Lockheed Martin(LMT) - 2024 Q3 - Quarterly Results

Third Quarter 2024 Financial Highlights Lockheed Martin reported strong Q3 2024 financial results, including increased net sales and EPS, alongside strategic advancements and a raised full-year outlook Financial Highlights Lockheed Martin reported Q3 2024 net sales of $17.1 billion, a 1% year-over-year increase, with $1.6 billion in net earnings and $2.1 billion in free cash flow Q3 2024 Key Financial Metrics | Metric | Q3 2024 | Q3 2023 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $17.1 billion | $16.9 billion | +1% | | Net Earnings | $1.6 billion | $1.7 billion | -5.9% | | Diluted EPS | $6.80 | $6.73 | +1.0% | | Cash from Operations | $2.4 billion | $2.9 billion | -17.2% | | Free Cash Flow | $2.1 billion | $2.5 billion | -16.0% | - Returned $1.6 billion to shareholders through $749 million in dividends and $850 million in share repurchases[1][12] - The quarterly dividend was increased by 5% to $3.30 per share, marking the 22nd consecutive year of increases[1][3] - Share repurchase authority was increased by $3.0 billion, bringing the total authorization to $10.3 billion[1][13] CEO Statement and Corporate Strategy CEO Jim Taiclet highlighted a record backlog of over $165 billion and strong operational performance, advancing the 21st Century Security® strategy for future growth - The company achieved a record backlog of over $165 billion and delivered 48 F-35s in the third quarter[2] - The 21st Century Security® strategy focuses on three key initiatives: - Strengthening production system resiliency and scalability - Accelerating digital and physical technologies into mission solutions and operations - Expanding international partnerships to increase production capacity and sales[3] Financial Summary and Key Updates This section details consolidated financial performance for Q3 2024 and updates on the F-35 Lots 18-19 contract negotiations Consolidated Financial Results Q3 2024 consolidated operating profit rose to $2.14 billion, while net earnings slightly decreased to $1.62 billion compared to Q3 2023 Summary Financial Results (in millions, except per share data) | Metric | Q3 2024 | Q3 2023 | Nine Months 2024 | Nine Months 2023 | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $17,104 | $16,878 | $52,421 | $48,697 | | Business segment operating profit | $1,870 | $1,810 | $5,657 | $5,347 | | Consolidated operating profit | $2,140 | $2,042 | $6,317 | $6,214 | | Net earnings | $1,623 | $1,684 | $4,809 | $5,054 | | Diluted earnings per share | $6.80 | $6.73 | $20.05 | $19.97 | | Free cash flow | $2,083 | $2,527 | $4,846 | $4,568 | F-35 Lots 18-19 Contract Update Negotiations for the F-35 Lots 18-19 production contract are ongoing, causing a $400 million negative impact on Q3 2024 revenue and profit recognition - The company could not recognize revenue and profit on approximately $400 million of costs incurred on the F-35 program in Q3 2024 due to contract negotiation delays[7] - Cash flow was negatively impacted, with the company prevented from invoicing and receiving approximately $450 million through Q3 2024[7] - The company expects to receive contractual authorization and funding in Q4 2024, which would allow for the recovery of sales, profit, and cash[7] 2024 Financial Outlook Lockheed Martin has raised its full-year 2024 financial outlook for key metrics, contingent on the F-35 Lots 18-19 contract authorization Updated Guidance The company increased its 2024 outlook, now expecting net sales of approximately $71.25 billion, segment operating profit of about $7.475 billion, and diluted EPS around $26.65 2024 Financial Outlook (in millions, except per share data) | Metric | Current Update (Oct 2024) | Prior Guidance (July 2024) | | :--- | :--- | :--- | | Net sales | ~$71,250 | $70,500 - $71,500 | | Business segment operating profit | ~$7,475 | $7,350 - $7,500 | | Diluted earnings per share | ~$26.65 | $26.10 - $26.60 | | Free cash flow | ~$6,200 | $6,000 - $6,300 | - The updated 2024 financial outlook is premised on receiving contractual authorization and funding for the F-35 Lots 18-19 production contract in Q4 2024[10] Cash Flow and Capital Deployment Q3 2024 cash flows decreased due to F-35 contract delays, while the company continued significant capital returns through dividends and share repurchases Cash Flow Analysis The decrease in Q3 