Q3 2024 Summary
Published Jan 6, 2025, 8:15 PM UTC- 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.
- 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.
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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. -
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. -
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. -
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. -
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. -
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.