Q2 2024 Summary
Published Jan 10, 2025, 5:10 PM UTC- Missiles and Fire Control (MFC) is expected to be the highest-growing segment within Lockheed Martin over the next 3 to 5 years , driven by strong domestic and international demand and significant production ramp-ups in key programs like PAC-3, GMLRS, Javelin, and JASSM/LRASM.
- Lockheed Martin's backlog remains robust at $158 billion , with expectations to increase by the end of the year, providing visibility into future growth in 2025 and beyond. Supply chain improvements are enabling the company to meet increased demand and support continued growth.
- Strategic investments in digital technologies and open architectures are enhancing Lockheed Martin's ability to adapt legacy systems rapidly, addressing evolving defense needs and capitalizing on lessons learned from recent conflicts like Ukraine. This positions the company favorably to meet future defense requirements and drive growth.
- Lockheed Martin expects lower profit margins in the second half of 2024 due to $225 million in program losses at Missiles and Fire Control (MFC) and fewer profit adjustments.
- Deferral of final delivery payments for the F-35 program may negatively impact cash flow, as negotiations with the U.S. government are ongoing and the timing of these payments remains uncertain.
- Supply chain challenges may hinder Lockheed Martin's ability to meet increased demand, potentially impacting future growth as the company needs to ensure it can ramp up production significantly over the next two years.
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Growth Outlook for 2025
Q: Will growth in 2025 match or exceed 2024?
A: Management expects 2025 growth to be similar to 2024, supported by a robust backlog of $158 billion. They emphasize strong demand and visibility into future growth but note the need to ensure operational capability to deliver on this demand. -
Free Cash Flow Per Share Growth
Q: Can free cash flow per share growth accelerate?
A: The company aims to increase absolute free cash flow in the low single-digit range and, with share repurchases, achieve mid-single-digit free cash flow per share growth. While higher revenue provides a positive baseline, they are reviewing forecasts and may update this outlook in October. -
F-35 Deliveries and Cash Flow Impact
Q: What is the impact of F-35 deliveries on cash flow?
A: Lockheed Martin plans to deliver between 75 to 110 F-35 aircraft in the second half. Delivering more F-35s than produced next year will result in timing benefits for cash flow over the next few years, but specifics are under negotiation with the customer. They do not expect significant incremental revenue but foresee cash flow improvements. -
Supply Chain Improvements and Revenue Growth
Q: Is the supply chain still a bottleneck for growth?
A: Supply chain conditions are improving, with increased on-time delivery and reduced part shortages. This, along with a strong backlog, supports continued revenue growth. However, challenges remain in ramping up major programs, and the company continues proactive measures to mitigate bottlenecks. -
Missiles and Fire Control Growth
Q: What is the outlook for MFC's growth and orders?
A: Missiles and Fire Control (MFC) is experiencing strong demand, with a book-to-bill ratio above 2 in the quarter. They expect continued growth, with programs like PAC-3, GMLRS, Javelin, and JASSM/LRASM ramping up production significantly over the next few years. International partnerships, such as with Rheinmetall and production in Poland, are enabling this expansion. -
Profitability and Margin Outlook
Q: How will profitability change in the second half?
A: Second-half margins are expected to be lower due to anticipated program losses of about $225 million at MFC and a slowdown in profit adjustments. Despite this, management believes 2024 will be a low watermark for margins, with gradual improvement expected in subsequent years. -
Cash Flow and Pension Contributions
Q: How will pension headwinds affect cash flow in 2025?
A: The company anticipates pension headwinds of approximately $1 billion due to reductions in CAS recoveries. They plan to offset this through earnings growth, working capital improvements, and reduced tax payments related to R&D capitalization to continue growing free cash flow in low single digits. -
NGAD Program Readiness
Q: What's the status of Lockheed's role in NGAD?
A: While unable to discuss specifics, management affirmed readiness to design and produce next-generation combat aircraft. They have high-tech facilities operational in multiple locations and are prepared to compete and deliver if the government initiates a competition for NGAD. -
F-35 TR3 Production and Supply Chain
Q: Is the supply chain ready for F-35 TR3 production?
A: Lockheed has engaged major suppliers to ensure they understand demand and quality requirements for TR3 components. They are confident in suppliers' ability to meet production needs and have improved integration plans for testing and development. -
Lessons from Ukraine Conflict
Q: What lessons has Lockheed learned from Ukraine conflict?
A: The conflict highlighted the effectiveness of traditional systems like Javelin and PAC-3, emphasizing the need for adaptability. Lockheed is enhancing existing systems and investing in technologies like unmanned aerial systems to respond to new threats.