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LOCKHEED MARTIN CORP (LMT)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 2025 headline results: Sales $18.2B (+0.2% YoY), GAAP EPS $1.46, consolidated operating margin 4.1%; free cash flow (FCF) $(0.15)B as working capital rose and program charges hit earnings .
  • Significant charges: $1.6B pretax losses across a classified Aeronautics program ($950M) and Sikorsky’s CMHP ($570M) and TUHP ($95M), plus $66M fixed-asset write-off and $103M tax reserve; total EPS impact $5.83 .
  • Guidance: Sales and FCF reaffirmed; segment operating profit and EPS lowered (FY 2025 EPS to $21.70–$22.00 from $27.00–$27.30; segment OP to $6.6–$6.7B from $8.1–$8.2B) .
  • Call catalysts: Management outlined corrective actions on problem programs and highlighted demand tailwinds (F-35 deliveries, munitions ramp, CH‑53K multi‑year, GPS orders, hypersonics, “Golden Dome” homeland defense opportunity) .

What Went Well and What Went Wrong

What Went Well

  • Demand/operations resilience: Sequential sales growth (“$18B grew sequentially”) with strong contributions from F‑35 production, missiles (JASSM/LRASM/precision fires), and Space (NGI/FBM, Orion) .
  • Core franchises performed in live operations: “Our F‑35s, F‑22s, PAC‑3, THAAD, Aegis…performed extremely well in the most crucial and challenging situations,” reinforcing ramp directives from customers .
  • MFC momentum: Sales +11% YoY to $3.433B and OP +6% YoY to $479M on production ramps and favorable mix; delivered 8th THAAD battery .
  • Space steady: Sales +4% YoY to $3.307B; OP +5% YoY to $362M; additional GPS IIIF satellites ordered; Orion program volume up .
  • Capital returns and investment: Returned $1.3B (dividends $771M; buybacks $500M) and invested ~$800M in infrastructure/innovation in Q2 .

What Went Wrong

  • Large program charges drove EPS miss: $1.6B program losses plus other charges cut GAAP EPS by $5.83; Aeronautics margin turned negative (‑1.3%) and RMS margin fell (‑4.3%) .
  • Cash flow headwinds: CFO $0.201B and FCF $(0.150)B, down sharply YoY, mainly on receivables/contract assets timing (F‑35 awards/ milestones), Sikorsky inventory, and Space billing cycles .
  • IRS tax dispute raised uncertainty: Company accrued $103M interest against a $4.6B IRS NOPA on ASC 606 method change; appeals underway .
  • RMS sales down 12% YoY (to $3.995B) from helicopter program losses and lower IWSS radar/CSC volume; profit decreased 135% YoY .
  • Aeronautics classified program: “Design, integration, and test challenges” led to new schedule/cost estimates and extra $950M reach‑forward loss .

Financial Results

Consolidated Actuals vs Prior Periods and Estimates

MetricQ2 2024Q1 2025Q2 2025
Revenue ($B)$18.122 $17.963 $18.155
Diluted EPS ($)$6.85 $7.28 $1.46
Consolidated Operating Margin (%)11.9% 13.2% 4.1%
MetricQ2 2024 ConsensusQ2 2025 ConsensusQ2 2025 Actual
Revenue ($B)$17.013*$18.559*$18.155
EPS ($)$6.447*$6.465*$1.46
EBITDA ($B)$2.413*$2.578*$1.104

Values with asterisks retrieved from S&P Global.

Segment Breakdown

SegmentQ2 2024 Sales ($B)Q1 2025 Sales ($B)Q2 2025 Sales ($B)Q2 2024 OP ($M)Q1 2025 OP ($M)Q2 2025 OP ($M)
Aeronautics$7.277 $7.057 $7.420 $751 $720 $(98)
Missiles & Fire Control$3.102 $3.373 $3.433 $450 $465 $479
Rotary & Mission Systems$4.548 $4.328 $3.995 $495 $521 $(172)
Space$3.195 $3.205 $3.307 $346 $379 $362

KPIs and Balance/Cash

KPIQ4 2024Q1 2025Q2 2025
Backlog ($B)$176.040 $172.974 $166.530
F‑35 Deliveries (units)110 FY; 62 in Q4 47 50
Cash From Operations ($B)$1.023 (Q4) $1.409 $0.201
Free Cash Flow ($B)$0.441 (Q4) $0.955 $(0.150)
Dividends Paid ($B)$3.059 FY; $0.778 Q4 $0.796 $0.771
Share Repurchases ($B)$3.700 FY; $1.000 Q4 $0.750 $0.500

