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WMAC 2023-Lockheed Martin

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F500-2023-060-Lockheed-Martin

Weapons manufacturer Lockheed Martin had a disappointing year in 2022 as revenue and operating profit both declined, 1.6% and 8.5% respectively. In his 2022 letter to shareholders, CEO James Taiclet attributed the lackluster performance to continued “pandemic impacts and supply-chain challenges,” saying he expected the company to return to sustained growth in 2024. 
<ul> 
 	<li>In early 2022, Lockheed Martin canceled a planned $4.4 billion acquisition of rocket engine manufacturer Aerojet, several weeks after the Federal Trade Commission sued to block the deal for violating antitrust regulations.</li> 
 	<li>Later in 2022, the Chinese government sanctioned the company for selling weapons to Taiwan, barring Lockheed from importing goods or making new investments in China.</li> 
 	<li>The armsmaker inked deals worth a combined $37.8 billion with the U.S. government, its biggest customer, for its signature F-35 fighter jet.</li> 
</ul>

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F500 2022-Lockheed Martin

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G500 144 Lockheed Martin

<span data-sheets-value="{&quot;1&quot;:2,&quot;2&quot;:&quot;The year 2020 was a time of growth for the aerospace defense giant. Despite pandemic-related supply chain disruptions, Lockheed Martin still managed to increase net sales by 9%, to $65.4 billion. The F-35 program, off to a rocky start, rebounded with the company delivering 120 orders over the year. The firm’s production backlog also rose, sitting at $147.1 billion as of spring 2021. Also in 2021, Lockheed Martin agreed to acquire U.S. manufacturer Aerojet Rocketdyne Holdings for $4.4 billion, a move to advance its standing in the rocket propulsion field. Following a strong first quarter, the company pushed up its sales and profits outlook for the year ahead. &quot;}" data-sheets-userformat="{&quot;2&quot;:12673,&quot;3&quot;:{&quot;1&quot;:0},&quot;10&quot;:2,&quot;11&quot;:4,&quot;15&quot;:&quot;Calibri&quot;,&quot;16&quot;:11}">The year 2020 was a time of growth for the aerospace defense giant. Despite pandemic-related supply chain disruptions, Lockheed Martin still managed to increase net sales by 9%, to $65.4 billion. The F-35 program, off to a rocky start, rebounded with the company delivering 120 orders over the year. The firm’s production backlog also rose, sitting at $147.1 billion as of spring 2021. Also in 2021, Lockheed Martin agreed to acquire U.S. manufacturer Aerojet Rocketdyne Holdings for $4.4 billion, a move to advance its standing in the rocket propulsion field. Following a strong first quarter, the company pushed up its sales and profits outlook for the year ahead.

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F500-2021-49-Lockheed Martin

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G500-2020-182-Lockheed-Martin

Lockheed Martin launched to new heights in 2019, as revenues grew 11.3% and profits 23.5%, and its stock climbed nearly 50%. Particularly notable was the continued success of the F-35 program: Lockheed delivered 134 of the fighters in 2019, and won new contracts including a Pentagon buy of 478 of the advanced jets for $34 billion. That adds to a production backlog that now sits at $144 billion, much larger than those of competitors. Despite global headwinds in early 2020, Lockheed’s operations haven’t yet shown signs of a stall; the company in July announced Q2 2020 earnings that beat expectations. The company is now being helmed by a new corporate pilot: James Taiclet, who was formerly the chief executive of American Tower, a real estate investment trust. Taiclet succeeds Marillyn Hewson, the top-ranked executive on Fortune's Most Powerful Women in Business list in 2018 and 2019, who stepped down as CEO in June. She will remain as Lockheed's executive chairman.

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F500-2020-057-Lockheed-Martin

Lockheed launched to new heights in 2019. Revenues grew 11.3% and profits 23.5%, making it the most profitable aerospace company on the 500. Its stock climbed nearly 50%—well ahead of the robust returns of the broader market. Particularly notable was the continued success of the F-35 program, which for a time risked becoming a costly boondoggle. After producing 91 of the fighters in 2018, Lockheed delivered 134 in 2019, and won new contracts including a Pentagon buy of 478 of the advanced jets for $34 billion. That adds to a production backlog that now sits at $144 billion, much larger than those of competitors. Despite global headwinds in early 2020, Lockheed’s operations haven’t yet shown signs of a stall—with first-quarter net earnings up slightly year over year, guidance for the year barely lowered, and a fresh $6.1 billion Pentagon contract for Patriot missiles.

