Q1 2025 Earnings Summary
- Robust Backlog and Production Flexibility: The firm's healthy $173 billion backlog and strong international demand for the F-35 support its ability to maintain a high annual production rate even if domestic volumes moderate, ensuring steady revenue growth.
- Innovative Next-Generation Upgrades: Lockheed Martin is leveraging its substantial NGAD investments to upgrade the F-35, aiming to deliver 80% of sixth-generation capability at roughly 50% of the cost per unit, positioning it competitively in modernization and sustainment.
- Resilience to Tariff and Supply Chain Risks: The company has implemented effective mitigation measures against tariff impacts and secured diversified supply chain sources—ensuring that costs are recoverable and delivery commitments remain unaffected.
- Tariff and supply chain cost timing risks: Although management outlines mechanisms to recover tariff impacts, there is uncertainty around the lag between incurring these costs and actual recovery, which could pressure margins in the near term.
- Government policy and funding sensitivity: Many guidance assumptions—such as relying on favorable DoD funding, timely program funding, and executive orders that streamline acquisitions—could turn unfavorable if government priorities or budget allocations shift, potentially impacting program execution.
- Execution risk in technology integration: The strategy to rapidly upgrade legacy platforms like the F-35 using NGAD technologies may encounter integration and cost challenges, risking delays or lower-than-expected performance improvements.
| Metric | YoY Change | Reason |
|---|---|---|
Net Sales | 4.5% increase (from $17,195M in Q1 2024 to $17,963M in Q1 2025) | Driven by increased product and service sales from key segments such as Aeronautics, RMS, and MFC as production volumes ramped up on programs like the F‑35 and radar systems. This growth builds on previous period improvements, signaling continued momentum in core aerospace and defense contracts. |
Gross Profit | Up 16.5% (from $1,993M in Q1 2024 to $2,323M in Q1 2025) | Expanded gross profit reflects a higher sales mix that more than offset rising costs. The improvement is due to robust product sales performance—particularly in segments that had previously struggled—which now benefit from favorable contract adjustments and production ramp-ups. |
Operating Profit | Up 16.9% (from $2,029M in Q1 2024 to $2,372M in Q1 2025) | Operating profit gains are driven by significant segment-level improvements. For example, MFC saw a 50% increase and RMS a 21% improvement, resulting from higher profit booking rate adjustments and increased production volumes that helped overcome earlier period classified program losses and unfavorable adjustments. |
Net Earnings | Up 10.8% (from $1,545M in Q1 2024 to $1,712M in Q1 2025) | The rise in net earnings follows the strong operating performance. Improved operating efficiencies and better cost management, along with reduced negatives from prior losses, supported a higher bottom line despite earlier period challenges. |
Interest Expense | Increased 5.1% (from $255M in Q1 2024 to $268M in Q1 2025) | The modest increase in interest expense reflects higher debt costs arising from recent issuances of senior unsecured notes, compared to the previous period. This indicates a cautious but active financing strategy to support growing needs. |
Non-service FAS Pension Income (Expense) | Shift from $16M income in Q1 2024 to $98M expense in Q1 2025 | A dramatic turnaround due to increased prior service cost amortization and a reduced asset base. This change contrasts with the prior year's favorable balance and indicates revised assumptions or market conditions affecting pension calculations. |
Cash Position | Net decrease: Q1 2025 saw a drop of $680M compared to an increase in Q1 2024 | The cash position declined significantly due to multiple factors: operating cash flows dropped because of increased contract assets and higher insurance costs, capital expenditures rose ($454M vs. $378M), and financing activities shifted with substantial dividend payments and share repurchases, unlike the previous period which saw positive cash flows from financing. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Sales Growth | FY 2025 | Expected 4% to 5% growth in 2025 | Mid‑single‑digit growth in sales | raised |
Segment Operating Margin | FY 2025 | Anticipated to return to 11% in 2025 | Solid 11% margins | no change |
Free Cash Flow Growth | FY 2025 | Projected to grow 9% at the midpoint with ≈$6.7B | High single‑digit growth, with $6.7 billion at the midpoint | no change |
F‑35 Deliveries | FY 2025 | Estimated 170 to 190 deliveries | Expected between 170 to 190 deliveries | no change |
