Defense contractor Lockheed Martin (LMT -0.21%) reported mixed third-quarter 2024 earnings on Tuesday, Oct. 22. Earnings per share (EPS) of $6.80 surpassed the analyst estimate of $6.50. However, revenue came in at $17.1 billion, missing the expected $17.38 billion. The quarter's (which ended Sept. 29) mixed results were likely affected by ongoing F-35 program negotiations.
Overall, the quarter highlighted operational strains and future growth potential, with management raising its sales outlook for the year.
| Metric | Q3 2024 | Analyst Estimate | Q3 2023 | Change (YOY) |
|---|---|---|---|---|
| Revenue | $17.1 billion | $17.38 billion | $16.9 billion | 1% |
| EPS | $6.80 | $6.50 | $6.73 | 1% |
| Net earnings | $1.62 billion | N/A | $1.68 billion | (3.6%) |
| Free cash flow | $2.08 billion | N/A | $2.53 billion | (17.6%) |
Source: Lockheed Martin. Note: Analyst consensus estimates for the quarter are provided by FactSet. YOY = Year over year.
Overview of Lockheed Martin's Business
Lockheed Martin is a major player in the global aerospace, defense, and security industries thanks to its extensive (and sizeable) specialized programs and technological innovations. It is world-renowned for projects like the F-35 Lightning II, a cornerstone of its aeronautics segment, significantly impacting sales and operations.
Recent strategic focuses for Lockheed Martin include technological advances in hypersonics and classified programs, designed to strengthen its future competitive stance. Sustaining government contracts and navigating an intricate regulatory landscape are additional key success factors for the company, given its heavy reliance on U.S. government dealings.
Third-Quarter Performance Insights
Third-quarter EPS of $6.80 beat expectations by 4.6%, driven by efficient cost management and improved margins. Key segments such as Missiles and Fire Control (MFC) achieved an 8% year-over-year uptick in net sales and a 15% boost in operating profits. The Rotary and Mission Systems (RMS) segment managed a 6% sales increase.
The F-35 program, however, faced contractual challenges impacting performance. Negotiations on Lots 18-19 with the U.S. Government led to $400 million in unsettled revenue. This setback, combined with broader supply chain issues, resulted in the company missing its revenue targets, which, at $17.1 billion, fell short of the $17.38 billion estimate.
From a strategic perspective, investments in hypersonic and classified programs positioned Lockheed Martin favorably for the future, aligning with modern defense priorities. Yet supply chain disruptions continue to cast a shadow, affecting cash flow management, as evidenced by a 17.2% drop in operating cash flow from the previous year.
Notable one-time events included the elevation of the company's share repurchase authority by $3 billion, increasing the total authorization for potential future common stock repurchases to $10.3 billion. It also boosted the quarterly dividend by 5%, reflecting a solid commitment to shareholder returns amid ongoing operational hurdles.
Future Outlook
Looking ahead, Lockheed Martin's management remains optimistic. The company slightly raised its full-year sales forecast to $71.25 billion (up from $71 billion), driven by expectations of resolving F-35 contractual issues and a generally positive business trajectory. This forecast also assumes the continued success of its international partnerships to expand market reach.
Investors should monitor potential developments in program negotiations, the resolution of supply chain issues, and broader government contract renewals. Additionally, ongoing technological investments in satellites and hypersonics could be key growth drivers, bolstering Lockheed Martin's positioning for the foreseeable future.
