Q4 2024 Summary
Published Feb 7, 2025, 7:58 PM UTC- Strong international demand for F-35 jets is expected to sustain the production rate at 156 units per year, with Lockheed Martin ahead of China's fifth-generation aircraft production. The CEO expresses confidence due to the unique capabilities of the F-35, including its integration with drones and advanced data systems like TR-3.
- Record backlog growth of 10% for the year, with expectations to continue growing in 2025. Lockheed Martin has visibility into significant upcoming contracts, including a $10 billion order on the F-35 Lot 19, multibillion-dollar contracts for JASSM/LRASM multiyear, F-16 international opportunities, and CH-53K Lot 9 worth over $1 billion. This indicates a strong pipeline and future revenue growth.
- Technological leadership in advanced defense capabilities, including counter-hypersonic efforts, laser-based cruise missile defense, and counter-UAS technologies. Lockheed Martin is positioned to address a comprehensive solution to homeland defense, which includes multiple threats like intercontinental ballistic missiles, hypersonic attacks, cruise missiles, and drones.
- Potential cash flow headwinds due to charges on classified programs: The company anticipates that the Aero classified program "will be... a cash flow drag over the next 2 to 3 years," impacting cash flow over this period.
- Declining Aeronautics margins in 2025: Despite new contracts, Aeronautics margins are expected to decrease due to "lower net profit adjustments," with profit adjustments "declining," and mix benefits being offset. The margins are expected to decrease by about 20 basis points year-over-year in '25.
- Risk of future charges due to increased exposure from fixed-price contracts: There is concern that the defense industry could be "taking on more risk and opening itself up for more charges in the future," as the Department of Defense is "getting more pro fixed-price contracts in commercial terms."
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | -1% | The decrease from $18.874B to $18.622B was driven by lower sales in RMS and Space, which outweighed growth in Aeronautics, MFC, and Services. |
Aeronautics | +5% | Increased from $7.613B to $8.009B primarily due to higher production volumes on F-35 and F-16 programs, offset in part by timing delays in new contractual authorizations. |
Missiles and Fire Control | +8% | Rose from $3.171B to $3.412B thanks to a production ramp-up on tactical missile programs (e.g., GMLRS, LRASM), partially offset by lower volumes on some integrated air and missile defense programs. |
Rotary and Mission Systems | -10% | Declined from $4.711B to $4.261B due to lower volumes on certain IWSS and Sikorsky helicopter programs, as well as shifts in the timing of certain radar and ship system contracts. |
Space | -13% | Dropped from $3.379B to $2.94B, largely reflecting lower Orion program sales and reduced commercial civil space volume that outweighed gains in strategic and missile defense contracts. |
Services | +7% | Grew from $2.907B to $3.122B because of increased demand for sustainment and modernization services across multiple platforms, including higher F-35 support activities. |
Europe | +13% | Expanded from $2.209B to $2.485B due to stronger F-35 uptake among European operators and overall heightened defense spending in the region. |
Middle East | -25% | Decreased from $1.015B to $0.762B as some countries slowed purchases of integrated air and missile defense solutions, leading to fewer contract awards in this region. |
Other | +15% | Increased from $0.319B to $0.367B, reflecting favorable adjustments in corporate items and equity investments, partially offset by deferred compensation plan fair value changes. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Sales | FY 2024 | no prior guidance | ~$71.25B (5% growth) | no prior guidance |
Segment Operating Profit | FY 2024 | no prior guidance | ~$7.475B | no prior guidance |
Segment Operating Margin | FY 2024 | no prior guidance | ~10.5% | no prior guidance |
EPS | FY 2024 | no prior guidance | ~$26.65 | no prior guidance |
Free Cash Flow | FY 2024 | no prior guidance | ~$6.2B | no prior guidance |
Share Repurchase | FY 2024 | no prior guidance | ~$3.7B | no prior guidance |
Losses on MSC Program | FY 2024 | no prior guidance | ~$325M | no prior guidance |
Pension Contribution | FY 2024 | no prior guidance | None assumed | no prior guidance |
F-35 Deliveries | FY 2024 | no prior guidance | 90–110 | no prior guidance |
Backlog | FY 2024 | no prior guidance |
| no prior guidance |
Dividend | FY 2024 | no prior guidance | $3.30 quarterly | no prior guidance |
Sales Growth | FY 2025 | no prior guidance | 4%–5% | no prior guidance |
