Q4 2023 Summary
Published Jan 10, 2025, 5:10 PM UTC- Lockheed Martin expects to triple or quadruple F-16 deliveries in 2024, indicating a strong production ramp and improving profitability over the next few years.
- The Missiles and Fire Control segment is projected to grow by 7% in 2024, driven by increasing production of tactical and strike missiles like HIMARS, JASSM, and LRASM, with ramps continuing through 2025 to 2027.
- Significant increases in PAC-3 missile deliveries, with volumes expected to reach 550 units by 2025 and 650 by 2027, are contributing to strong growth in Integrated Air and Missile Defense programs.
- Margin pressures across key programs due to lower profit adjustments and program losses: Lockheed Martin is experiencing margin compression in several segments. In Missiles and Fire Control (MFC), margins are expected to decline by 200 basis points in 2024, primarily due to losses from a classified program impacting margins by 230 basis points. Additionally, margins in the Aeronautics segment are under pressure due to lower favorable profit adjustments on the F-35 program and headwinds from inflation and supply chain disruptions on the C-130 program.
- Supply chain challenges impacting production and deliveries: Ongoing supply chain issues are weighing on the company's ability to convert demand into revenue, particularly in missile production. Lockheed Martin is undertaking significant efforts, such as establishing a third solid rocket motor supplier, to address the fragility in the supply chain. These challenges could limit revenue growth and affect the company's ability to meet strong demand for its products.
- Growing inventory and potential production adjustments due to delivery delays: Delays in the F-35 program, specifically in delivering the Technology Refresh 3 (TR-3) configuration, are resulting in a buildup of inventory. By the end of 2024, Lockheed Martin expects to have 100 to 120 undelivered F-35 aircraft in inventory. Continued delays could force the company to revisit its production cadence and potentially slow down production if deliveries cannot keep pace.
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Margin Outlook
Q: Will margins improve in 2025 from the 2024 guide?
A: Management expects margins to gradually improve from the 10.5% total company margin guide in 2024, anticipating an increase of 10 to 20 basis points starting in 2025, continuing each year until reaching 11% overall. -
F-35 Production and Deliveries
Q: How will TR-3 delays affect F-35 production rates?
A: Despite the delay in Tech Refresh 3 (TR-3), management believes they can maintain production rates of the F-35, with demand from U.S. and international customers remaining strong. They expect to deliver a handful of F-35s in the first half of the year, with 90% of deliveries occurring in the second half. By the end of 2024, they anticipate having 100 to 120 undelivered aircraft in inventory. -
Supply Chain Improvements
Q: What actions are being taken to improve the supply chain?
A: Management is taking steps to address supply chain issues, including deploying resources such as manufacturing and quality engineers to support suppliers. They are also working to stand up a third solid rocket motor supplier and considering international production opportunities in countries like Australia, Poland, the UK, and Germany. If supply chain performance improves, this could drive results toward the high end of their sales, profit, and EPS range. -
Missile Production Ramp-Up
Q: What are the growth drivers for Missiles and Fire Control?
A: The key growth drivers are tactical and strike missiles, including HIMARS, JASSM, and LRASM, which will continue to ramp up through 2025 and beyond. Integrated Air and Missile Defense is also a driver, particularly with PAC-3 orders increasing to 550 by 2025 and 650 by 2027. -
Contracting Environment
Q: How is the competitive environment and contracting affecting margins?
A: Management is employing more pricing discipline and matching pricing with risk profiles, avoiding must-win programs that require taking excessive risks. They are seeing an uptick in cost-plus contracts, which accounted for 41% of sales in 2023, up from 38% in 2022, causing some margin pressure but boding well for risk-sharing. -
F-16 Production and Margins
Q: What's the outlook for F-16 production and margins?
A: They delivered 5 F-16 aircraft in 2023 and expect to triple or quadruple deliveries in 2024. While profitability has been pressured due to delays, they expect margins to improve over the next few years as they deliver on subsequent contracts. -
Pension Contributions
Q: What is the pension contribution schedule beyond 2024?
A: No contributions are required in 2024, but they anticipate required contributions of about $1 billion in 2025. They are considering pulling that forward and utilizing their strong balance sheet but haven't made any firm decisions yet. -
Black Hawk Opportunities
Q: What are the opportunities for the Black Hawk going forward?
A: Management sees potential in modernizing the Black Hawk fleet by adding digital capabilities like autonomy and AI. With a large existing fleet and interest from Congress, the upgraded Black Hawk could be a versatile and timely solution compared to new production aircraft. -
Major Awards Expected
Q: What major awards are expected in 2024?
A: Key anticipated awards include F-35 Lot 18 and 19, long-lead F-35 awards, classified contracts across the portfolio totaling multiple billions of dollars, significant PAC-3 orders, and contracts in the hypersonics space, particularly on CPS (Conventional Prompt Strike). -
Missile Demand and Supply Chain Impact
Q: How are missile shortages affecting demand and supply chain?
A: While there's strong demand due to depletion of missile stockpiles, supply chain issues persist. Management is taking actions to improve supply chain capacity, but these issues may weigh on the company's ability to convert demand into revenue.