Guidance Changes

MetricPeriodPrevious Guidance (Apr 2025)Current Guidance (Jul 2025)Change
Sales ($B)FY 2025~$73.75–$74.75 ~$73.75–$74.75 Maintained
Segment Operating Profit (non‑GAAP, $B)FY 2025~$8.1–$8.2 ~$6.6–$6.7 Lowered
Total FAS/CAS Pension Adj ($B)FY 2025~$1.125 ~$1.125 Maintained
Diluted EPS ($)FY 2025~$27.00–$27.30 ~$21.70–$22.00 Lowered
Cash From Operations ($B)FY 2025~$8.5–$8.7 ~$8.5–$8.7 Maintained
Capital Expenditures ($B)FY 2025~$1.9 ~$1.9 Maintained
Free Cash Flow (non‑GAAP, $B)FY 2025~$6.6–$6.8 ~$6.6–$6.8 Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2024, Q1 2025)Current Period (Q2 2025)Trend
Classified program chargesQ4: $1.7B charges (Aero/MFC); cautioned more possible . Q1: favorable Aero classified performance adjustment .Additional $950M (Aero) plus RMS CMHP/TUHP losses; oversight intensified .Elevated charges; heightened controls.
F‑35/TR‑3 and deliveriesQ1: 170–190 deliveries target; Lot 18 contract expected; TR‑3 stability progress .50 deliveries in Q2; TR‑3 hardware integration complete; new software features; intl plus‑ups (UK/Belgium/Denmark) .Execution improving; demand strong.
Munitions ramp (PAC‑3, JASSM/LRASM, HIMARS/PrSM)Q1: ~$2B JASSM/LRASM awards; ramps outlined .Army quadruple PAC‑3 request; Navy PAC‑3 intent; large lot procurements expected 2H .Accelerating.
Hypersonics (ARRW/CPS)Q1: portfolio emphasis .ARRW production in FY26 budget; CPS successful test .Prioritized by customers.
“Golden Dome” homeland defenseQ1: LM architecture readiness .Positioning as mission integrator; ground/space/C2 architecture discussion; RFI response across 4 BAs .Early-stage, potentially large.
Tariffs/rare earth/macroQ1: mitigating tariff timing; 40% cost-type contract protection .~$100M tariff headwind in Q2; commended US magnet initiative; rare earth sourcing resilience .Manageable timing impacts.
Tax/regulatory/legalQ1: executive orders streamlining acquisition .IRS NOPA $4.6B disputed; $103M interest accrued .Ongoing dispute; limited near-term cash.
Space executionQ1: equity ULA down; Orion program favorable adjustments .Sales/OP up YoY; GPS IIIF orders; LRDR breakthrough test highlighted .Stable to improving.
CH‑53KQ1: ramp noted .Price agreement for multi‑year Lots 9–13 (≥85 aircraft) with award targeted late Q3 .Material orders pending.

Management Commentary

  • “We are maintaining full year 2025 guidance for sales, cash from operations, capital expense, free cash flow, and share repurchases.”
  • “We are taking a number of charges this quarter to address newly identified risks…while fully focusing on the growth inflection we expect as a result of heightened interest and demand.”
  • On Aero classified: “Design, integration, and test challenges…had a greater impact on schedule and costs than previously estimated…we recognized additional pretax reach‑forward losses of $950 million.”
  • CFO on cash and awards: “Delay of the combined F‑35 Lot 18‑19 award created approximately $600 million of headwind…tariff impacts ~$100 million…high receivables from milestone timing.”
  • CFO on FY25 outlook: “Reaffirming sales…segment OP now $6.6–$6.7B…EPS $21.70–$22.00…FCF $6.6–$6.8B.”

Q&A Highlights

  • De‑risking problem programs: Management described enhanced oversight, reconstituted review teams, and potential contract restructuring on Aero classified and Sikorsky programs; emphasized transparency and quarterly “burn down of risk” .
  • Cash impact bridge: Aero classified cash usage ~$500M in 2025, ~$400M in 2026, then stepping down; strong 2H working capital liquidation expected with F‑35 Lot 18‑19 and other awards .
  • F‑35 budget trajectory: House/Senate marks suggest upside vs President’s request; backlog and international demand provide production flexibility .
  • IRS NOPA: Company strongly disputes $4.6B assessment, accrued ~$100M interest; pursuing remedies on appeal .
  • Margin run‑rates: Back‑half implied RMS mid‑10s and Aeronautics mid‑9s; management aims to incrementally lift margins as mix shifts to established production .

Estimates Context

  • Q2 2025 vs S&P Global consensus: Revenue slight miss ($18.155B vs $18.559B*), EPS large miss ($1.46 vs $6.465*), EBITDA miss ($1.104B vs $2.578B*) driven by program losses and tax/impairment items .
  • Q1 2025: Broad beats (Revenue $17.963B vs $17.801B*, EPS $7.28 vs $6.323*, EBITDA $2.676B vs $2.502B*) .
  • Q2 2024: Beats (Revenue $18.122B vs $17.013B*, EPS $6.85 vs $6.447*, EBITDA $2.599B vs $2.413B*) .

Values with asterisks retrieved from S&P Global.

Key Takeaways for Investors

  • Expect near‑term EPS volatility but improving run‑rate: FY25 EPS reset reflects large program charges; management targets margin normalization as mix shifts and corrective actions take hold .
  • 2H cash inflection is a watchpoint: F‑35 Lot 18‑19 definitization and other awards are positioned to release contract assets and reduce receivables; monitor award timing .
  • Demand tailwinds intact: F‑35 international plus‑ups, munitions ramps (PAC‑3/JASSM/LRASM/HIMARS/PrSM), CH‑53K multi‑year, GPS IIIF orders, and hypersonics provide backlog support and sales visibility .
  • Structural risk mitigation underway: Oversight and potential contract restructuring on Aero classified and Sikorsky programs aim to contain fixed‑price risk exposure; track updates each quarter .
  • IRS tax dispute is an overhang but manageable near‑term: Company confident in position; current accrual limited; watch legal trajectory and potential cash consequences .
  • Golden Dome could be a multi‑year catalyst: Architecture leadership across ground/space/C2 aligns with LM’s portfolio; watch for RFIs to convert into RFPs/orders .
  • Trading stance: Near‑term sentiment tied to execution on program turnarounds and 2H cash; medium‑term thesis supported by durable defense demand and portfolio breadth .