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    Lockheed Martin Corp (LMT)

    Board Change

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    Business Description

    Lockheed Martin Corporation is a global aerospace and defense company that operates in four primary business segments, focusing on advanced military and defense technologies. The company designs and manufactures military aircraft, missile defense systems, helicopters, and space systems, with a significant portion of its sales coming from the U.S. Government, particularly the Department of Defense . Lockheed Martin's strategy centers on integrating advanced technologies into defense systems to enhance agility and adaptability .

    1. Aeronautics - Develops advanced military aircraft, including the F-35 Lightning II, which is the company's largest program .
    2. Missiles and Fire Control (MFC) - Provides air and missile defense systems, tactical missiles, and precision strike weapon systems .
    3. Rotary and Mission Systems (RMS) - Designs and supports military and commercial helicopters, missile defense systems, and cyber solutions .
    4. Space - Involved in satellites, space transportation systems, and strategic defense systems .

    Q3 2024 Summary

    Initial Price$470.77July 1, 2024
    Final Price$605.86October 1, 2024
    Price Change$135.09
    % Change+28.70%

    What went well

    • Lockheed Martin ended Q3 with a record backlog of over $165 billion, reflecting a book-to-bill ratio of 1.3, driven by strong orders for precision and air defense munitions like Javelin and guided multiple launch rockets.
    • The company is heavily investing in autonomy, AI, and manned-unmanned teaming, developing technologies through its Skunkworks and Lockheed Martin AI Center, positioning itself for future defense contracts and to meet evolving defense strategies.
    • Lockheed Martin generated $2.1 billion in free cash flow in the quarter, increased its quarterly dividend by 5% to $3.30, marking the 22nd consecutive year of increases, and extended its share repurchase authorization.

    What went wrong

    • Lockheed Martin incurred significant charges totaling $145 million year-to-date on a classified program due to higher costs than expected, stemming from aggressive initial bidding.
    • Delays in the F-35 Tech Refresh 3 (TR3) software finalization are impacting aircraft deliveries and cash flow, with the company facing withheld payments and timing issues due to ongoing negotiations for Lot 18 and 19 contracts.
    • Growth projections for 2025 are modest, with expectations of low single-digit growth overall, relying heavily on the Missiles and Fire Control segment for high single-digit growth, while other segments remain flat or grow slowly.

    Q&A Summary

    1. F-35 Program Challenges
      Q: How confident are you in resolving F-35 issues by Q4?
      A: Management explained that two main issues affect the F-35 program: TR3 software finalization and Lot 18/19 contract negotiations. They are delivering aircraft with "Release 1" software, allowing basic operations, but full combat capability ("Release 2") requires further software validations extending into 2025. They anticipate delivering 90 to 110 F-35s in 2024 and 180 per year from 2025. Cash flow is impacted due to delayed payments until contract negotiations are completed, but they expect payments will be released once agreements are finalized.

    2. MFC Margin Outlook
      Q: Is MFC's operating performance improving or just accounting?
      A: Management noted that MFC's performance is improving, delivering 14.4% margins in the quarter, excluding losses related to a classified program. Losses are recorded based on probability assessments and tend to be loaded into Q4. They expect $225 million in losses in Q4 and similar levels in 2025.

    3. 2025 Growth Expectations
      Q: Is 2025 growth still projected at 5% like 2024?
      A: Management stated that 2025 growth aligns with a low single-digit framework, with MFC driving high single-digit growth. As visibility improves, they could achieve mid-single-digit growth, but this depends on production systems consistently growing at that rate.

    4. Strategic Investments in AI and Autonomy
      Q: How is Lockheed positioning in AI and CCAs?
      A: Lockheed is investing heavily in autonomy, AI, 5G connectivity, and related technologies that enable CCAs. They've demonstrated autonomous capabilities with platforms like the Black Hawk helicopter and F-16, indicating potential applications to uncrewed systems.

    5. Solid Rocket Motor Supply
      Q: What's the progress on solid rocket motor partnerships?
      A: Lockheed is collaborating with industry partners to meet increased demand for solid rocket motors. They formed a partnership with General Dynamics to design and produce a new solid rocket motor, aiming for certification testing in 2025 and production at rate by 2027. This adds a third supplier to strengthen the defense industrial base.

    6. Pension Headwind Mitigation
      Q: How will you reduce pension headwinds after 2025?
      A: Management is considering both organic measures, like working capital improvements, and inorganic options, such as issuing debt, to manage pension headwinds after 2025. They're confident in offsetting the impact through a combination of these strategies.

