Security and Aerospace company Lockheed Martin (NYSE:LMT) missed Wall Street’s revenue expectations in Q2 CY2025, with sales flat year on year at $18.16 billion. On the other hand, the company’s outlook for the full year was close to analysts’ estimates with revenue guided to $74.25 billion at the midpoint. Its GAAP profit of $1.46 per share was 77.3% below analysts’ consensus estimates.
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Lockheed Martin (LMT) Q2 CY2025 Highlights:
- Revenue: $18.16 billion vs analyst estimates of $18.59 billion (flat year on year, 2.3% miss)
- EPS (GAAP): $1.46 vs analyst expectations of $6.42 (77.3% miss)
- Adjusted EBITDA: $970 million vs analyst estimates of $2.53 billion (5.3% margin, 61.6% miss)
- The company reconfirmed its revenue guidance for the full year of $74.25 billion at the midpoint
- EPS (GAAP) guidance for the full year is $21.85 at the midpoint, missing analyst estimates by 19.7%
- Operating Margin: 4.1%, down from 11.9% in the same quarter last year
- Backlog: $166.5 billion at quarter end, up 5.2% year on year
- Market Capitalization: $96.23 billion
StockStory’s Take
Lockheed Martin’s second quarter was marked by program-related losses and operational challenges that led to a significant shortfall versus Wall Street’s expectations. Management attributed these results primarily to $1.8 billion in charges across several legacy programs, including classified aeronautics and helicopter contracts. CEO James Taiclet described the financial impact as “disconcerting,” noting that unexpected cost growth on long-term contracts required a comprehensive reassessment of program assumptions and management oversight. These actions reflect Lockheed Martin’s effort to address technical and contractual challenges while maintaining a focus on supporting key defense priorities.
Looking ahead, management’s reaffirmed full-year outlook is shaped by expectations for continued growth in missile and tactical systems, sustained demand for the F-35 fighter jet, and anticipated backlog increases from upcoming contract awards. CFO Evan Scott explained that the company’s focus is on “accelerating capacity, enhancing capability across our systems, and closely monitoring risk on major programs.” Management remains cautious about lingering risks on complex development contracts and emphasized ongoing discussions with customers to potentially restructure problematic agreements for better risk sharing.
Key Insights from Management’s Remarks
Management attributed the quarter’s results to a combination of loss provisions on older contracts and operational progress in missile systems and aircraft production, while highlighting changes in program oversight and customer engagement.
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Legacy program charges: The company recognized $1.8 billion in losses on a classified aeronautics program and helicopter contracts, following deeper program reviews and direct discussions with customers. These charges stemmed from updated cost and schedule assessments due to technical and contractual complexities.
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Enhanced oversight: Lockheed Martin reconstituted oversight teams, bringing in wider expertise and increasing senior management involvement in risk monitoring, particularly for high-risk development programs. This change was designed to identify emerging issues earlier and implement corrective actions more effectively.
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Operational performance in missile systems: The Missiles and Fire Control segment saw strong growth driven by tactical and strike missile programs such as JASSM, LARASM, HIMARS, and PRISM, partially offsetting losses elsewhere. Management sees these capabilities as critical to current and future defense needs.
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F-35 program resilience: Despite budget uncertainties, the F-35 fighter jet program maintained high production rates and continued to attract strong international demand. Management highlighted operational deployments and successful upgrades as evidence of the platform’s relevance.
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Customer-driven production acceleration: Recent real-world events increased customer demand for missile defense systems and advanced aircraft, prompting Lockheed Martin to invest further in production infrastructure and innovation, while seeking to align contract structures with evolving risk profiles.
Drivers of Future Performance
Lockheed Martin’s full-year outlook is shaped by robust demand for missile systems, F-35 production, and an expanding backlog, though ongoing program and contract risks remain headwinds.
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Missile and defense system demand: Management expects continued growth in tactical and strategic missile orders, with U.S. defense priorities and recent combat operations driving higher demand for PAC-3, THAAD, and next-generation interceptor systems. These programs are anticipated to contribute to both revenue growth and margin improvement as production ramps up.
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F-35 and backlog momentum: The F-35 remains a cornerstone program, with anticipated international orders and upcoming U.S. government procurement decisions supporting a strong backlog. Management believes the platform’s combat effectiveness and upgrade path position it well for sustained production and potential margin upside as contract terms evolve.
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Contract restructuring and risk management: Ongoing negotiations with government customers to restructure challenging legacy contracts are expected to reduce future risk exposure. Management cited increased oversight and process improvements as key to preventing further large charges and stabilizing margins, but cautioned that some near-term volatility may persist as these efforts are implemented.
Catalysts in Upcoming Quarters
In coming quarters, our team will watch (1) progress on restructuring or derisking legacy contracts, especially in classified programs and helicopter platforms, (2) the pace of new contract awards for missile and aircraft systems that could drive backlog growth, and (3) margin stabilization as production scales and operational improvements take hold. Developments in government defense budgets and the resolution of tax matters will also be important to track.
Lockheed Martin currently trades at $414.97, down from $461.34 just before the earnings. Is the company at an inflection point that warrants a buy or sell? The answer lies in our full research report (it’s free).
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