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Global business is back. After limping through a worldwide financial crisis and economic slowdown, the 500 largest companies ranked by revenues shattered all sorts of performance records in 2013: They racked up combined revenues of $31.1 trillion, up 2.5% from 2012, and profits soared 27% to nearly $2 trillion. China’s 95 companies (up from 89 last year) posted $5.8 trillion in revenues. The U.S. has four fewer companies on the list than last year but remains (for now) the country leader, with 128 corporations on the list—including No. 1 Wal-Mart Stores—reporting $8.6 trillion in revenues. 

Wal-Mart stayed on top as its sales crept closer to half-a-trillion dollars. Apple moved into the top five. And UnitedHealth Group continued its steady climb. 

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Lockheed Martin is a global aerospace and security company involved in the research, design, and production of everything from jet fighters and missile defense systems to satellites and spacecraft. Lockheed Martin does the majority of its business with the U.S. Department of Defense and other federal agencies. Its roots go back to the early 20th century as an aircraft industry pioneer that became an important partner to the U.S. military during World War II. The modern company was formed in 1995 when Lockheed Corp. merged with Martin Marietta Corp., another large defense contractor.

Q2 2026

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Q4 2025

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Q4 2024

Lockheed Martin (LMT): Company Profile, Stock Price, News, Rankings

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Lockheed Martin

lockheed martin

Good day, and welcome everyone to the Lockheed Martin 4th Quarter and Full Year 2024 Earnings Results Conference Call. Today's call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Maria Richardon, Vice President, Treasurer and Investor Relations. Please go ahead.

Thank you, Sarah, and good morning, everyone. I'd like to welcome everyone to our Q4 and full year 2024 earnings conference call. Joining me today on the call are Jim Taiclet, our Chairman, President and Chief Executive Officer and Jay Milave, our Chief Financial Officer. Statements made in today's call that are not historical facts are considered forward looking statements and are made pursuant to the Safe Harbor provisions of federal securities law. Actual results may differ materially from those projected in the forward looking statements.

Please see today's press release and our SEC filings for a description of some of the factors that may cause actual results to differ materially from those in the forward looking statements. We have posted charts on our website today that we plan to address during the call to supplement our comments. These charts also include information regarding non GAAP measures that may be used in today's call. Please access our website at www.lockheedmartin.com and click on the Investor Relations link to view and follow the chart. With that, I'd like to turn the call over to Jim.

Thanks, Maria. Good morning, everyone, and thank you for joining us on our Q4 and full year 2024 earnings call. As you saw in the press release this morning, our return to growth strategy that we implemented 3 years ago is well on its way and remains on a strong trajectory. In 2024, sales grew 5% year over year and our backlog of $176,000,000,000 reached yet another record demonstrating the enduring global demand for our superior, scalable and reliable products and systems. Each and every one of our 4 business areas saw backlog growth and ended the year with a book to bill ratio of greater than 1.

We fully expect these positive trends to continue in our 2025 outlook with mid single digit growth in sales, segment operating profit returning to 11% and double digit growth in free cash flow per share. Jan Maria will cover the financials in more detail but I'd like to briefly comment on the earnings impact in the Q4 of 2 classified programs at MFC and Aeronautics respectively. Recording charges in Q4 on these two programs enabled us to de risk the financial profile of both these critical national security programs going forward as we move into their next phases. While these particular contracts were struck a number of years ago, there are no longer any must win competitions. Under today's Lockheed Martin wide bid process, every proposal adheres to a stringent risk adjusted ROI regime.

This process is designed to compete aggressively for key opportunities while also being very committed to achieving positive results both in the short and long term for our shareholders. At the same time, we are committed to ongoing investment in the business to further enhance our company's growth trajectory having successfully executed our return to growth initiative over the past few years. In 2024, we invested $3,300,000,000 in research and development and capital to support advanced scalable technology solutions for our customers. Equally important looking forward, our investments to enhance the attractiveness and performance of our key programs and initiatives such as America's preeminent 5th generation fighter the F-thirty 5 and our internal digital transformation of 1 LMX are expected to grow. Our financial focus remains on free cash flow and free cash flow per share.

Our company continued to deploy significant free cash flow in 2024 and we've returned greater than 100% of that free cash flow to you, the shareholders. In addition to our consistent and healthy dividend, we maintain a robust share repurchase program with $3,700,000,000 of shares repurchased in 2024. Turning to the F-thirty 5, we delivered 62 aircraft in the quarter bringing our total deliveries for 2024 to 110, the high end of our expected range. These deliveries included aircraft that were previously parked and new jets that rolled off the production line. We continue to expect deliveries will exceed the production rate over the next few years and estimate 170 to 190 F-thirty 5 aircraft deliveries in 2025.

