Lockheed Martin Corporation (LMT) Earnings

Management highlights

### Core Business & Backlog Achievements - Total backlog reached a new all-time high of $230 billion, up $64 billion year-over-year, with a Q2 2026 book-to-bill ratio of 3.2:1 and $65 billion in new orders for the quarter. - Q2 2026 free cash flow was $2.9 billion, up from negative $150 million year-over-year, recovering from the prior quarter's ERP rollout-related dip. - Major contract wins included a $35 billion seven-year THAAD interceptor production contract, a $3 billion Gimler missile production contract, a $1.6 billion F-35 spare parts contract (the largest in F-35 history), and a joint 500-kilowatt containerized laser weapon system contract. ### Operational Execution & Product Milestones - Resumed F-16 deliveries after redesign and retesting following a failed flight test, and increased C-130 output, delivering 2 F-16s and 7 C-130s in Q2. - Completed on-schedule delivery of the second SPY-7 radar ship set for Japan's missile defense destroyers, and achieved key risk reduction milestones for the Stinger replacement program and PRISM Increment 4 missile. - Advanced the conventional prompt strike hypersonic weapons program, with $1.4 billion in cumulative contract modifications accelerating development, and launched a new affordable, scalable next-generation hypersonic glide body. ### Strategic Investments & Infrastructure Expansion - Invests in manufacturing capacity and technology ahead of contracted demand, with AI integration into production lines for predictive maintenance and automated quality inspection. - Opened a new missile assembly building in Cortland, Alabama, broke ground on a munitions production center in Troy, Alabama, and continued progress on the Trident II missile production facility in Titusville, Florida. - Signed an agreement to acquire Ultramaritime to expand advanced undersea sensing and autonomous sea drone capabilities, and agreed with Rheinmetall to develop the first European ATACMS production center of excellence. ### Innovation & Partnership Strategy - Develops new solutions by integrating existing proven components instead of building from scratch, demonstrated by the Sanctum counter-UAS system that moved from concept to successful live fire testing in 45 days. - Partners with General Motors Defense to leverage automotive high-rate manufacturing and supply chain expertise to accelerate defense production output. - Expands international co-production and regional sustainment to place manufacturing capability closer to allied customers, improving operational resilience and reducing capital requirements for domestic expansion.

Guidance

- **Sales guidance**: Raised to a range of $79.75 billion to $81.75 billion, representing an 8% year-over-year increase at the midpoint, up from the prior 5% growth guidance. Acceleration is broad-based, with second half 2026 growth projected at 7% to 12% year-over-year (high single-digit to low double-digit), up from mid-single-digit first half growth. - **Segment operating profit guidance**: Raised to a range of $8.5 billion to $8.7 billion, with all segments growing faster in the second half of 2026 on both top and bottom lines. - **Free cash flow guidance**: Raised to a range of $7 billion to $7.2 billion, driven by favorable IRS alternative minimum tax guidance and improved working capital dynamics. - **Earnings per share guidance**: Raised to a range of $29.95 to $30.65, driven by higher year-to-date profits and a lower effective tax rate. - **Capital expenditure guidance**: Adjusted to a range of $2 billion to $2.4 billion, reflecting efficiency gains in munitions capacity expansion. The total 8 to 9 billion dollar planned capital commitment for munitions scaling remains unchanged. - All segments raised 2026 full-year sales outlooks, with three out of four segments raising profit outlooks.

