Release Date: July 22, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Lockheed Martin Corp (LMT, Financial) reported $18 billion in sales for the second quarter, demonstrating strong revenue generation.
- The company invested $800 million in infrastructure and innovation, indicating a commitment to future growth.
- Lockheed Martin Corp (LMT) returned $1.3 billion to shareholders, showcasing a strong commitment to shareholder value.
- The F-35 program remains on track with 97 deliveries so far this year, highlighting operational efficiency.
- Lockheed Martin Corp (LMT) demonstrated the effectiveness of its systems in recent combat operations, reinforcing its role in national security.
Negative Points
- Lockheed Martin Corp (LMT) recognized $1.8 billion in losses across several legacy programs, impacting financial performance.
- The company faced significant charges related to the Aeronautics Classified Program and other legacy programs, indicating ongoing challenges.
- US government sanctions affected the Turkish Utility Helicopter Program, resulting in a $95 million loss.
- The Canadian Maritime Helicopter Program incurred a $570 million loss due to revised cost and sales estimates.
- The IRS asserts that Lockheed Martin Corp (LMT) owes $4.6 billion in additional income tax, creating potential financial uncertainty.
Q & A Highlights
Q: Why should investors feel comfortable that Lockheed Martin has derisked the problem programs, particularly the Aero Classified one? What changes have been made?
A: James Taiclet, CEO, explained that with Evan Scott's succession as CFO, a new program review team was formed with wider expertise and higher-level management scrutiny. This team reassessed cost trends and reevaluated program assumptions, leading to additional charges. The programs will continue to be monitored with robust oversight, and there is a policy in place to avoid must-win programs, ensuring no outsized future risks.
Q: Why did it take a billion dollars of charges to change the way you're reviewing the Aero Classified program? How does the $1.8 billion in charges affect cash flow?
A: James Taiclet noted that the charges were due to new discoveries of cost risks and anomalies in the development phase. Evan Scott added that $500 million of cash usage is expected this year, stepping down to $400 million next year, with a line of sight to when it turns positive.
Q: Can you explain the reduction in the F-35 units in the administration's FY26 request and how easy it is to swap out relinquished DoD slots with export customers?
A: James Taiclet stated that the House Appropriations Committee increased the number of F-35s from 47 to 69, and the Senate marked it up to 57. Historically, appropriations committees have the final say, and there is hope for greater demand by the end of the budget process. Evan Scott added that the backlog remains strong, allowing flexibility in production planning.
Q: What is the $4.6 billion tax liability related to, and how will it impact free cash flow?
A: Evan Scott explained that the IRS's position on a tax accounting method change is being contested, with Lockheed Martin standing by its approach. A $100 million P&L charge was taken for interest. For 2026, a $1 billion pension contribution is assumed, with various factors impacting cash flow, including reach-forward charges and tax benefits.
Q: Can you discuss the F-35's role in modern warfare and its priority for the DoD today?
A: James Taiclet emphasized the F-35's critical role in modern warfare, citing its orchestration capabilities and combat-proven status. Despite budget cuts, the F-35 remains essential, and Lockheed Martin is focused on bridging capabilities to the next generation while maintaining strong international demand.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