    Guidance Changes

    Annual guidance for FY 2024:

    • Sales: Approximately $71.25 billion (raised from $70.5 billion–$71.5 billion )
    • Segment Operating Profit: Approximately $7.475 billion (raised from $7.35 billion–$7.5 billion )
    • Earnings Per Share (EPS): Approximately $26.65 (raised from $26.10–$26.60 )
    • Free Cash Flow: Approximately $6.2 billion (raised from $6.0 billion–$6.3 billion )
    • Share Repurchase Target: Approximately $3.7 billion (lowered from $4 billion )
    • Return to Shareholders: Greater than 100% of free cash flow (no prior guidance)
    • F-35 Deliveries: 90 to 110 aircraft (raised from 75 to 100 aircraft )
    • Losses on MSC Classified Program: $325 million (no change from $325 million )
    • Pension Contribution: No contribution assumed (no change from no contribution )

    Key Metrics

    View all financials →

    Executive Team

    NamePositionStart DateShort Bio
    Timothy S. CahillExecutive Vice President – Missiles and Fire ControlNovember 2022Timothy S. Cahill is the Executive Vice President for the Missiles and Fire Control (MFC) business segment at Lockheed Martin. He previously served as Senior Vice President of Global Business Development & Strategy .
    Stephanie C. HillExecutive Vice President – Rotary and Mission SystemsJune 2020Stephanie C. Hill has served as the Executive Vice President of the Rotary and Mission Systems (RMS) business segment at Lockheed Martin since June 2020. She was previously the Senior Vice President of Enterprise Business Transformation .
    Maryanne R. LavanSenior Vice President, General Counsel and Corporate SecretarySeptember 2010Maryanne R. Lavan has served as Senior Vice President, General Counsel and Corporate Secretary at Lockheed Martin Corporation since September 2010, providing legal counsel and overseeing corporate governance matters .
    Robert M. Lightfoot, Jr.Executive Vice President – SpaceJanuary 2022Robert M. Lightfoot, Jr. has served as the Executive Vice President of the Space business segment at Lockheed Martin since January 2022. He was previously Vice President, Operations for the Space business segment .
    Jesus MalaveChief Financial OfficerJanuary 31, 2022Jesus Malave has served as the Chief Financial Officer of Lockheed Martin Corporation since January 31, 2022. He was previously the Senior Vice President and Chief Financial Officer at L3Harris Technologies, Inc. .
    H. Edward Paul, IIIVice President and ControllerJune 2022H. Edward Paul, III has served as Vice President and Controller at Lockheed Martin Corporation since June 2022. He was previously Vice President, Accounting .
    Maria A. RicciardoneVice President, Treasurer and Investor RelationsJanuary 1, 2024Maria A. Ricciardone has served as Vice President, Treasurer and Investor Relations at Lockheed Martin since January 1, 2024. She was previously Vice President, Investor Relations .
    Frank A. St. JohnChief Operating OfficerJune 2020Frank A. St. John is the Chief Operating Officer at Lockheed Martin Corporation since June 2020. He was previously Executive Vice President of Rotary and Mission Systems (RMS) .
    James D. TaicletChairman, President, and Chief Executive OfficerJune 2020James D. Taiclet has served as Chairman, President, and Chief Executive Officer (CEO) of Lockheed Martin since June 2020. He was elected as Chairman in March 2021 .
    Gregory M. UlmerExecutive Vice President – AeronauticsFebruary 2021Gregory M. Ulmer is the Executive Vice President for the Aeronautics business segment at Lockheed Martin since February 2021. He was previously Vice President and General Manager of the F-35 Lightning II Program .

    Questions to Ask Management

    1. Regarding the F-35 program, can you elaborate on the specific challenges you are facing with the finalization of the TR3 software and how this might impact aircraft delivery schedules and cash flow in the coming quarters?
    2. Given the incremental losses you've realized on certain classified programs due to aggressive bidding, what measures are you implementing to improve cost estimation and bidding practices to prevent future cost overruns?
    3. With the anticipated pension contribution headwinds, can you provide more details on your plans to mitigate these, including any considerations for inorganic measures like debt issuance, and how this might affect your financial flexibility?
    4. Considering the increased demand reflected in your record backlog, what steps are you taking to address potential supply chain constraints to ensure you can meet production targets and customer commitments?
    5. In the context of the evolving tactical fighter landscape and the development of Collaborative Combat Aircraft (CCA), how is Lockheed Martin positioning itself to remain competitive, especially considering that non-traditional companies have been awarded contracts in Increment 1, and how does this influence your strategy for programs like NGAD and the F-35?