TR-three capabilities continue to progress in flight testing. We completed qualification testing on a set of key TR-three capabilities in 2024 and we're making solid progress on system performance and remaining TR-three deliverables. We expect to release additional capability this year with further upgrades to follow. In addition, the undefinitized contract for Lot 18 F-thirty 5 production was awarded in December bringing our backlog to 408 aircraft. We expect this contract will be definitized during the first half of twenty twenty five.

We welcomed our 20th global customer Romania into the F-thirty five enterprise in November with its letter of offer and acceptance to procure 32 aircraft. The Romanian Air Force's F-thirty five will integrate with their existing F-sixteen fleets as well as other allied F-thirty five highlighting the importance of the superior capabilities of this aircraft. Moreover, the F-thirty five's seamless interoperability using our 5 gs dot mil architecture will be crucial in establishing and maintaining command of the air especially in the Indo Pacific, European and Middle Eastern theaters. Lockheed Martin system of integration expertise across land, air, sea, space and cyber are essential to continually improving many important national security missions such as protection from air and missile attacks. In this example, our defensive Guam flight experimentation mission in December successfully demonstrated the integration of multiple Lockheed Martin and other OEM products into a single combined weapon system.

Our Aegis Guam system was successful in acquiring and tracking targets using our TPY-six radar, planning and conducting the missile engagement using our Aegis Combat System. Then we fired the interceptor from 1 of our vertical launching systems and ultimately destroyed the incoming weapon. Equally important was the accelerated pace from contract award to successful completion of this flight test mission in under 2 years and was a direct result of leveraging prior investments in all these proven technologies. Building on our production ready Air Launch Rapid Response Weapon or ARROW, America's hypersonics technology made another important milestone in the development of one of our most important and advanced weapon systems in December. The U.

S. Army and U. S. Navy completed a successful end to end flight test of the common hypersonic all up round, the first live fire event for the long range hypersonic weapon system. I'd like to shift gears now to current discourse about the defense industry landscape.

Much has been said about defense primes, emerging startups, traditional and non traditional companies. I see us all working together and I think that it's industry's role to help marshal the talent and expertise in our country to provide the best possible deterrent capabilities with both physical products such as ships, aircraft and satellites as well as digital advanced technologies. We need to access the best talent, financial resources and technologies from both the aerospace and defense and commercial sectors to get ahead and stay ahead. To that end on the commercial front, I've long been an advocate of deepening partnerships across industries. And we have done so with companies such as NVIDIA for artificial intelligence, Meta and IBM for large language models to more efficiently generate code, analyze data and enhance business processes, Verizon for 5 gs Networks, Microsoft for Classified Cloud Modeling and Simulation and Intel and Global Foundries for advanced military hardened ships.

We're also investing heavily on internal development autonomy, AI and other enabling digital technologies to provide the best solutions for our customers. Skunk Works continues to drive the cutting edge theater level security solutions. In real time live flight demonstrations we had an F-thirty 5 flying from our facility in North Fort Worth, Texas sharing classified data by a Skunk Works open system gateway through a commercial satellite communications and all the way over into a Royal Air Force Lab in Farnborough, UK, where it was integrated into their command and control system. This achievement marks a significant step towards a future integrated defense, enhancing our F-thirty five interoperability in real time with an allied C2 system using our 5 gs dot mil architecture. In another first, our Lockheed Martin Skunk Works team along with the U.

S. Navy and General Atomics completed a live controlled flight demonstration of an uncrewed system by the uncrewed carrier aviation mission control station which is powered by our autonomy platform. This demonstration is a pathfinder that helps advance the complex technology necessary to enable human machine teaming as envisioned for autonomous systems. We're doing it right now. Turning to the budget, the current continuing resolution funds U.

S. Government operations through March. We look forward to working with the returning administration to continue pursuing a more agile and streamlined acquisition process that encourages speed, technology innovation and broader participation. We see Doge as an opportunity to make great progress in all these areas. And we will continue to share ideas and do our part to support efforts to eliminate unnecessary regulatory hurdles while working to increase efficiency in our own internal operations through our One LMX digital transformation.

Thanks Jim and good morning everyone. Today, I'll provide an overview of our consolidated financial results for the Q4 and full year, then hand off to Maria who will cover business area financials and I'll come back at the end to discuss our initial 2025 outlook. 2024 was a solid year. Our growth strategies are paying off with 5% top line growth, while also growing backlog 10% to $176,000,000,000 another year end record. Our balanced portfolio enabled us to generate solid free cash flow and meet our deployment commitments exceeding 100%.

Finally, we took prudent de risking actions on key programs that paved the way for a solid outlook in 2025 and beyond. Before I get into the results in more detail, I'll walk you through these de risking actions. Chart 4 provides 2 different reconciliations that detail the full impact of these items on our full year results and their partial impact to our prior expectations. We've also included a 4th quarter version on the same of the same chart in the appendix on Slide 20. For purposes of understanding the total impact on our full year results, I'll direct your attention to the middle section of the chart.

