Lockheed Martin forecasts $73.75B–$74.75B 2025 sales despite $1.8B program charges

Overview of Lockheed Martin's Q2 2025 Earnings Call

Lockheed Martin (LMT) recently held its earnings call for the second quarter of 2025, where leadership provided insights into the company’s performance and future outlook. Chairman, President, and CEO James D. Taiclet opened the call by emphasizing the strong performance of several mission-critical systems, which have led to increased customer demand for advanced technologies. This success prompted a strategic review of operations, resulting in a series of charges aimed at addressing newly identified risks and preparing for future growth.

Taiclet highlighted that legacy programs contributed to $1.8 billion in losses, partly due to a tax matter. He stressed the importance of focusing on program management and risk assessment for both current and future contracts. The CEO also pointed to recent military operations where Lockheed Martin's products, such as the F-35 and F-22 aircraft, played critical roles. Additionally, the PAC-3 missile successfully intercepted threats during an Iranian missile attack, reinforcing the company’s role in national defense.

On the F-35 program, Taiclet reported that 50 aircraft were delivered in the quarter, bringing the annual total to 97. The company reaffirmed its expectation of delivering between 170 and 190 F-35s in 2025. International demand for the F-35 remains strong, with new commitments from the U.K. and Belgium.

CFO Evan T. Scott provided details on the financial results, noting that second-quarter sales reached $18.2 billion, consistent with the previous year but showing sequential growth from the first quarter. Growth was observed in missile programs within MFC, F-35 production at Aeronautics, and strategic missiles within Space. However, these gains were partially offset by charges at Aeronautics and RMS.

Scott outlined specific charges, including an additional $950 million in reach-forward loss for the Aeronautics Classified Program, a $570 million loss for the Canadian Maritime Helicopter Program, and a $95 million loss for the Turkish Utility Helicopter Program. These charges reflect the ongoing efforts to address operational challenges and improve oversight.

Outlook and Financial Guidance

The company reaffirmed its sales guidance for 2025, projecting revenue between $73.75 billion and $74.75 billion. Segment operating profit is expected to range from $6.6 billion to $6.7 billion, although earnings per share guidance has been lowered to $21.70 to $22 due to the charges, impairments, and tax reserve. Free cash flow expectations for 2025 remain at $6.6 billion to $6.8 billion.

Looking ahead, Scott indicated that free cash flow for 2026 could be closer to $6 billion, citing investment demands to advance complex programs and accelerate capacity. However, the company remains committed to returning at least $6 billion per year to shareholders.

Key Financial Results

In the second quarter, the company reported $18.2 billion in sales, with notable growth in missile and space programs. Segment operating profit was $570 million, impacted by $1.8 billion in program charges. GAAP earnings per share were $1.46, with these items reducing EPS by $5.83. Free cash flow usage was $150 million, attributed to delayed contract awards and high receivables. Lockheed Martin returned $1.3 billion to shareholders in the quarter.

Business segment highlights included $7.4 billion in Aeronautics sales (up 2% year-over-year), $3.4 billion in Missiles and Fire Control sales (up 11%), $4 billion in Rotary and Mission Systems sales (down 12% due to program losses), and 4% year-over-year growth in Space sales.

Analyst Q&A Highlights

During the Q&A session, analysts raised several concerns, particularly around derisking problem programs like the Aero Classified Program. Taiclet mentioned that the program review team has been reconstituted, with added expertise and higher-level management scrutiny. Scott emphasized improved controls and rhythms that provide better insight into emerging challenges.

Regarding the high charges, Taiclet explained that these are new discoveries requiring immediate action. Scott clarified that $500 million in cash will be used for the Aero Classified Program this year, with a step-down in the following year.

Analysts also questioned the impact of the $4.6 billion tax liability from the IRS, with Scott explaining that the company filed an appeal and took a $100 million P&L charge for potential interest.

Sentiment and Strategic Shifts

Analysts maintained a cautious tone, focusing on program losses, risk controls, and tax liabilities. Management responded with a determined yet defensive approach, emphasizing enhanced oversight and transparency. Taiclet assured that the company takes these issues seriously, while Scott committed to continued transparency and risk monitoring.

Compared to the previous quarter, analyst skepticism increased, especially regarding the magnitude of charges and risk containment. Management’s tone shifted from confident to more defensive and explanatory.

Quarter-over-Quarter Comparison

Guidance for full-year sales remains unchanged, but earnings per share guidance was lowered due to charges. The strategic focus has shifted to aggressive risk identification and remediation, with additional senior management oversight now emphasized. Analysts in the current quarter focused more on program risk, large charges, and tax exposure, whereas prior questions centered on growth opportunities and international demand.

Key metric changes include a significant increase in recognized program losses, a decrease in GAAP EPS, and a reduction in free cash flow guidance for 2026. Despite these challenges, management maintains confidence in its ability to execute operations effectively.

Risks and Concerns

Management cited newly identified risks on legacy programs, resulting in $1.8 billion in charges and additional oversight measures. The company disclosed a $4.6 billion tax liability claim from the IRS, with intent to contest and a $100 million P&L reserve for potential interest. Analysts raised concerns about the effectiveness of risk controls, the magnitude and cash impact of program charges, and the duration of fixed price contract exposures.

Management outlined mitigation strategies, including enhanced program reviews, cross-functional oversight, and ongoing customer negotiations to restructure problematic contracts.

Final Takeaway

Despite substantial program charges and a lowered earnings outlook, Lockheed Martin has taken decisive actions to intensify risk oversight and restructure troubled programs. The company reaffirmed sales and cash flow guidance for 2025, highlighted strong demand for core platforms such as the F-35, and underscored a robust backlog and commitment to operational excellence. Management conveyed confidence in its ability to translate strong customer demand and unique capabilities into top-line growth and shareholder value moving forward.