LOCKHEED MARTIN CORP Q4 FY2024 earnings call

• Return to growth strategy implemented three years ago is on a strong trajectory; 2024 sales grew 5% year-over-year with backlog at $176 billion, a record. All four business areas saw backlog growth and book-to-bill ratio >1.
• In Q4, recording charges on two classified programs at MFC and Aeronautics to de-risk financial profiles. Invested $3.3 billion in R&D and capital in 2024 for advanced tech solutions.
• F-35 delivered 62 aircraft in Q4, 110 in 2024; expect 170-190 deliveries in 2025. TR-3 capabilities progressing; Lot 18 F-35 production contract awarded, backlog at 408 aircraft. Romania joined F-35 enterprise with 32 aircraft order.
• Defensive Guam Flight experiment in Dec demonstrated integration of multiple products. ARRW completed end-to-end flight test. Partnerships with commercial companies like Nvidia, Meta, etc., for AI, LLMs, 5G, etc.
• Skunk Works had live flight demonstrations of F-35 interoperability and uncrewed system flight demonstration. Focus on agile acquisition process and digital transformation 1LMX.

Aeronautics

• Fourth quarter sales increased 5% year-over-year, driven by higher F-35 volume on production and sustainment contracts, but offset by lower volume at Skunk Works. Adjusted sales growth was approximately 7% year-over-year in Q4 2024. Full year sales increased 4% due to higher volume across the F-35 program and F-16 production ramp, partially offset by lower Skunk Works volume. Full year segment operating profit decreased 11%, but adjusted operating profit grew 3% with a 10.2% margin.

Missiles and Fire Control (MFC)

• Fourth quarter sales grew 8% year-over-year (16% normalized) due to production ramps on JASSM, LRASM, GMLRS, and PAC-3. Segment operating profit decreased year-over-year due to classified program charges, but adjusted segment margins were 14.8% in the quarter. Full year sales increased 13%, operating profit declined $1.1 billion year-over-year, but adjusted segment margin was 14.4%.

Rotary & Mission Systems (RMS)

• Fourth quarter sales decreased 10% year-over-year primarily due to lower volume on Seahawk, CRH, AEGIS, and various C6ISR programs. Normalized for the week difference, sales were down 3% year-over-year. Operating profit was down 11% year-over-year. Full year sales increased 6% driven by higher volume on Canadian Surface Combatant and laser programs, operating profit up 3% due to higher sales volume and favorable contract mix.

Space

• Fourth quarter sales decreased 13% year-over-year driven by lower volume on NextGen OPIR Orion and classified programs. Normalized for the number of weeks, sales were down 6%. Operating profit decreased 8% year-over-year. Full year sales slightly decreased, but operating profit increased 6% in 2024 due to favorable contract mix and higher ULA equity earnings

• 2025 sales growth expected 4%-5% on top of 5% in 2024. MFC to lead with 8% growth midpoint.
• Operating margins expected to return to 11%. Free cash flow per share to have double-digit growth. Segment operating profit expected to grow from 2024 adjusted position, with EPS slightly impacted by non-operational items like pension adjustments.

• Classified program risks: Charges taken in Q4 to de-risk, but ongoing monitoring needed. Potential future charges with fixed price contracts if not applied with disciplined bid process.
• Supply chain issues: Impacting some programs like CH-53K, where progress is seen but not at desired level, potentially affecting production and margins.

Q: Seth Seifman asked about the de-risking nature of charges in Q4, especially regarding aeronautics' classified program and multi-year targets.

A: Jay Malave stated they significantly reduced risk, implemented continuous monitoring, added technical resources, and automated testing procedures. 2025 outlook improved, with confidence in revenue growth due to rising value chain performance and supply chain/operational pace.

Q: Rob Stallard asked if taking charges on classified programs and move to fixed price contracts could lead to more future charges.

A: James Taiclet said they'll apply disciplined bid process to fixed price and cost plus contracts, viewing DOGE as an opportunity for systemic change, not concerned as they'll use same discipline for all contracts.

Q: Rich Safran asked about MFC's long-term growth, margins, and GD Rocket Motor deal.

A: Jay Malave said MFC growth driven by programs like GMLRS, HIMARS, PAC-3, JASSM, LRASM; margins around 14% excluding classified program impact, with multiyear contracts providing solid demand.

Q: Ken Herbert asked about working capital improvement implied in 2025 guide.

A: Jay Malave said 2024 reduced working capital days by a couple, mid-30s cash conversion cycle; 2025 implies about one day to offset growth, with opportunity to drive asset productivity across portfolio.

Q: Gavin Parsons asked for a cash flow bridge walk.

A: Jay Malave said adjusted cash flow in 2024, with benefits from F-35 deliveries, international advances, tax benefits, and cash-based net income, expecting similar drivers for 2025 free cash flow.

Q: Matt Akers asked about F-35 Tech Refresh 3 progress and Lot 19.

A: Jay Malave said TR-3 capabilities progressing, expecting milestones in 2025 but bleeding into 2026; Lot 18 to be definitized in first half 2025, Lot 19 to be closed out in second half 2025 with ~$10 billion order.

Q: Pete Skibitski asked about MFC's peak production volumes and budget risk.

A: Jay Malave said capacity and funding for MFC programs like PAC-3, GMLRS, etc., are under contract with strong line of sight, not dependent on additional supplementals.

Q: Michael Ciarmoli asked about F-35 production rates and export demand.

A: James Taiclet said confident in 156 production rate due to strong U.S. and international demand, deterrence needs, and examples like Israeli Air Force experience; Jay Malave added fleet recapitalization necessity drives demand.

Q: Ronald Epstein asked about missile defense broader than Iron Dome and Denmark as F-35 customer.

A: James Taiclet said missile defense is broader, including ICBM, hypersonic, cruise, and counter UAS; on Denmark, stated policy issues are U.S. Government's purview, focus remains on F-35 demand from international customers