We recorded net charges of $1,800,000,000 as follows: $1,400,000,000 related to the remaining expected future losses on the MFC classified program and $555,000,000 associated with the Aeronautics classified program, with these amounts partially offset by $155,000,000 benefit associated with our C5 claim resolution. Moving over to the right side of the chart. You may recall that our last outlook in October had assumed some of these net charges. So let me walk you through that as well. Relative to our prior outlook, we recorded $1,400,000,000 of unplanned net charges consisting of $410,000,000 for the Aeronautics Classified Program, dollars 1,100,000,000 from the MFC Classified Program with these amounts partially offset by $70,000,000 of unplanned benefit from the C5 claim resolution.

Both reconciliations provide adjusted results to exclude the impact of these items for comparison purposes. For the remainder of my prepared remarks, I will refer to the reported and adjusted amounts as shown on the left side of the chart unless otherwise noted. Okay. Moving to Chart 5 with 4th quarter results. Sales of $18,600,000,000 were down slightly year over year.

Sales in the quarter were unfavorably impacted by having 1 fewer week in Q4 2024 compared to Q4 of 2023, partially offset by the F-thirty five Lot 18 deferred revenue carryover from the 3rd quarter. Segment operating profit, segment margins and earnings per share were all adversely impacted by the classified program charges at Aeronautics and Missiles and Fire Control. On an adjusted basis, segment operating profit would have grown 5% year over year to $2,100,000,000 resulting in segment margins of 11.1%. Shifting to new business, we recorded over $29,000,000,000 of orders in the 4th quarter for a book to bill ratio of approximately 1.6. Aeronautics led the way with almost $20,000,000,000 in orders driven by the F-thirty five Lot 18 and fiscal year 2025 air vehicle sustainment contract awards.

Both contracts will help secure the wide reaching F-thirty 5 U. S. Production enterprise and ensure America's military is equipped with the most advanced fighter aircraft in the world. Free cash flow was $440,000,000 in the quarter, including $990,000,000 of pension pre funding to extinguish the 2025 required contributions. Continuing with capital deployment, we further advanced strategic and technical and operational capabilities by investing over $1,100,000,000 in the quarter towards independent research and development and capital expenditure projects, bringing full year internal investment to $3,300,000,000 We continue to provide an unmatched combination of new technology advancement that can be also fielded with speed.

So investing to deliver critical capabilities while maintaining our commitment to shareholders by returning $1,800,000,000 of free cash flow via share repurchases and dividends. Turning to Chart 6 and our full year 2024 results. Sales of $71,000,000,000 grew 5% driven by improved backlog conversion reflecting stronger throughput across the entire value chain. Similar to the 4th quarter, segment operating profit, segment margins and earnings per share were impacted by the net program charges on Slide 4. On an adjusted basis, segment operating profit grew 7% year over year and adjusted segment margins were 11.1%.

Book to bill for the year was greater than 1. In the 3rd consecutive year, we've increased backlog. We generated $5,300,000,000 of free cash flow including the pension pre funding. And finally, our consistent capital deployment continued in 2024 as we returned $6,800,000,000 to shareholders through repurchases and dividends. Now I'll turn it over to Maria to discuss business area results.

Thanks, Jay. Today, I'll discuss Q4 and full year results for the business areas. As Jay mentioned, you'll notice that we've included both reported GAAP and adjusted results for each business area in order to provide meaningful comparisons and a more realistic expectation of recurring operational performance. Starting with Aeronautics on Chart 7. 4th quarter sales at Arrow increased 5% year over year, primarily driven by higher F-thirty five volume on production and sustainment contracts due to contract awards in the quarter, including the awards for the Lot 18 undefinitized contract action and air vehicle sustainment contract.

Partially offsetting this was lower volume at Skunk Works, driven by the unfavorable sales impact associated with the classified program charge. Adjusting for the impacts of the classified program charge and the C5 contract resolution, the adjusted sales growth at Arrow was approximately 7% year over year in Q4 2024. Both reported and adjusted sales in the 4th quarter benefited from $700,000,000 of F-thirty five sales deferred from the 3rd quarter. Segment operating profit decreased 43% compared to Q4 2023. Lower profit booking rate adjustments due to the $410,000,000 classified program charge in the quarter were partially offset by higher sales volume and the benefit related to the C5 claim resolution.