Segment Operating Margin | FY 2025 | no prior guidance | 11% | no prior guidance |
Free Cash Flow | FY 2025 | no prior guidance | ~$6.7B (9% growth from 2024) | no prior guidance |
EPS | FY 2025 | no prior guidance | Slight decline from 2024 | no prior guidance |
MFC Segment Growth | FY 2025 | no prior guidance | ~8% at midpoint | no prior guidance |
F-35 Deliveries | FY 2025 | no prior guidance | 170–190 | no prior guidance |
Backlog | FY 2025 | no prior guidance | ~$176B at end of 2024, positive into 2025 | no prior guidance |
Free Cash Flow Per Share | FY 2025 | no prior guidance | Double-digit growth | no prior guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Sales | FY 2024 | ~$71.25B | 17,195+ 18,122+ 17,104+ 18,622= ~$71.04B | Missed |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
F-35 Program | Consistently emphasized as a critical global defense platform. Production rates, backlog growth, and software/delivery delays discussed each quarter. | Strong demand persists, with 110 delivered in 2024, plans for 170–190 in 2025, and continued TR-3 software challenges extending into 2026. | Recurring topic with ongoing software/delivery hurdles but robust international orders. |
MFC Growth and Cost Overruns | Highlighted each quarter for strong backlog (PAC-3, GMLRS, etc.) alongside persistent cost overruns on a classified program. | Incurred $1.4B in charges related to a classified program; remains a top growth segment despite margin pressures. | Recurring segment with significant future upside but ongoing cost challenges. |
Record Backlog Expansion | Referenced in every period, with backlog rising from ~$159B (Q1) to $165B (Q3), consistently noted as key to future earnings stability. | Reached $176B, up ~10% YoY, providing future revenue visibility. | Consistent driver of long-term growth; backlog continues to expand. |
Supply Chain and Production Capacity | Discussed each quarter as a major limiting factor, though efforts like in-sourcing and dual sourcing aim to mitigate disruptions. | Constraints persist but show improvement over 2024; certain programs still face discrete bottlenecks (e.g., CH-53K). | Recurring issue with gradual easing; remains a key operational focus. |
Advanced Defense Technologies | Growing focus on NGAD, CCA concepts, AI demonstrations, and hypersonic strike capabilities in earlier calls. | Emphasized AI, autonomy, counter-hypersonics, and laser-based defense; also highlights of 5G.Mil connectivity. | Emerging technologies with increasing strategic importance for future programs. |
Next-Generation Interceptor (NGI) | Detailed updates in Q1 (program status and digital approach), no significant mentions in Q2 or Q3. | Briefly noted as part of homeland defense solutions (counter-ICBM focus) but not a major Q4 topic. | Less mention recently after Q1’s emphasis, though still relevant to strategic missile defense. |
CH-53K Program | Mentioned heavily in Q1 as a major revenue growth driver for Sikorsky, limited discussion in Q2–Q3. | Cited as facing supply chain issues but expected to contribute over $1B with Lot 9 negotiations. | Reemerged in Q4 with positive revenue outlook despite constraints. |
Strong International Demand | Consistently observed for multiple platforms (F-35, F-16, missiles, helicopters) with growing European and Asia-Pacific customers. | Reinforced by F-35 foreign orders and interest in F-16 opportunities, contributing to confidence in production levels. | Consistent growth driver across all segments; robust global demand remains intact. |
Shifting Profit / Margin Sentiment | Earlier calls projected low single-digit to mid-single-digit sales growth and noted margin headwinds from program mix/risk retirements. | Aeronautics margins expected to edge down (about 10% in 2025) as net profit adjustments decrease, despite backlog strength. | Cautious outlook on margins; sentiment shifts to incremental pressure from lower adjustments. |
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Aeronautics Charges and Future Risk
Q: Have potential future charges in Aeronautics been reduced?
A: Management significantly reduced risk on the classified Aeronautics program after a comprehensive review led to a conservative charge in Q4. They implemented process changes, added technical resources, and enhanced monitoring to mitigate risks, giving confidence that future charges are less likely. Additionally, the 2025 outlook is better than previously projected, with revenue growth expected at 4% to 5% due to improved throughput and rising expectations in supply chain and operations. -
MFC Growth and Margins Outlook
Q: What's the long-term outlook for MFC growth and margins?