2024 operating and free cash flows was primarily driven by a reduction in working capital due to the F-35 Lots 18-19 contract delay - The primary reason for the decrease in operating and free cash flows in Q3 2024 was a reduction in working capital, which includes the cash impacts from the F-35 Lots 18-19 contract delay[12] Capital Deployment The company returned $1.6 billion to shareholders in Q3 2024 through dividends and share repurchases, increasing its dividend and repurchase authorization Q3 2024 Capital Deployment Activities | Activity | Amount | | :--- | :--- | | Cash Dividends Paid | $749 million | | Share Repurchases | $850 million (1.5 million shares) | - The board increased the total share repurchase authorization to $10.3 billion[13] - A fourth-quarter dividend of $3.30 per share was authorized, a $0.15 increase over the prior quarter[13] Segment Results In Q3 2024, MFC and RMS drove sales growth, while Aeronautics sales declined due to F-35 contract delays, and Space saw a slight decrease Aeronautics Aeronautics' net sales decreased 3% to $6.5 billion in Q3 2024, primarily due to a $480 million reduction in the F-35 program from contract delays Aeronautics Financials (in millions) | Metric | Q3 2024 | Q3 2023 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $6,487 | $6,717 | -3% | | Operating Profit | $659 | $671 | -2% | | Operating Margin | 10.2% | 10.0% | +20 bps | - Net sales decreased primarily due to lower volume on F-35 production contracts ($480 million) because of delays in the Lots 18-19 contract[20] - Operating profit was impacted by a $25 million decrease from lower volume and $20 million from unfavorable contract mix, but was partially offset by $30 million in higher profit booking adjustments, including an $85 million favorable adjustment on the C-5 Galaxy program[21] Missiles and Fire Control (MFC) MFC delivered strong growth in Q3 2024, with net sales increasing 8% to $3.2 billion, driven by tactical and strike missile programs MFC Financials (in millions) | Metric | Q3 2024 | Q3 2023 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $3,175 | $2,939 | +8% | | Operating Profit | $456 | $398 | +15% | | Operating Margin | 14.4% | 13.5% | +90 bps | - Sales growth was driven by a ramp-up in production for GMLRS and LRASM programs[23] - Operating profit increased due to higher profit booking rate adjustments ($35 million), primarily from better cost performance on PAC-3, and higher volume ($20 million)[24] Rotary and Mission Systems (RMS) RMS net sales grew 6% to $4.4 billion in Q3 2024, led by higher volume in IWSS and Sikorsky helicopter programs, while operating profit remained flat RMS Financials (in millions) | Metric | Q3 2024 | Q3 2023 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $4,367 | $4,121 | +6% | | Operating Profit | $483 | $482 | ~0% | | Operating Margin | 11.1% | 11.7% | -60 bps | - Sales increased due to higher volume on radar programs, the Canadian Surface Combatant (CSC) program, and higher production on CH-53K, Seahawk, and Black Hawk helicopters[26] - Operating profit was flat as higher volume benefits were offset by lower profit booking adjustments, including a reach-forward loss on a radar program[27] Space Space segment net sales decreased slightly by 1% to $3.1 billion in Q3 2024, while operating profit increased 5% due to a favorable contract mix Space Financials (in millions) | Metric | Q3 2024 | Q3 2023 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $3,075 | $3,101 | -1% | | Operating Profit | $272 | $259 | +5% | | Operating Margin | 8.8% | 8.4% | +40 bps | - Net sales decrease was driven by lower volume on the Orion program, partially offset by higher volume on reentry programs[29] - Operating profit increased due to a $25 million benefit from favorable contract mix, partially offset by a $10 million reduction in equity earnings from ULA[30] Supplementary Financial Information This section provides details on income taxes and the company's use of non-GAAP financial measures, including reconciliations Income Taxes The effective income tax rate for Q3 2024 was 15.4%, higher than Q3 2023's 13.8%, primarily due to prior year R&D tax credits - The effective tax rate was 15.4% in Q3 2024, compared to 13.8% in Q3 2023[32] - The 2024 rate was higher mainly because the 2023 rate reflected additional R&D tax credits from prior years[32] Use of