On an adjusted basis, operating profit year over year in the quarter increased slightly. For the full year, sales increased 4% driven by higher volume across the F-thirty five program and the production ramp on the F-sixteen program, partially offset by lower volume at Skunk Works due to the sales impact related to the classified program charge. Full year segment operating profit decreased 11%, driven by the same items we saw in the Q4. Lower profit rate adjustments partially offset by sales volume and the C5 claim resolution benefit. On an adjusted basis, Aeronautics' full year operating profit grew by 3%, equating to 10.2% margin for the year.

Turning to Missiles and Fire Control on Chart 8. MFC sales increased 8% year over year, driven by production ramps on joint air to surface standoff missile, JASM, long range anti ship missile, LARASM, guided multiple launch rocket system, GMLRS and PAC-three. Normalizing for the extra week in Q4 of 2023, MFC sales grew 16% year over year. Segment operating profit decreased significantly year over year in the quarter due to lower profit booking rate adjustments driven by the recognition of reach forward losses on the classified program. Adjusting for that item, segment margins were a strong 14.8% in the quarter.

For the full year, MFC sales increased double digits, up 13%, again due to production ramps on GMLRS, LARASM, JASM and PAC-three programs. Full year segment operating profit declined $1,100,000,000 year over year due to $1,400,000,000 of classified program charges, which were partially offset by higher volume from the production ramps. Excluding the classified program charges, MFC's segment operating margin for the full year was a solid 14.4%. Shifting to Rotary and Mission Systems on Chart 9. Sales decreased 10% in the quarter to approximately $4,300,000,000 primarily driven by lower volume on Seahawk, CRH, Aegis and various C6 ISR programs.

Normalizing for the weak difference in Q4 2023, RMS sales were down 3% year over year in the quarter. Similar to sales, operating profit was down 11% year over year due to lower profit booking rate adjustments and sales volume, partially offset by favorable contract mix. For the full year, sales increased 6% at RMS, primarily driven by higher volume on the Canadian Surface Combatant and laser programs within the Integrated Warfare Systems and Sensors business as well as various C6 ISR programs and the CH-fifty three ks ramp at Sikorsky. Operating profit was up 3% for the year due to the higher sales volume and favorable contract mix, partially offset by lower profit booking rate adjustments. Finally, with space on Chart 10.

Sales decreased 13% year over year in the 4th quarter. The reduction was driven by lower volume on next gen OPIR, Orion and Classified, primarily due to program life cycles. Normalized for the number of weeks in the quarter year over year, sales were down 6%. Operating profit decreased 8% compared to Q4 2023, driven by lower volume and lower profit booking rate adjustments, partially offset by higher equity earnings from the United Launch Alliance. Turning to the full year.

Sales decreased slightly, driven by lower volume on the same programs as in the 4th quarter, partially offset by higher volume on the fleet ballistic missile and reentry program. Meanwhile, operating profit increased 6% in 2024 due to favorable contract mix and higher ULA equity earnings, partially offset by lower profit booking rate adjustments. I'd like to note the photo on Page 10. In December, Lockheed Martin supported the successful launch of the GPS III Space Vehicle 7, which we designed and built. This accelerated launch required complex integration and was the first to demonstrate operational agility for critical national security missions.

With that, I will turn it back over to Jay to wrap up our prepared remarks.

All right. Thanks, Maria. Turning to Chart 11 and our forward expectations. Our outlook for 2025 has improved since October along with our rising value chain performance expectations in addition to the benefit from the derisking actions we took in 2024. We anticipate sales growth of 4% to 5% on top of the 5% we delivered in 2024.

We expect MFC to again lead the way with 8% growth at the midpoint as we continue to ramp production across several programs to support the strong demand for our combat proven munitions and integrated air and missile defense systems. As previously discussed, operating margins returned to 11% and free cash flow grows 9% at the midpoint from 2024 adjusted results, setting up double digit growth in free cash flow per share in spite of non cash FAS pension headwind lowering EPS. I'll step through segment operating profit and EPS bridges in more detail in the following charts. Chart 12 bridges the 2024 reported segment operating profit of $6,100,000,000 to the 2025 guidance midpoint of $8,150,000,000 After accounting for the 2024 net charges, we expect operating profit growth from the adjusted 2024 position. The growth is primarily due to the volume drop through and partially offset by other items, mainly lower expected net profit rate adjustments.

Importantly, segment margins are expected to return to 11% in 2025 earlier than planned. Next on Chart 13, we have a similar walk for earnings per share. Here, we expect EPS to decline slightly from a 2024 adjusted position, mainly due to non operational items, notably the FastCast pension adjustment as well as higher interest expense. Bringing it all together, we expect solid sales growth in 2025 off the higher 2024 base, operating margins at the 11% target and solid cash flow generation that enables consistent shareholder returns. So in summary, on Chart 14.

