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4,000 | KO | 1 | 2,025 | 2025-04-29 20:30:00 | The Coca-Cola Company | 26,642 | John Murphy: Thanks, Dara. On the currency front, as we said in the script, the currency guidance is based on current rates and hedge positions and it's early in the year. We have most of our G10 pretty much hedged, but there's still a lot of volatility out there with emerging markets. So, we are being, I think, prudent to not get flow through, and I am sure there's more to come in the coming months on the currency front, particularly in the emerging world. So, on unit case volume, not dissimilar. We have had a -- an overall strong start when you look at the global portfolio, thanks to the strength of that portfolio. I highlighted in my script remarks, as you just alluded to, the -- we're cycling a strong second quarter. We have had a number of actions to address some of the challenges we've seen in the first quarter, and we expect those actions to have an impact, but it will not be immediate. So, we're -- I'd highlight the full year guidance, we feel comfortable and confident with and like, we've seen over the last, I'd say, 12 quarters to 13 quarters, each quarter has its own personality now a days. And so, I'd look at the full year versus, let's say, the dynamics of any one quarter.
Operator: Our next question comes from…
Dara Mohsenian: Great. Thanks.
Operator: Our next question comes from Bryan Spillane from Bank of America. Please go ahead. Your line is open. |
4,001 | KO | 1 | 2,025 | 2025-04-29 20:30:00 | The Coca-Cola Company | 26,642 | Operator: Our next question comes from Bryan Spillane from Bank of America. Please go ahead. Your line is open.
Bryan Spillane: Hey, thanks operator. Good morning, everyone. And John, I'm still trying to figure out, it's the first-time I've heard quarters described as having personality. So, I'm trying to understand what personality this quarter might have been. But just -- can we talk a little bit about Mexico? And the quarter was, I think was a little bit softer. Also, I think you talked about market share gain or market share losses. So, maybe can we talk a little bit about the current conditions there? I know last year, there was some noise with the consumer around the election. So, just what's happening with the consumer there, and I guess perhaps what actions you're going to take, what you're planning to take going forward to sort of restart volume growth? |
4,002 | KO | 1 | 2,025 | 2025-04-29 20:30:00 | The Coca-Cola Company | 26,642 | James Quincey: Yeah. Sure. Firstly, stepping back a bit, I mean, Latin America had a reasonable quarter, there was strong growth in Brazil and particularly Argentina. And yes, as you say, it was a bit softer in Mexico. There are a few things that went into that softness in Mexico. It's cycling a stronger first half from last year and Easter being an important holiday in Mexico, that shifted effectively from the first quarter to the end of April, effectively the second quarter. So, that's one -- that's the first piece. Second piece, there was some macro uncertainty coming into the year post the election, the locally of Mexican elections and some geopolitical tension. We called out some of the pullback in Hispanic consumers in the U.S. as part of underlying one of the factors in the U.S. volume, that is also the same thing that's happening in Mexico and North America that some of the geopolitical tension and Hispanic pullback also affected the Mexican, particularly the border region, which is very connected to the U.S. and so you've got that as well. And so, there was a couple of impacts there coming. We had some pretty good bright spots on Coke Zero and Del Valle and Santa Clara and Fuze, but we're very focused going into Q2 on affordability with refillables and value, reinforcing our Hecho en Mexico, which is a campaign about the localness, the hundred -- the tens of thousands of jobs in Mexico that are about our Mexican system and partnering closely with the fragmented trade. So, I think that it will come back. As John said, each quarter will have its own personality. I'm not sure what Q2 will end up with, but choppy would be a good start. We're confident in our guidance because we're confident in our strategy and the system's execution of that all-weather strategy. And so, I think we'll come back in Mexico and we'll pull it back.
Operator: Our next question comes from Lauren Lieberman from Barclays. Please go ahead. Your line is open. |
4,003 | KO | 1 | 2,025 | 2025-04-29 20:30:00 | The Coca-Cola Company | 26,642 | Operator: Our next question comes from Lauren Lieberman from Barclays. Please go ahead. Your line is open.