A: MFC expects continued growth in 2025 and beyond, driven by programs like GMLRS, HIMARS, PAC-3, JASSM, and LRASM. Demand is strong both domestically and internationally. Margins are projected around 14%, aligning with long-term expectations, although adjusted margins may be slightly lower due to expected lower net profit adjustments. -
Free Cash Flow and Working Capital
Q: How will working capital improvements impact free cash flow?
A: In 2024, working capital days were reduced by a couple, and for 2025, management plans to reduce it by another day, aiming to offset growth-related cash usage. Opportunities remain to drive asset productivity, particularly in contract assets and unbilled receivables across portfolios like F-35, Sikorsky, and segments like Space and MFC. These efforts are part of the plan to meet the $6.7 billion free cash flow outlook for 2025. -
F-35 Tech Refresh 3 Progress
Q: What's the status of F-35 Tech Refresh 3 and Lot 19?
A: Progress on TR-3 is ongoing, with efforts to complete system integration and improve stability. Milestones are expected this year, but full capability declaration may extend into 2026. Lot 18 definitization is expected in the first half of the year, with Lot 19, valued around $10 billion, to be finalized in the second half of the year. -
Cash Impact of Unplanned Charges
Q: How do unplanned charges affect cash flow and pension funding?
A: The Aero classified program's charge will create a cash flow drag over the next few years, not solely in 2025. As for pension funding in 2026, management plans to offset requirements through working capital improvements and leveraging their strong balance sheet, continuing strategies similar to prior years. -
Supply Chain Improvements and Growth
Q: How are supply chain issues affecting growth outlook?
A: Supply chain has improved, approaching pre-COVID levels, but discrete issues remain across the portfolio, impacting programs like CH-53K and MFC. With continued improvement, management feels more confident in achieving 4% to 5% growth in 2025, and potentially sustaining mid-single-digit growth in the multiyear outlook. -
F-35 Production Rates Confidence
Q: Can 156 F-35 yearly production rate be maintained?
A: Management is confident in sustaining the 156 aircraft per year production rate due to strong demand from both U.S. and international customers. They believe reductions in U.S. quantities are unlikely, given the need for modern fleets and the F-35's critical role in maintaining deterrence against adversaries. -
Backlog Growth Opportunities
Q: Are there opportunities to grow backlog in 2025?
A: Management expects backlog growth in 2025, supported by significant contracts like Lot 19 F-35 order (~$10 billion), a multiyear JASSM/LRASM contract, international F-16 opportunities, F-35 sustainment contracts, and CH-53K Lot 9. There's a strong line of sight to continued backlog growth while focusing on accelerating backlog conversion. -
MFC Program Profitability Post-Charge
Q: Will margins improve on the MFC program with the charge?
A: While details are limited due to the classified nature, management expects margins to improve substantially as the program scales and moves beyond fixed pricing phases. Over time, margins are expected to return to more reasonable levels, though not immediately matching standard MFC margins. -
Defense Industry Risk with Fixed-Price Contracts
Q: Are fixed-price contracts increasing industry risk?
A: Management is not concerned about potentially increased fixed-price contracts. They emphasize a disciplined bid process that accounts for risk, whether contracts are fixed-price or cost-plus. They believe aligning contract types with program risk levels is important, and have observed a trend towards more appropriate contracting regimes over the past 12-18 months. -
Iron Dome and Homeland Defense
Q: Does NGI contract relate to Iron Dome over the U.S.?
A: NGI (Next Generation Interceptor) will be an integral part of a broader Homeland Defense strategy, which includes defense against ICBMs, hypersonic attacks, cruise missiles, and UAV threats. The Iron Dome concept over the U.S. encompasses multiple layers and technologies beyond missile defense alone. -
International Policy Impact on F-35
Q: How might U.S. policies affect F-35 international customers?
A: Management views policy issues, such as U.S. actions related to Greenland and Denmark, as outside their purview. They focus on meeting strong international demand for the F-35 and refrain from commenting on policy matters, suggesting confidence in continued international sales despite geopolitical considerations.