Lockheed Martin Reports Weak Fiscal Q2

Key Points

• - Earnings per share fell sharply to $1.46, missing analyst estimates and reflecting significant program charges.

• - Revenue stayed flat at $18.2 billion but came in below expectations, while operating profit dropped by 65 % compared to the prior year.

• - Management reaffirmed its full-year guidance despite these setbacks, with ongoing investment in innovation and stable demand for key defense products.

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Lockheed Martin (NYSE:LMT), the aerospace and defense leader behind programs like the F-35 fighter jet, released its earnings for the second quarter of fiscal 2025 on July 22, 2025. The most notable news was a major miss on profit, as earnings per share came in much lower than expected due to $1.6 billion in program losses and other charges. Reported earnings per share were $1.46, behind analyst estimates of $6.52. Revenue came in at $18.2 billion, which was slightly below the $18.6 billion analysts expected, but nearly flat compared to the same quarter last year. Overall, this was a challenging quarter, with profit and cash flow down significantly, though management maintained its full-year outlook and highlighted steady demand for its main defense platforms.

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

About Lockheed Martin and Its Strategic Focus

The company is a cornerstone of the global defense industry, known for advanced technology in aerospace, military hardware, and cybersecurity. Most of its revenue comes from contracts with the United States government, though it also sells extensively to allied nations and international partners. Its product portfolio includes fighter jets, missile systems, helicopters, and satellites.

Lockheed Martin pursues innovation as a key focus, investing in digital technologies such as artificial intelligence, autonomy, and hypersonics. Success depends on its ability to win and execute large government contracts, manage supply chains amid regulatory and global pressures, and maintain a highly skilled workforce that can design and deliver cutting-edge defense systems. Stability and growth also rely on efficient contract management and cost control, particularly given the fixed-price nature of many of its contracts, and the need to manage risks in complex international projects.

Quarter in Review: Key Developments, Segment Performance, and Major Events

The quarter was defined by steep declines in profitability and cash flow, primarily resulting from large one-time program charges. These program losses, totaling $1.6 billion before tax, stemmed from issues in the Aeronautics business and several international helicopter contracts. The company also booked $169 million of other charges, pushing the quarter’s profit and cash figures much lower than usual.

Within its Aeronautics segment, which produces fighter jets such as the F-35 and F-22, revenue ticked up 2 % versus the prior year, reflecting stable demand. However, this segment posted an operating loss of $98 million due to a $950 million charge on a classified program impacted by "design, integration, and test challenges." The company described these as "greater impact on schedule and costs than previously estimated." Rotary and Mission Systems, which manufactures helicopters like the Sikorsky Black Hawk and maritime helicopters, also recorded notable setbacks. Charges of $570 million on the Canadian Maritime Helicopter Program and $95 million on the Turkish Utility Helicopter Program led to a large loss for the segment. Sales for Rotary and Mission Systems were down 12 %, and operating results swung to a loss of $172 million from a profit a year earlier.

On the other hand, the Missiles and Fire Control segment, responsible for missile programs such as the Joint Air-to-Surface Standoff Missile and the Long Range Anti-Ship Missile, saw revenue grow 11 %. Operating profit here improved by 6 % as the company increased production to meet demand in both the U.S. and international markets. The Space segment, which provides both military and commercial satellites and systems, delivered 4 % higher sales and a 5 % increase in operating profit, benefiting from higher civil space program activity and favorable contract adjustments.

The company’s free cash flow turned negative at $(150) million, down sharply compared to the prior year’s $1.5 billion, due to working capital buildup and delayed receipts on key programs like the F-35 and government helicopters. Despite these challenges, Lockheed Martin maintained strong investment in infrastructure and innovation, directing $800 million in the period towards projects to embed Next Generation Air Dominance (NGAD) technologies into existing platforms such as the F-35 fighter jet. The leadership described these investments as core to future competitiveness, aiming to provide "80 % of the capability at 50 % of the cost per unit aircraft" by upgrading the F-35 chassis with advanced technologies from NGAD developments.

There was no dividend change declared in the quarter. The company paid $771 million in dividends and repurchased $500 million of its own shares over the quarter. The backlog—future contracted business—closed at $166.5 billion, down from $176.0 billion at the end of the previous year, with a decrease most notable in the Aeronautics segment, reflecting contracting cycles for major programs. Management also highlighted robust demand signals, such as additional F-35 orders from allied nations, more than $1 billion in new U.S. Army missile contracts this year, and orders for new GPS satellites from the U.S. Space Force.

Looking Ahead: Guidance and Future Watchpoints

Despite the significant underperformance this quarter, management kept its full-year financial guidance unchanged. The company continues to expect sales between $73.75 billion and $74.75 billion, free cash flow between $6.6 billion and $6.8 billion, and diluted earnings per share between $21.70 and $22.00. These forecasts account for the impact of the charges recorded in the quarter and assume no further material shocks. Business segment operating profit guidance was lowered from earlier projections, reaffirming management’s focus on repairing program execution and cost controls for the rest of fiscal 2025.

Looking forward, investors will be watching for evidence of improved program execution, particularly in major aerospace and helicopter contracts that contributed to recent losses. The order backlog remains substantial, providing multi-year revenue visibility, with strong ongoing demand for fighter jets, missile systems, and space platforms. The ability to translate robust demand into stable profits and predictable cash flow is likely to remain a critical challenge for Lockheed Martin, especially as it manages cost risks in international and classified programs. The company’s investment in technology and innovation also remains important, as defense customers prioritize advanced capabilities and cost-effective platforms for the years ahead.

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

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