Lockheed Martin Misses Expectations
Taking a Look at Lockheed Martin's (LMT) Quarterly/Full-Year Results.
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Lockheed Faces Challenges, But Don’t Be Concerned
Lockheed Martin’s (LMT) stock took a hit today after the company announced fourth-quarter earnings that didn’t quite meet Wall Street’s expectations. Their earnings per share (EPS) came in at just $2.22—down sharply from $7.58 in the same period last year and below the consensus of $6.62. The main culprit? A hefty $1.7B loss from classified programs in the Aeronautics and Missiles and Fire Control segments.
To add to the disappointment, LMT also trimmed its profit forecast for 2025. The defense giant now predicts an EPS between $27.00 and $27.30, missing the analyst estimate of $27.92. Delays in rolling out a technology upgrade for the F-35 fighter jet played a big part in the lower outlook.
It’s not all doom and gloom, though. LMT still reported impressive sales growth and boasted a record-high backlog of $176B, signaling steady demand for its cutting-edge defense technologies. Even so, the classified program setbacks and narrowing profit margins present real challenges for the company. Let’s break down what these hurdles—and the opportunities—could mean for them moving forward.
Quarterly Results (Q4 2024):
Net Sales: $18.6B, slightly down from $18.9B in Q4 2023. A shorter fiscal quarter (13 weeks vs. 14 weeks in Q4 2023) added pressure on results.
Earnings Per Share (EPS): $2.22, a dramatic drop from $7.58 in Q4 2023.
Net Earnings: $527M, heavily impacted by $1.7B in pre-tax losses tied to classified programs.
Cash from Operations: $1.0B, constrained by a $990M pension contribution.
Full-Year 2024:
Net Sales: $71.0B, up 5% from $67.6B in 2023, driven by strong demand for defense systems.
Earnings Per Share (EPS): $22.31, compared to $27.55 in 2023, reflecting $2.0B in classified program losses.
Free Cash Flow: $5.3B, down from $6.2B in 2023.
Backlog: Reached a record $176B, showcasing strong demand for the company’s solutions.
Segment Performance:
Aeronautics:
Sales: $28.6B (+4%), fueled by F-35 production ramp-ups.
Operating Profit: $2.5B (-11%), weighed down by $555M in classified program losses.
Missiles and Fire Control (MFC):
Sales: $12.7B (+13%), led by tactical missile systems like GMLRS and JASSM.
Operating Profit: $413M (-73%), hit hard by a $1.4B loss from a classified program.
Rotary and Mission Systems (RMS):
Sales: $17.3B (+6%), boosted by radar and laser systems.
Operating Profit: $1.9B (+3%), despite headwinds from Seahawk program profit adjustments.
Space:
Sales: $12.5B (-1%), reflecting lower volumes in classified programs and the Orion program.
Operating Profit: $1.2B (+6%), supported by favorable contract mix and equity earnings from United Launch Alliance.
My Take
Q4 was tough, plain and simple. The EPS plunge from $7.58 to $2.22 and the $527M in net earnings reflect just how impactful the classified program losses were. Missing expectations isn’t what you want to see from a defense juggernaut, especially when those losses stem from long-term projects that should ideally have clearer cost oversight. A 13-week quarter versus 14 weeks last year may explain part of the sales dip, but the real culprit was those classified programs. Yet, I find solace in the fact that Lockheed’s operational cash flow ($1B) held up even under this strain, a strong sign of financial discipline.
The classified program losses that significantly impacted LMT's Q4 2024 and full-year results primarily originated from challenges in the Aeronautics and Missiles and Fire Control (MFC) segments. In the Aeronautics segment, they recorded $410M in losses during Q4 and $555M for the full year. These losses stemmed from a fixed-price incentive fee contract involving highly complex design and systems integration work. A thorough review of program requirements, technical complexities, and schedule risks revealed higher projected costs for engineering and integration activities necessary to meet near-term milestones.
In the Missiles and Fire Control segment, the losses were even more substantial, with $1.3B recorded in Q4 and $1.4B for the full year. The classified contract in this segment included a cost-reimbursable base and fixed-price options for additional phases. Management concluded it was probable that all options under this contract would be exercised, leading to substantial cost overruns. The losses were tied to performance trends, anticipated customer requirements, and future funding expectations, which ultimately increased projected costs across the contract.
Time for some optimism, LMT’s 5% jump in sales to $71B is nice to see—especially in a defense world where budgets and contract schedules can change on a dime. Plus, what about that record $176B backlog? This shows LMT’s status as the top contender, proving that demand for cutting-edge defense tech isn’t going anywhere.
That said, the full-year EPS drop from $27.55 down to $22.31 shouldn’t be glossed over. The $2B hit on classified programs highlights the downside of big, fixed-price deals where cost overruns can pile up fast. On the plus side, LMT’s resilience shines through in its $5.3B cash flow and the $6.8B funneled back to shareholders via dividends and buybacks—actions that help keep investor confidence afloat.
Looking ahead, the company is aiming for sales in the $73.8B–$74.8B range and an EPS between $27.00–$27.30. Ambitious? Sure. But with that massive $176B backlog on the books, they’ve got a strong platform for growth. CEO Jim Taiclet is pushing initiatives like AI, 6th-gen aircraft, and cyber-hardened systems—all game-changers in future warfare. However, trimming $1.1B from pension adjustments might cramp margins a bit, so we need to keep an eye on how LMT handles costs going forward.
Make no mistake, LMT remains a beast in the defense industry. Still, 2024 showed that even the giants can stumble. Those classified program losses are a wake-up call, but with tighter oversight and better project management, they’re fixable. This is not a long-term persistent issue; it is a short-term issue that will be resolved (hopefully they learn from it). Meanwhile, the Aeronautics and Missiles segments look solid, and if LMT can nail execution on its forward-looking tech, 2025 could/will be a major comeback year. This company will remain as a foundational piece to my portfolio.