In 2024, we delivered stronger top line growth than initially expected, reflecting an improving operating cadence. We also expanded our backlog to a new record, demonstrating the strength of our unmatched capability to deliver security solutions at speed, while increasing investment to expand this capability. And we prudently derisked programs, all the while dependably generating free cash flow and deploying it as committed. Taken together, these actions give us confidence to deliver a strong financial outlook for 2025. At the same time, we will continue to propel this industry forward with innovative solutions that integrate the best that commercial and military industries can offer.

And of course, we remain focused on operational execution to deliver on our commitments and create long term value for our customers and shareholders. With that, Sarah, let's open up the call for Q and A.

Your first question comes from the line of Seth Seifman from JPMorgan. Your line is open.

No worries. Thanks very much and good morning everyone.

Good morning. I wanted to ask, Jay, you emphasized kind of the derisking nature of the charges in Q4. I know maybe it's difficult to discuss because it's classified, but within Aeronautics all of the filing language has sort of emphasized continued risk there. Should we think that within following this charge the potential for future charges there has really come down considerably. And is there anything you can say about where we might be in the lifecycle of that program and when it might be able to provide some positive returns?

And then thinking maybe that the answer to there might have to be a little bit circumspect. If you could just comment on the multi year targets that you gave on the last call and how to think about those now?

Okay. Thanks, Seth. There's about 16 questions in that one question, but I'll take a shot at all of them. Just as far as the risk, I would say we significantly reduced the risk. I can't really get into the lifecycle of the program given the classified nature of it.

But let me walk you through why I believe that we've significantly reduced the risk. As you know, we had realized this risk earlier in the year causing us to perform a more comprehensive review of current performance versus our key assumptions included in the estimate to complete. We evaluated the risk and opportunities and made the determination that a cost reset was warranted. The amount that we recorded in the quarter is the most conservative assessment we've made to date. We've also made a number of process changes.

Aeronautics, along with our corporate staff, have implemented a more continuous monitoring process of the progress of this program in terms of technical milestones and added technical resources from the outside the program. This will enable both teams to work together to institute support measures as needed faster than before. We've also added technical resources and experts with experience in the risk areas to help bolster the team and mitigate risk as they arise. We've added automated testing procedures as well to accelerate test results and issue resolution should they occur. So all those things taken together give us confidence that we have significantly derisked this program and significantly reduced the risk of future charges on this.

As far as maybe the multi year outlook, you look at 2025 and certainly the 2025 outlook is better than what we had projected in October. If you recall, we had said our baseline was low single digit with an opportunity to get to a mid single digit. Here, we believe the opportunity was realized for 2025, which gave us confidence to increase our growth outlook to 4% to 5%. And that's the same type of process that we'll continue to look at in 2026 and beyond. And again, it's based on our ability to really drive throughput through the entire value chain.

As I mentioned before in my prepared remarks that we continue to have rising expectations there and rising confidence that not only our supply chain, but our internal operations can move at a quicker pace, enabling the unlocking of this revenue growth. So, our confidence is growing there.

The next question comes from Rob Stallard with Vertical Research Partners.

Question for Jim. At the same time as you're taking these charges on these classified programs, it looks like the new administration and the Department of Defense is actually getting more pro fixed price contracts in commercial terms. Are you worried that the defense industry could be taking on more risk and opening itself up for more charges in the future?

Not necessarily Rob because we're going to apply this disciplined bid process to fixed price and cost plus contracts and if the proportion is moving potentially towards fixed price, we're going to use the same discipline. And there's a trend in this industry to be much more deliberate about how each company bids, each company has its own strategy. Ours is something I brought over from my last business experience, which is adjusted risk adjusted return on investment is the key criteria and be honest about the risks upfront and price them in. And if that price doesn't meet the competition, so be it, we'll move on to other things. So I'm not concerned about that.

As I said, I look at Doge as an opportunity because as far back as 2021, I've been advocating for systemic change in the way that the defense enterprise operates. And that's meaning Congress, Executive Branch, Pentagon, Aerospace and Defense Industry, Commercial Tech, Startups. We need to expand our ability as a country to get everybody involved and I welcome Doge's effort and the administration's effort to reduce the bureaucracy limit, the administrative burdens that the Pentagon now puts on all companies big and small that want to work with it. So again, I look at all this as an opportunity and if it moves a little bit more towards fixed price proportions, so be it.

Rob, the other thing I would say is, we've seen really to

be honest more over the last probably year to 18 months, a more of a contracting regime that's more commensurate with the risk associated with the program. So those that have lower technical maturity, higher risk, the customer has actually been much more receptive and cognizant that those probably are not going to be best delivered under fixed price type of contracting regime. And so, you may be hearing words on the one end, but I think there has been a recognition more to make sure that the risk profiles commensurate with the right level of contracting and that's shared both by the customer and as well as industry. And so, there just had been, I think, a different approach. We'll see.