Backlog | FY 2025 | Backlog reached a record $176 billion at the end of 2024 | Opportunity to increase backlog in 2025 | no change |
Capital Deployment | FY 2025 | no prior guidance | Investment of over $10 billion in R&D and capex & Return of at least $18 billion to shareholders over the next three years | no prior guidance |
Pension Contributions | FY 2025 | no prior guidance | No pension contribution included for 2025 | no prior guidance |
Tariff Impact | FY 2025 | no prior guidance | Guidance accommodates a certain level of tariff impact | no prior guidance |
Engen Announcement | FY 2025 | no prior guidance | Direct program impacts of the Engen announcement are included in guidance | no prior guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Sales Growth | Q1 2025 | 4% to 5% growth | 4.47% year-over-year increase from 17,195To 17,963 | Met |
Operating Margin | Q1 2025 | 11% | 13.2% (2,372÷ 17,963) | Beat |
Free Cash Flow | Q1 2025 | 9% growth from adjusted 2024 (~$6.7B in 2025) | $955M (1,409– 454) for Q1 2025, –24% vs. $1,257M in Q1 2024 (1,635– 378) | Missed |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
F-35 Program Performance and Next-Generation Upgrades | Q4, Q3, and Q2 earnings calls consistently discussed F-35 deliveries, TR-3/tech refresh progress, NGAD integration, and demonstrations of autonomy and teaming capabilities | Q1 2025 continued to emphasize strong international demand, robust deliveries, and integration of NGAD technologies while highlighting tech refresh challenges and advanced autonomy for live demonstrations | Consistent focus with enhanced emphasis on technological integration and modernization. |
Robust Backlog and Production Flexibility | Prior calls (Q4, Q3, Q2) highlighted record backlogs (ranging from nearly $160B to $176B) and flexible production ramps—especially in F-35 and missile programs—to drive near‐term revenue | In Q1 2025, the backlog was reported at approximately $173 billion, with continued strong production flexibility, particularly for F-35 and missile systems | Steady and sustained focus with confirmed upward trends in backlog size and production capability. |
Supply Chain Resilience and Tariff Impact Mitigation | Q2 emphasized proactive supply chain improvements (in‑sourcing, dual sourcing, on‑site assistance) while Q4 noted improvements approaching pre‑COVID levels, though tariff details were not discussed; Q3 had limited mention | Q1 2025 detailed robust supply chain performance alongside explicit mechanisms for mitigating tariff impacts, ensuring sustained ability to meet production commitments | Consistent attention on resilience with new, more explicit focus on tariff impact mitigation in Q1 2025. |
Government Policy, Funding Sensitivity, and Contract Negotiation Risks | Q4 discussed policy reforms (multiyear contracting and fixed‑price adjustments) and funding support from supplemental bills, Q3 noted continuing resolutions and contract timing, while Q2 mentioned government‐dependent decisions | Q1 2025 reiterated that operations continue under a full‑year continuing resolution, with ongoing engagement on funding, policy-driven scheduling, and clear strategies for mitigating contract negotiation risks | A consistently critical area with evolving detail—a steady focus on managing funding, policy uncertainties, and contractual risks. |
Technological Innovation and Digital Transformation (AI, Autonomy, Digital Open Architectures) | Q2 emphasized AI tests, digital open architecture strategies and real‑time data integration; Q3 showcased autonomy demos with unmanned teaming and command/control enhancements; Q4 highlighted the 1LMX transformation and significant R&D investments | Q1 2025 maintained this focus with integration of AI, autonomy systems (e.g. drone wingmen control) and digital open architectures to bolster legacy platforms and support advanced capabilities | Continued high priority with consistent, broad-based investments and demonstrations across periods. |
Missiles and Fire Control Segment Growth | Q2 presented strong sales (13% growth) and a record backlog; Q3 noted robust operating profit and major contracts driving a record backlog; Q4 emphasized 8% anticipated growth with key programs (GMLRS, LRASM, JASSM) | Q1 2025 highlighted impressive profit improvements (50% YoY in operating profit) and production ramps across key missile programs, reinforcing the segment’s high-potential growth trajectory | Consistently strong emphasis, with growing profitability and operational enhancements reinforcing its strategic importance. |