Segment performance

Lockheed Martin reports full-year 2026 projections for all four segments, with second quarter 2026 consolidated sales of $20.1 billion, an 11% year-over-year increase. Segment operating profit hit $2.2 billion for the quarter. 1. **Aeronautics**: Full-year 2026 projected sales of $31.7 billion to $32.7 billion, with projected profit of $3 billion to $3.08 billion. It contributed ~39.5% of total projected 2026 revenue at the midpoint. Growth is driven by strong F-35 production and sustainment volumes. 2. **Missiles and Fire Control (MFC)**: Q2 2026 sales grew 19% year-over-year, profit grew 24% year-over-year. Full-year 2026 projected sales of $16.5 billion to $16.9 billion, with projected profit of $2.3 billion to $2.35 billion. It contributed ~20.8% of total projected 2026 revenue at the midpoint. MFC is the company's leading growth segment, driven by accelerating munitions production. 3. **Rotary and Mission Systems (RMS)**: Full-year 2026 projected sales of $17.7 billion to $18.1 billion, with projected profit of $1.86 billion to $1.89 billion. It contributed ~22.3% of total projected 2026 revenue at the midpoint. Growth is driven by new radar awards and continued production ramps at Sikorsky. 4. **Space**: Full-year 2026 projected sales of $13.85 billion to $14.05 billion, with projected profit lowered to $1.34 billion to $1.38 billion due to reduced ULA equity earnings from the Vulcan launch anomaly investigation. It contributed ~17.4% of total projected 2026 revenue at the midpoint. Growth is supported by wins on the Next Generation Interceptor, Fleet Ballistic Missile, and classified national security programs. All four segments will accelerate their year-over-year sales growth in the second half of 2026 compared to the first half, with three out of four segments raising full-year 2026 profit outlooks.

Risks & headwinds

- A technical investigation into the Vulcan launch anomaly earlier this year reduced United Launch Alliance (ULA) equity earnings, leading to a downward revision of the Space segment's 2026 profit outlook. - While the broad-based munitions production scaling is in early stages, management highlighted that the company demonstrates operational resilience: F-16 production recovered from a redesign after a failed flight test and resumed deliveries on schedule, and the diversified portfolio of growing programs across segments reduces concentration risk from any single program. - Traditional defense accounting rules would have eliminated profit incentives for cost reduction efforts, but the new multi-year framework agreements address this risk by allowing Lockheed Martin to share in cost savings instead of returning all efficiency gains to the government. - There is political and budget uncertainty around long-term defense procurement plans, though management expects sustained demand for core capabilities like F-35 aircraft across budget cycles.

Analyst Q&A

• Q: Lockheed is moving quickly to develop new solutions that match evolving warfare needs. What is the timeline for scaling production of these new solutions, and is the company willing to deploy capital ahead of formal contract awards? /

  A: Management has shifted the company's mindset over the past five years to proactively invest in technology and manufacturing ahead of customer orders, based on informed predictions of future defense needs. The company now pursues target-capability and cost matching: for example, it developed a lower-cost PAC-3 variant for short-range threats without a formal RFP, leveraging existing PAC-3 design to deliver two-thirds of the capability for half the cost. Management confirms that it does proactively invest in design and manufacturing capacity before orders are secured, as part of its goal to be the leading U.S. defense technology provider. (341 character)

• Q: Given past experience where the Pentagon reversed commercial acquisition designations for programs Lockheed self-funded, how durable is the current push toward commercial acquisition, and how is the company managing related risk? /

  A: New multi-year munitions commercial framework agreements address the shortcomings of past arrangements. These agreements are structured to be long-term and survivable across changes in administration and political leadership, giving Lockheed the confidence to invest like a commercial actor. Unlike the past C-130 experience, the company will not take uncompensated investment risk today; all commercial initiatives are supported by contractual agreements from the government that align both parties' incentives. (320 character)

• Q: With record backlog and accelerating demand, but investor concerns reflected in the stock price, what gives confidence in the sustained revenue growth outlook, especially internationally? /

  A: Core programs like the F-35 have clear long-term demand: it is the only in-production fifth-generation fighter for allied nations, and demand will remain high as China scales up its own fifth-generation fleet. The planned annual production rate of 156 F-35s (85 for the U.S., 71 for allies) is expected to be sustained for the long term, regardless of short-term political budget negotiations. Management also noted that investors are still learning about the new multi-year munition contracting model, and confidence will grow as more framework agreements are converted to formal backlogged contracts, as seen with the THAAD award this quarter. (423 character)

• Q: What is the revenue upside of the new rapid integration development approach, and how will it affect Lockheed's market share? /

  A: The new approach empowers small, agile development teams to combine existing Lockheed and partner technologies to address emerging threats quickly, as seen with the 45-day development of the Sanctum counter-UAS system. The company has the financial capacity to self-fund these exploratory developments, and any resulting programs will be incremental to the existing baseline financial forecast, representing upside to current projections. This model unleashes the company's large engineering talent base and leverages its existing massive manufacturing scale to capture new incremental market opportunities for counter-drone and other rapidly emerging threat capabilities. (412 character)