We've got a change in administration and where that goes forward. But I would say there's been a recognition over the last 12 months that fixed price contracts for immature technology really doesn't help anyone.

The next question comes from Rich Safran of Seaport Research Partners. Your line is open.

Thanks. Jim Choe, Maria, good morning. What I'd like to ask is starting with your 2025 guide for 8% growth, I'd like to know if you could give us maybe a long term look at MFC in terms of growth and margins and what the potential for the business is. Just kind of wondering, you have the GD Rocket Motor deal and how that factors into your growth and margin outlook given the volume limitations you've had thus far? Thanks.

Well, for MS C, for 2025, it's really more of the same. We continue to see growth on programs like GMLRS, Hi Mars, PAC-three, JASM and LoRaSM. And so many of the same growth factors and drivers in 2024 are also the growth drivers in 2025. That demand continues. We have projected orders growth in 2025, things like a multiyear definitization on JASM and LRASM, which is pretty sizable multiyear contract.

And so the demand cycle there both domestically and international was quite strong. And as we've said before, that will be the growth driver for Lockheed Martin for years to come beyond 2025. And so again, when you couple the backlog with the ongoing demand, we feel pretty solid. Again, these programs just as a solid back pending of the underlying demand for those. On the margins, we've talked about when you strip out the impact of the classified program, we've talked about 14%.

If you look at the midpoint of our guide in that ballpark, we're right around 14%, not necessarily as high as Maria reported on an adjusted basis for 2024, but that's because right now we're expecting some lower net profit adjustments. But their underlying margins are generally in line with what our longer term expectations are and that's the way we should think about MFC around 14%.

The next question comes from Ken Herbert of RBC Capital Markets. Your line is open.

Hey, Jay, in the past, you've talked about working capital and specifically the opportunity there to improve the free cash flow. Can you provide a little bit more on what's implied in the 25 guide from working capital improvement? And has anything structurally changed now as you look at the portfolio and the opportunity as you've talked about taking days out of the ability to eventually or continue to drive towards sort of pre pandemic levels over time?

You look at I'll start with maybe 2024. We had a good year in 2024 in spite of some of the headwinds that we faced. We reduced our working capital days by a couple and we're in the mid-30s as far as cash conversion cycle. For our outlook in 2025, what's implied in there is about one day, which essentially offsets the growth that we're going to see from we would otherwise see in working capital. So what we're trying to do here is just prevent it from being a use of cash and have it be neutral.

The opportunity set obviously would be to drive beyond one day and there's still opportunity I talked about before particularly in our contract assets, our unbilled receivable. There's some opportunity there as we work through on the F-thirty five both in production as well as sustainment. But there's really opportunities across the portfolio. Sikorsky has a number of opportunities there on their programs, as well as even segments space in MFC. Those are outstanding working capital businesses on a standalone basis.

But even so, there's opportunity in the contract assets there. So I would expect in the years to come that we still have opportunity to continue to drive asset productivity there and that's going to be part of our formula going forward as it was in 2024 and our outlook for 2025.

The next question comes from Gavin Parsons with UBS. Your line is open.

Could we just dig in a little further on the free cash flow bridges? The EBIT and EPS bridges were super helpful in the deck, but just given a lot of moving pieces in cash flow like the F-thirty five inventory unwind, pension contribution recovery, Lot 18 cash timing, maybe I missed that one, but if we could just kind of do a bridge walk on cash flow that'd be great.

Yes, if you just start from this year, adjusted cash flow at 6.1, so adjusted for the pension contribution in 2024. As we mentioned that we expected anywhere around close to $1,000,000,000 of benefit on F-thirty 5 with the delivery of with higher deliveries as well as progress on the withholds. We also though as you remember in 2024, we got the benefit of significant international advances to the tune of $600,000,000 So partially offsetting that is it's the net impact of those two things about $400,000,000 in that ballpark. We do expect a benefit from taxes with lower R and D capitalization as that's coming down and we expect a little bit of benefit from, I'll call it, cash based net income. All that taken together takes us from 6.1 dollars to the $6,700,000,000 midpoint.

So those are the key drivers of free cash flow for 2025.

The next question comes from Scott Duschl of Deutsche Bank. Your line is open.

Hey, thanks. Jay, it looks like if you're guiding aeronautics margins down about 20 basis points year over year in 2025, if I add back those unplanned charges to the 2024 base. So can you talk a bit about what drives that underlying margin decline, given that you are on these newer contracts for F-thirty 5?