Non-GAAP Financial Measures The company uses non-GAAP measures like business segment operating profit and free cash flow to evaluate performance, providing reconciliations to GAAP counterparts - The company uses non-GAAP measures like 'Business segment operating profit' and 'Free cash flow' for internal performance evaluation and as goals in incentive plans[33][34][36] - Business segment operating profit excludes unallocated items like FAS/CAS pension adjustments and intangible asset amortization[34] - Free cash flow is defined as cash from operations less capital expenditures and is used to evaluate liquidity and cash available for return to stakeholders[36] Adjusted Earnings Reconciliation After adjusting for non-operational mark-to-market investment losses, the adjusted diluted EPS for Q3 2024 was $6.84, compared to the reported $6.80 Q3 2024 GAAP to Non-GAAP EPS Reconciliation | Metric | As Reported (GAAP) | Adjustment (Mark-to-market losses) | As Adjusted (Non-GAAP) | | :--- | :--- | :--- | :--- | | Earnings Before Income Taxes | $1,918M | $14M | $1,932M | | Net Earnings | $1,623M | $10M | $1,633M | | Diluted EPS | $6.80 | $0.04 | $6.84 | Forward-Looking Statements and Risk Factors This section outlines forward-looking statements and associated risks, including reliance on government contracts, budget uncertainties, and supply chain issues Key Risk Factors The company identifies several material risks to its future performance, including dependence on U.S. government funding, F-35 program execution, and supply chain issues - Major risks include reliance on U.S. Government contracts, budget uncertainty, and potential government shutdowns[42] - Risks related to the F-35 program, including development, production, and sustainment, are highlighted[42] - Other significant risks include performance of key suppliers, inflation, international trade policies, and cyber threats[42][43] Consolidated Financial Statements and Operating Data This section presents the company's consolidated financial statements, including statements of earnings, balance sheets, cash flows, and key operating data Consolidated Statement of Earnings For the nine months ended September 29, 2024, net sales were $52.4 billion, and net earnings were $4.8 billion, or $20.05 per diluted share Consolidated Statement of Earnings (Nine Months Ended) | (in millions, except per share data) | Sept. 29, 2024 | Sept. 24, 2023 | | :--- | :--- | :--- | | Net sales | $52,421 | $48,697 | | Gross profit | $6,240 | $6,184 | | Operating profit | $6,317 | $6,214 | | Earnings before income taxes | $5,701 | $5,953 | | Net earnings | $4,809 | $5,054 | | Diluted earnings per share | $20.05 | $19.97 | Consolidated Balance Sheet As of September 29, 2024, total assets were $55.5 billion, with total liabilities at $48.3 billion and stockholders' equity at $7.2 billion Consolidated Balance Sheet Summary (in millions) | Metric | Sept. 29, 2024 | Dec. 31, 2023 | | :--- | :--- | :--- | | Total current assets | $23,211 | $20,521 | | Total assets | $55,520 | $52,456 | | Total current liabilities | $17,810 | $16,937 | | Total liabilities | $48,320 | $45,621 | | Total stockholders' equity | $7,200 | $6,835 | Consolidated Statement of Cash Flows For the first nine months of 2024, net cash provided by operating activities was $5.9 billion, with $3.3 billion used for financing activities Cash Flow Summary (Nine Months Ended, in millions) | Metric | Sept. 29, 2024 | Sept. 24, 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $5,949 | $5,555 | | Net cash used for investing activities | ($954) | ($991) | | Net cash used for financing activities | ($3,286) | ($3,560) | | Net change in cash and cash equivalents | $1,709 | $1,004 | | Cash and cash equivalents at end of period | $3,151 | $3,551 | Other Financial and Operating Information Total backlog increased to $165.7 billion as of September 29, 2024, with 48 F-35 aircraft delivered in Q3 2024 Backlog by Segment (in millions) | Segment | Sept. 29, 2024 | Dec. 31, 2023 | | :--- | :--- | :--- | | Aeronautics | $50,988 | $60,156 | | Missiles and Fire Control | $40,722 | $32,229 | | Rotary and Mission Systems | $37,571 | $37,726 | | Space | $36,412 | $30,456 | | Total backlog | $165,693 | $160,567 | Aircraft Deliveries | Aircraft | Q3 2024 | Q3 2023 | | :--- | :--- | :--- | | F-35 | 48 | 30 | | F-16 | 2 | 1 | | C-130J | 4 | 7 |