Business Overview

Lockheed Martin Corporation was formed in 1995 through the merger of Lockheed Corporation and Martin Marietta Corporation, two prominent names in the aerospace and defense industry. Lockheed Corporation, originally founded in 1912 as the Glenn L. Martin Company, made significant contributions during World War II, producing aircraft such as the B-26 Marauder and PBM Mariner. In 1934, it was renamed Lockheed Aircraft Corporation after merging with the Detroit Aircraft Corporation, becoming renowned for aircraft like the P-38 Lightning, F-104 Starfighter, and the iconic C-130 Hercules transport.

Martin Marietta Corporation, formed in 1961 through the merger of the American-Marietta Corporation and the Glenn L. Martin Company, focused on defense, aerospace, and information systems. It produced major programs like the Titan rocket and managed Sandia National Laboratories. In the 1970s and 1980s, Martin Marietta expanded into electronics and information technology services.

The 1995 merger created a powerhouse in the defense and aerospace industry, leveraging expertise across platforms like fighter jets, missiles, space systems, and information technology. Despite facing challenges such as defense budget fluctuations, program delays, and technical issues on high-profile projects like the F-35 Lightning II fighter jet, Lockheed Martin has consistently demonstrated its ability to innovate, deliver critical capabilities to its customers, and maintain a leading position in the global defense market.

Today, the company operates in four main business segments: Aeronautics, Missiles and Fire Control (MFC), Rotary and Mission Systems (RMS), and Space.

The Aeronautics segment is Lockheed Martin's largest, responsible for the production of the F-35 Lightning II, considered the world's most advanced 5th generation fighter jet. Other key programs in this segment include the F-16 Fighting Falcon, C-130 Hercules, and various classified programs. The MFC segment provides air and missile defense systems, tactical missiles, and fire control systems. Notable programs include the PAC-3 Missile, Joint Air-to-Surface Standoff Missile (JASSM), and the Guided Multiple Launch Rocket System (GMLRS).

The RMS segment designs, produces, and supports various rotary and mission systems, including Sikorsky helicopters, integrated warfare systems and sensors, and command and control systems. The Space segment develops and manufactures satellites, strategic and defensive missile systems, and space transportation systems. Key programs include the Orion spacecraft, Fleet Ballistic Missiles, and classified national security space initiatives.

Financial Overview

Lockheed Martin's financial performance has been robust, with the company delivering consistent growth and shareholder returns. In 2024, the company reported revenue of $71 billion, up 5% year-over-year. Segment operating profit reached $6.1 billion, with a strong margin of 11.1% on an adjusted basis. Free cash flow generation was also impressive at $5.3 billion, allowing the company to return over $6.8 billion to shareholders through dividends and share repurchases.

Liquidity

The company's financial position remains solid, with a current ratio of 1.13 and a quick ratio of 0.95 as of the latest quarter. Lockheed Martin's debt-to-equity ratio stands at just 0.10, indicating a conservative capital structure. The company's return on assets, equity, and capital employed are all healthy at 9.6%, 81.0%, and 19.5%, respectively.

Quarterly Performance and Outlook

In the fourth quarter of 2024, Lockheed Martin reported sales of $18.6 billion, a slight decrease year-over-year due to having one fewer week in the quarter compared to the prior year. Net income for the quarter was $527 million, while operating cash flow was $1,023 million and free cash flow was $441 million. Segment operating profit was impacted by charges related to classified programs at the Aeronautics and MFC segments, but on an adjusted basis, the company's operating profit grew 5% year-over-year.

Looking ahead, Lockheed Martin provided a strong outlook for 2025. The company expects sales growth of 4-5% and a return to 11% segment operating margins. Free cash flow is projected to grow 9% at the midpoint, enabling the company to continue its consistent shareholder return strategy. The growth is expected to be led by the Missiles and Fire Control (MFC) segment, which is projected to grow 8% at the midpoint.

Lockheed Martin expects to deliver 170-190 F-35 aircraft in 2025, up from 110 deliveries in 2024. The Lot 18 F-35 production contract was awarded in December 2024, bringing the backlog to 408 aircraft. This contract is expected to be definitized in the first half of 2025. The company also welcomed Romania as their 20th global F-35 customer in 2024.

Segment Performance

The Aeronautics segment, Lockheed Martin's largest, generated $20.61 billion in net sales during the first nine months of 2024, up 4% from the same period in 2023. The F-35 program represented approximately 22% of Lockheed Martin's total consolidated net sales in the third quarter of 2024. However, Aeronautics segment operating profit decreased 2% to $659 million, primarily due to lower volume on F-35 production contracts and unfavorable contract mix.

The Missiles and Fire Control (MFC) segment recorded net sales of $9.27 billion in the first nine months of 2024, up 15% compared to the same period in 2023. This increase was mainly attributable to higher sales for tactical and strike missile programs like Guided Multiple Launch Rocket Systems (GMLRS) and Long Range Anti-Ship Missile (LRASM) due to production ramp up. MFC operating profit increased 6% to $1.22 billion.

Rotary and Mission Systems (RMS) net sales grew 13% to $13.00 billion in the first nine months of 2024, primarily due to higher sales for Integrated Warfare Systems and Sensors (IWSS) programs, Sikorsky helicopter programs, and various C6ISR programs. RMS operating profit increased 9% to $1.41 billion.

The Space segment reported net sales of $9.54 billion in the first nine months of 2024, up 3% compared to the same period in 2023. Space operating profit grew 11% to $943 million, primarily due to favorable contract mix and increased volume, partially offset by lower equity earnings from the company's investment in United Launch Alliance.

Overall, Lockheed Martin's consolidated net sales increased 8% to $52.42 billion in the first nine months of 2024 compared to the same period in 2023. The company's total business segment operating profit rose 6% to $5.66 billion.

Key Risks and Opportunities

Lockheed Martin's business is heavily dependent on U.S. government spending, which can be subject to political and budgetary uncertainties. The company's programs, particularly the F-35, also face technical and cost challenges that could impact profitability. Additionally, supply chain disruptions and inflationary pressures remain ongoing risks.

However, the company's diversified portfolio, innovative capabilities, and strong international demand provide significant opportunities. Lockheed Martin's leading position in areas like hypersonics, autonomy, and 5G.MIL® technology position it well to capitalize on evolving defense priorities. The company's continued investment in research and development, as well as strategic partnerships, further enhance its competitive advantage.

Conclusion

Lockheed Martin's strong financial performance, innovative solutions, and disciplined capital allocation make it a compelling investment in the aerospace and defense sector. While the company faces some risks, its diversified business, robust backlog, and forward-looking strategy position it for continued success. The company's record backlog of $176 billion and book-to-bill ratio greater than 1 across all four business areas in 2024 demonstrate strong demand for their products and systems. As Lockheed Martin continues to power ahead with cutting-edge defense technologies, investors would do well to closely monitor this industry leader.