    Share Repurchase Program

    Program DetailsProgram 1
    Approval DateOctober 2010
    End Date/DurationNo expiration date
    Total additional amount$3.0 billion (October 2024)
    Remaining authorization amount$10.3 billion (as of 2024-12-21)
    DetailsPart of a strategy to return cash to stockholders through dividends and share repurchases. The program can be amended or terminated by the Board of Directors at any time.

    Past Guidance

    Q3 2024 Earnings Call

    • Issued Period: Q3 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Sales: Approximately $71.25 billion, reflecting a growth of 5% over 2023 .
      2. Segment Operating Profit: Approximately $7.475 billion, with margins of approximately 10.5% .
      3. Earnings Per Share (EPS): Approximately $26.65 .
      4. Free Cash Flow: Approximately $6.2 billion .
      5. Share Repurchase Target: Approximately $3.7 billion .
      6. Return to Shareholders: Greater than 100% of free cash flow .
      7. F-35 Deliveries: 90 to 110 aircraft .
      8. Losses on MSC Classified Program: $325 million .
      9. Pension Contribution: No contribution assumed .

    Q2 2024 Earnings Call

    • Issued Period: Q2 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Sales: Range of $70.5 billion to $71.5 billion, 5% growth .
      2. Segment Operating Profit: Range of $7.35 billion to $7.5 billion, margins of 10.5% .
      3. Earnings Per Share (EPS): Range of $26.10 to $26.60 .
      4. Free Cash Flow: Range of $6 billion to $6.3 billion .
      5. Backlog: Expected growth .
      6. F-35 Deliveries: 75 to 100 aircraft .
      7. R&D and Capital Investments: Over $3 billion .
      8. Shareholder Returns: $4 billion in share repurchases .
      9. Program-Specific Guidance:
        • F-35: Deliveries to exceed production .
        • MFC Classified Program: Losses of $325 million .
      10. Pension Contributions: No contributions assumed .

    Q1 2024 Earnings Call

    • Issued Period: Q1 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Free Cash Flow: Range of $6 billion to $6.3 billion .
      2. Shareholder Returns: $4 billion in share repurchases .
      3. Sales Growth: 5% in Q1, low single-digit in Q2 and Q3, flattish to slightly down in Q4 .
      4. MFC Losses: $325 million for the year .
      5. Production Capacity Plans:
        • PAC-3: 500 to 650 missiles by 2027.
        • GMLRS: 10,000 to 14,000 by 2025.
        • JASSM and LRASM: 650 to 1,100 by 2026.
        • HIMARS: 72 to 96 launchers next year .
      6. F-35 Deliveries: 75 to 110 aircraft .

    Q4 2023 Earnings Call

    • Issued Period: Q4 2023
    • Guided Period: FY 2024
    • Guidance:
      1. Sales: Range of $68.5 billion to $70 billion, 2.5% growth .
      2. Segment Operating Profit: Range of $7.175 billion to $7.375 billion .
      3. EPS: Range of $25.65 to $26.35 .
      4. Free Cash Flow: Range of $6 billion to $6.3 billion .
      5. Pension Adjustment: Decline by $400 million to less than $1.7 billion .
      6. Segment Growth: Growth in 3 of 4 segments, MFC leading at 7% growth .
      7. Margins: Underlying margins approximately 11% .

    Competitors

    Competitors mentioned in the company's latest 10K filing.

    • The Boeing Company - A primary competitor in the defense and aerospace industry .
    • General Dynamics - A primary competitor in the defense and aerospace industry .
    • L3Harris Technologies - A primary competitor in the defense and aerospace industry .
    • Northrop Grumman - A primary competitor in the defense and aerospace industry .
    • RTX Corporation - A primary competitor in the defense and aerospace industry .

    Latest news

    Recent developments and announcements about LMT.

    Corporate Leadership

      Board Change

      ·
      Dec 11, 2024, 10:08 PM

      Admiral John C. Aquilino has been elected to the Board of Directors of Lockheed Martin Corporation, effective December 11, 2024. He will serve on the Company's Classified Business and Security Committee and is considered an independent director .