escalator.

Q: Update on classified program in aeronautics, risk trending.

A: Increased scrutiny, path through flight test, government committed.

Q: Opportunity to accelerate classified missile program production at MFC.

A: Similar context, interest in accelerating, risk mitigation in place.

Q: Free cash flow, working capital, cadence.

A: ERP transformation, F-35 progress, back-end loaded cash.

Q: Pinch points in ramping MFC capacity.

A: Solid rocket motors and seeker for Patriot, supply chain improvements and government support.

Q: AI strategy, development.

A: AI in in-house systems and product/services, Lockheed Martin Artificial Intelligence Center, ethical standard.

Q: Evolving landscape, competition for talent, contracting, investments.

A: Welcome competition, investing in startups, retention rates, moving to commercial contracting, constructive on new entrants.

Q: Clarification on growth rate, cash flow, working capital, CapEx.

A: Shorter time period impact, cash burn on classified programs, CapEx and cash flow assumptions