Execution and Integration Risks in Advanced Defense Programs | Q2 warned of significant losses (e.g. $325 million total in an MFC classified program) and RMS cost pressures; Q3 reported incremental losses on a classified program with aggressive pricing concerns; Q4 detailed large classified program charges and proactive derisking measures | Q1 2025 did not focus extensively on new cost overruns—instead, earlier issues (such as a $100 million loss from a classified program) appeared to be resolved, indicating improved execution and integration | A persistent risk that has been proactively managed—with indications of reduced immediate concerns in Q1 2025 reflecting progress in risk mitigation. |
Financial Performance Concerns: Cash Flow and Margin Pressures | Q2 discussed free cash flow challenges, working capital improvements, and noted margin pressures due to program losses; Q3 reported $2.1B free cash flow and targeted margin improvements; Q4 noted high free cash flow returns but also margin drag from classified program charges | In Q1 2025, Lockheed Martin generated robust free cash flow of $955 million in the quarter, reaffirmed full‑year margin guidance, and articulated effective measures (including tariff recovery mechanisms) to address cost pressures | An area of ongoing focus with tangible improvements in free cash flow generation and stable margins compared to prior periods. |
Dividend/Share Repurchase Announcements | Q2 underscored returning over 100% of free cash flow via dividends/repurchases; Q3 raised the dividend and extended repurchase authorizations; Q4 detailed billions returned to shareholders | Q1 2025 continued to stress robust shareholder returns, with over $1.5B returned in the quarter and plans to return at least $18B over the next three years | Consistent emphasis on shareholder returns; no diminished focus observed across periods. |
Specific Homeland Defense Capabilities (Counter‑hypersonic, Laser‑Based Defenses) | Q4 highlighted advanced capabilities including counter‑hypersonic efforts and laser‑based missile defenses as part of a comprehensive homeland strategy; Q2 touched on missile defense adaptations; Q3 was silent on these capabilities | Q1 2025 did not explicitly mention these capabilities or a reduced emphasis on them, with the focus remaining on other strategic priorities [no citation] | No clear change; while Q4 emphasized these capabilities, Q1 2025 does not indicate a reduced focus, suggesting stability in strategic attention. |
-
F-35 Production
Q: F-35 Lot 19 and production rate?
A: Management expects Lot 19 in the second half of the year and is confident that strong international demand will help maintain a production rate of 150+ units, even if domestic orders slow. -
Missile Backlog
Q: What about the missile backlog growth?
A: The MFC segment saw nearly a $2 billion increase in backlog with key programs like [Jasumlorasm], PAC-3, and GMLRS set for robust, extended high single-digit growth, ensuring a strong future demand. -
NGAD Debrief
Q: What feedback did management get on NGAD?
A: After receiving a classified debrief, management confirmed they will not protest the decision and plan to repurpose NGAD technology to enhance existing F-35 and F-22 platforms at a more cost-effective level, targeting 80% capability at 50% of the cost. -
F-35 Enhancements
Q: Will NGAD tech improve F-35 capability?
A: Yes, a co-funded effort combining government R&D with internal investments is underway to integrate advanced NGAD-derived technologies into the F-35, effectively upgrading it like a Ferrari on a proven chassis. -
Golden Dome
Q: How will Golden Dome affect production?
A: The company is well prepared to support Golden Dome, with investments in digital, ground, and space systems that ensure MFC’s production ramp and funding opportunities align with emerging defense needs. -
Tariff Risks
Q: What tariff challenges are anticipated?
A: With 40% cost-type and 60% fixed-price contracts containing recovery clauses, the company expects minimal overall impact, focusing primarily on timing adjustments rather than cost increases. -
Acquisition Reform
Q: How will new executive orders change acquisitions?
A: Management welcomes the reforms aimed at reducing bureaucratic red tape, which should speed up both domestic and foreign military sales and streamline the integration of new technologies. -
Rare Earths
Q: Do export restrictions affect rare earth supplies?
A: Strict policies and sufficient alternative sources ensure that restrictions on Chinese inputs do not disrupt the supply chain, keeping production on track. -
NGAD Impact
Q: Does the NGAD loss affect F-35 volumes?
A: Despite the NGAD loss, overall production volumes remain strong, with performance at the F-35 program continuing to drive solid results.
Research analysts covering LOCKHEED MARTIN.