Yes. So for F-thirty 5, we do have, I'm sorry, for aeronautics in total. Right now, the outlook for their margins does assume lower net profit adjustments and that's on, call it, an apples to apples basis. So excluding the impact of the $555,000,000 in the C5 adjustment in 2024, profit adjustments there are declining. There is a mix benefit, but right now the net profit adjustments offset that and that's what drives the margins down from 10.2 to around 10.

We also have classified growth, which is just a mix headwind there. But that's we've got some benefits from F-sixteen margins as well. But bottom line, again, it comes back to the net profit adjustments being lower.

The next question comes from Matt Akers with Wells Fargo. Your line is open.

Yes. Hey, guys. Good morning. Thanks for the question.

I guess a couple on F-thirty five. You talked a little bit about the progress toward Tech Refresh 3. What exactly is left to get kind of the final withhold? And how big is that? And are you assuming you get that within 2025?

And then I wonder if you could touch on Lot 19 and kind of how the discussions are going there?

Well, we so on the TR-three capability, we continue to make excellent progress there. There's a number of things that we still have to complete, some mission system integration work as well as improving system stability overall. We expect that will continue throughout the year. We expect to meet some milestones this year. We're targeting as much as possible this year.

But I think for purposes of financial modeling, we would expect this to bleed into 2026. Ultimately, the declaration of full combat capability is one that is left with our customer. And so we'll be coordinating with them and working with them on that. But what I can tell you is that we're pleased with the progress we've made thus far and the team is just is working at a pretty good pace here with our supplier partners on improving a) the emission system capability and as well as improving overall system stability. The second part of the question was Lot 19.

So that has been negotiated really in parallel with the Lot 18 negotiation. Just for clarity, Lot 18 is under undefinitized contract action. So we still have to definitize that under as Jim mentioned, we expect that to be done in the first half of this year. And then shortly thereafter in the second half of this year, we would also expect to close out on the Lot 19 contract, which would be in order in the range of about $10,000,000,000

The next question comes from Myles Walton of Wolfe Research. Your line is open.

Thanks. Good morning. I was curious on the charges that were unplanned, Jay. How should we think about the cash effect of those? And obviously, the MFC part of that unplanned, you were just planning in the future.

So I'm going to guess there's nothing really to think about there. But on the aero side, the $400,000,000 of cash charges taken in the quarter, is that $400,000,000 headwind being absorbed mostly in 2025? And then as we look to 2026, do you still have the pension funding requirement coming back about $1,000,000,000

Yes. Just starting with the ARO classified program, that will be certainly a cash flow drag over the next few years. It's not all born in 2025, but it's something that we expect over the next 2 to 3 years that we will have to liquidate that from a cash perspective. As far as pension in 2026, we've talked about ongoing cash contribution requirements. The formula to deal with that is similar to what we saw here and we've been talking about.

We had the prior discussion here in one of the questions related to working capital. We're going to continue to see what we can do to drive working capital down, improve our asset productivity to offset as much as possible on the pension. And then as you know, we've got a very strong balance sheet that gives us a lot of optionality and flexibility. So we expect to continue to deal with pension with the options that we have before us.

The next question comes from Gautam Khanna with TD Cowen. Your line is open.

Yes, good morning. I was wondering at the MNFC program that had the charge, is there an opportunity on that program as you scale it to improve the profitability dramatically? I'm just curious over the option period. I imagine demand is pretty strong for that product. And I don't know if the pricing may adjust favorably at some point, if you could speak to that?

Again, it's a classified program, Gautam. So there's not really all that much. What I can tell you is outside of the fixed pricing related to this next phase, the pricing would be open and we would expect to return to reasonable type margins over that period of time outside of where we have the fixed committed pricing. I wouldn't expect it to bounce back to MFC like margins at that point in time. There still would be kind of ramp ups that you got to deal with.

But certainly, the margin profile will get substantially better.

And we expect this to be a long lived program based on the technology and the value to the U. S. Government. The next Air Force pilot, I can assure you this is something they will want.

Your next question comes from the line of Peter Arment with Baird. Your line is open.

Opportunities to maybe still grow your backlog. Your backlog is at record levels. It was up 10% for the year. Big drivers in MSC and space. But how are you thinking about the opportunities to grow backlog in 2025 and any international kind of awards that your kind of pursuits that you would highlight?

Thanks. So Peter, it's Jim. I'll just start with the some of the public statements of the administration, which is reforming the Pentagon. An opportunity there is more long lead time orders, less fragility in the system. In addition to that, multi year contracting, which has been so far limited to munitions, makes sense in a lot of other places, in the Pentagon budget.

Lockheed Martin (LMT) Q4 2024 Earnings Call Transcript

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