Lockheed Martin Reports Q2 Profit Drop

Key Points

• - GAAP EPS of $1.46 in Q2 2025 missed analyst estimates by $5.06, impacted by $1.6 billion in program losses and other charges.

• - Revenue held steady year over year but came in below estimates at $18.2 billion (GAAP).

• - Management reaffirmed full-year sales and free cash flow guidance but lowered profit and EPS outlook for FY2025.

• These 10 stocks could mint the next wave of millionaires ›

Lockheed Martin (NYSE:LMT), the major U.S. aerospace and defense contractor behind programs like the F-35 fighter jet, reported Q2 FY2025 earnings on July 22, 2025. The main news: GAAP profits dropped sharply as the company recorded heavy program losses and related charges. GAAP EPS was $1.46, falling well short of the $6.52 GAAP analyst estimate. Revenue was $18.2 billion, also missing the analyst revenue estimate of $18.57 billion, yet holding steady compared to the prior year. Management kept full-year sales and free cash flow guidance unchanged, but reduced its profit and EPS targets after the challenging quarter.

Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q1 2025 earnings report.

Lockheed Martin’s Business and Success Factors

Lockheed Martin designs, manufactures, and services advanced technology systems, including military aircraft, missile defense systems, helicopters, and satellites. Its business is built around large, long-term contracts—mainly with the U.S. government, but also with international partners. Programs like the F-35 fighter jet, PAC-3 interceptors, and Orion spacecraft are central to its operations.

The company’s key focus areas include technological innovation—such as integrating artificial intelligence and hypersonic systems—securing government contracts, managing a complex supply chain, and maintaining a strong international presence. Employee expertise, particularly among engineers and scientists, is also central to its competitive advantage, supporting the design and execution of complex defense programs.

Quarterly Developments and Segment Results

The quarter saw major challenges due to significant charges on several programs. Management recorded $1.6 billion in pre-tax losses tied to legacy and classified projects, along with $169 million in other charges. The most significant hit came from an aeronautics classified program, which booked a reach-forward loss of $950 million. The Canadian Maritime Helicopter Program and the Turkish Utility Helicopter Program contributed additional losses of $570 million and $95 million, respectively. These charges directly reduced operating profit. In addition, a $66 million fixed asset write-off followed the company's unsuccessful bid for the Next Generation Air Dominance (NGAD) fighter contract.

The Aeronautics segment, which handles programs like the F-35 and F-22 fighter jets, reported slightly increased sales of $7.4 billion, but booked an operating loss of $98 million compared to $751 million profit in Q2 2024. Operating margin fell to negative 1.3%, mainly due to the classified program loss. Despite these setbacks, F-35 production volumes rose, aided by strengthened international demand.

Missiles and Fire Control (MFC), which produces tactical and strike missile systems like the Joint Air-to-Surface Standoff Missile (JASSM) and Long Range Anti-Ship Missile (LRASM), posted the strongest sales growth, up 11% to $3.4 billion. Operating profit climbed 6%, supported by ramped-up production and a favorable contract mix.

The Rotary and Mission Systems (RMS) segment, which manages military helicopters and integrated defense systems, saw sales drop 12% to $4.0 billion. Losses from both the CMHP and TUHP, along with reduced Seahawk helicopter production, led to an operating loss of $172 million for RMS. Space, which covers civil and defense satellites and programs like Orion, reported GAAP sales of $3.3 billion (up 4%) and a 5% profit improvement, primarily due to favorable performance at completion on certain commercial civil space programs.

Program Reviews, Cash Flow, and Shareholder Returns

Charges taken during the quarter stem largely from ongoing reviews of major legacy contracts, reflecting updated cost estimates and scope adjustments. These one-off items dropped net earnings (GAAP) to $342 million from $1.6 billion in Q2 2024 and reduced cash flow sharply. Free cash flow (non-GAAP) fell to negative $150 million as cash from operations dropped from $1.9 billion in Q2 2024 to $201 million in Q2 2025. Much of the cash pressure resulted from working capital needs, including contract asset growth and higher inventory, especially tied to F-35 production at Aeronautics and Sikorsky helicopter inventory at RMS.

Despite these setbacks, the company returned $1.3 billion to shareholders through $771 million in dividends and $500 million in repurchases. The quarterly dividend was maintained as management signaled ongoing commitment to shareholder returns, even as profitability came under pressure.

Technology, Backlog, and International Demand

Lockheed Martin continued to invest in technological advancement. Management invested $800 million in infrastructure and innovation for growth. The company is adapting advanced capabilities originally developed for the now-lost NGAD fighter contract to the existing F-35 fleet, aiming for significant performance improvements at lower costs. Ongoing investments in autonomy, AI, and networked defense—centered around programs like the F-35, PAC-3, and new missile systems—form the backbone of its forward strategy.

Backlog dropped to $166.5 billion from $176.0 billion at year-end 2024, mainly as legacy programs wound down. However, the company noted ongoing international momentum, pointing to new F-35 purchases by allied nations and additional missile-related contract wins. Demand from the U.S. and partners for advanced systems remains steady, underpinning the company’s outlook even as certain segments face execution challenges.

Looking Ahead: Guidance and Priorities

Management reaffirmed its full-year 2025 sales and free cash flow targets, projecting sales of $73.75–$74.75 billion and free cash flow of $6.6–$6.8 billion for FY2025. However, it reduced business segment operating profit (non-GAAP) guidance for FY2025 to $6.6–$6.7 billion, down from $8.1–$8.2 billion, and lowered EPS guidance (diluted, unqualified basis) to $21.70–$22.00 for FY2025, from the previous $27.00–$27.30 range. This reflects the expected ongoing impact from the program charges and reduced profit margins.

Investors should watch for execution on the F-35 and key missile programs, progress on cost controls, and developments in newly secured contracts. The company indicated no material change in its dividend policy, continuing a track record of regular payments and share buybacks. The outlook for FY2025 assumes steady U.S. and international demand, though the company continues to face supply chain challenges, especially for rare earth materials. Management did not announce any upward revision of guidance despite the challenges, preferring to focus on operational execution for the remainder of the year.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.

Where to invest $1,000 right now

When our analyst team has a stock tip, it can pay to listen. After all, Stock Advisor’s total average return is 1,034%* — a market-crushing outperformance compared to 180% for the S&P 500.

They just revealed what they believe are the 10 best stocks for investors to buy right now, available when you join Stock Advisor.

See the stocks »

*Stock Advisor returns as of July 21, 2025

JesterAI is a Foolish AI, based on a variety of Large Language Models (LLMs) and proprietary Motley Fool systems. All articles published by JesterAI are reviewed by our editorial team, and The Motley Fool takes ultimate responsibility for the content of this article. JesterAI cannot own stocks and so it has no positions in any stocks mentioned. The Motley Fool recommends Lockheed Martin. The Motley Fool has a disclosure policy.