Lockheed Martin(US:LMT)2023-07-18 19:06Financial Data and Key Metrics Changes - Q2 2023 sales reached $16.7 billion, an 8% increase year-over-year, with double-digit growth in aeronautics and space segments [5][19] - Backlog reached a record $158 billion, up $8 billion from year-end, with a book-to-bill ratio of 1.7 in the quarter [5][6] - Segment operating profit was $1.9 billion, reflecting an operating margin of 11.1% [5][20] - Free cash flow was $771 million, with a commitment to return almost double that to shareholders [6][20] - Full-year 2023 sales outlook raised to between $66.25 billion and $66.75 billion, with EPS expectations increased to between $27 and $27.20 per share [6][25] Business Line Data and Key Metrics Changes - Aeronautics sales increased by $1 billion, driven by higher volume on F-35, C-130, and classified programs, with operating profit up 17% year-over-year [21][22] - Missiles and Fire Control (MFC) sales were comparable to last year, with a backlog increase of $6.5 billion and a book-to-bill ratio of 3.3 [23] - Rotary and Mission Systems (RMS) sales declined 3% due to lower Black Hawk volume, partially offset by radar program growth [24] - Space segment sales increased by 12%, driven by development activity on Next-Gen Interceptor and classified programs, with operating profit up 15% [24] Market Data and Key Metrics Changes - The defense budget for FY 2024 is expected to grow by 3%, with funding for 83 F-35 aircraft and additional munitions investment [7] - International demand for F-35s is strengthening, with countries like the Czech Republic and Israel increasing their orders [8][14] Company Strategy and Development Direction - The company is focused on advancing technology and expanding production capacity, with significant investments in R&D and capital expenditures [6][19] - Long-term growth is supported by multiyear procurement authorities for several key programs, including HIMARS and PAC-3 [32][34] - The company is committed to its strategic initiatives, including 21st century security and 1LMX, to maintain industry leadership [27][68] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving higher expectations for 2023 and returning to growth sooner than anticipated [6][25] - The company is optimistic about the defense budget and ongoing support for its programs, despite potential delays in final approvals [7][8] - There is a focus on managing supply chain performance to meet growing demand, with a need to analyze supply capabilities [30][31] Other Important Information - The company is collaborating with Global Foundries to enhance semiconductor manufacturing capabilities [18] - The Skunk Works division is leading the development of next-generation military aviation technologies, including partnerships with NASA [11][15] Q&A Session Summary Question: Insights on backlog expansion and sustainability - Management indicated that backlog growth is strong, with confidence in returning to growth, but supply chain performance will be critical [30][31] Question: Impact of Tech Refresh 3 on cash flow - The impact per aircraft is estimated at $7 million, with efforts to offset this through other portfolio strengths [37][39] Question: CapEx expectations and working capital management - CapEx is expected to increase in the second half of the year, with a focus on maintaining working capital efficiency [43][44] Question: Space segment outlook and drivers - Improved outlook driven by earlier-than-anticipated ramps on several programs, including classified and international security space [46] Question: Clarification on F-35 engine upgrades - The decision on engine selection is a government responsibility, with Lockheed Martin providing performance data [48][49] Question: Backlog growth related to Ukraine - Much of the backlog is high confidence and expected to convert to sales, with ongoing discussions for multiyear contracts [62][63]