Lauren Lieberman: Great. Thanks so much. So, I want to talk a little bit more perhaps about the actions you're taking in the U.S. you called out, consumer softness, particular demographics, but there was also some pretty pointed anti-Coke, brand Coke sentiment out there. So, I was just curious, anything you could share or articulate on what the system is doing to kind of manage through that? So yeah, that's the key question. Thanks. |
4,004 | KO | 1 | 2,025 | 2025-04-29 20:30:00 | The Coca-Cola Company | 26,642 | James Quincey: Yeah. Sure. I mean, clearly, the key is agility and reprioritization, refocusing on some of the issues, within the context of a strategy that has been working for us in the U.S. marketplace. I mean, we have been very focused on driving the portfolio and upping the execution with our bottling partners and that's been a multi quarter, multi-year successful strategy. So, within the context of continuing that, we're going to make some adjustments to what's happened in the first quarter. Just standing back a second and saying what happened, there were a whole set of things came together. There's a shift in Easter, which I mentioned the Mexico and the weakness in some of the consumer traffic, particularly Hispanics in traffic and there was some very unfortunate video circulating around, false -- completely false, but they impact the business. That kind of hit us particularly Coke Original in the Southern states that is a basic, but there were other things like cold weather and some of the calendar shifts. So, there were some known factors. There were some unfortunate factors and there's some stuff that we got to focus on, so that we can build on what went well. Coke Zero is still growing. Fairlife was still the number one brand to add retail dollars in the first quarter. Topo Chico is going well, Fuze it. So we have a lot to build on. We're focused on coming back on Coke Original. We're focusing in on winning back some of the Hispanic consumers, both from a consumer and a channel point of view and reinforcing some of our affordability options. So, I think we're going to again come back, might be choppy again going into Q2, but we feel we have a handle on the controllables and can get ourselves back on track to our winning strategy.
Operator: Our next question comes from Steve Powers from Deutsche Bank. Please go ahead. Your line is open. |
4,005 | KO | 1 | 2,025 | 2025-04-29 20:30:00 | The Coca-Cola Company | 26,642 | Operator: Our next question comes from Steve Powers from Deutsche Bank. Please go ahead. Your line is open.
Steve Powers: Hey, great. Thanks. So James, as you emphasized in the prepared remarks, the company's portfolio is made up, of a broad mix of both global and local brands. Given some of the shifts you've seen in demand since we were all together at CAGNY in February, could you talk maybe about how you're leaning more into some of those local brands in the current environment to the extent that you are or perhaps how you're executing or positioning differently some of your global brands to emphasize their local relevance? |
4,006 | KO | 1 | 2,025 | 2025-04-29 20:30:00 | The Coca-Cola Company | 26,642 | James Quincey: Sure. And let me start by emphasizing the nature of the Coke system globally. Obviously, we're iconically known for Coca-Cola, the world's most global brand and a set of other global brands. But along with that kind of headline globalness, actually it's a very profoundly local business. The beverages in each country are largely made in that country by local employees using local inputs. So, the U.S. system, for example, between the people we employ directly in the kind of the economic jobs that come through the supply chain and total ecosystem is like 860,000 people and $58 billion of GDP. You go to Brazil, same, 575,000 people, $15 billion of GDP. So, it's a very profoundly local business as much as it looks like a global business. And so the paradox that gets managed productively from our point of view is how do we make global brands locally relevant. So, it's not that we -- in this current context are switching from supporting and investing behind the global brands into just local brands, no. The trick, the imperative is to make the global brands locally relevant. And in the moments of geopolitical tension, one of the key strategies is to drive and reinforce the made in or made by. The fact that it's a local business, the factory is down the road from you, your neighbors make the product. And this underlining of the localness of the production and the distribution and the workforce plus reinforcing affordability tends to be the key thing to do, particularly with Brand Coca-Cola in these moments. So, I would not expect to see any major shifts in the makeup from the brand -- from a global brand or from a brand portfolio sense as we go forward. It's about how you engage locally to reinforce the global nature of the brand, but the local physical presence of the brand and that's what works in these circumstances and it's a best practice that we know from around the world. It's not the first time it's had to be used. I'm sure it won't be the last. And so, we think our business model is set up for an |
4,007 | KO | 1 | 2,025 | 2025-04-29 20:30:00 | The Coca-Cola Company | 26,642 | not the first time it's had to be used. I'm sure it won't be the last. And so, we think our business model is set up for an environment that can take a degree of disturbance because it's a very resilient business model. |
4,008 | KO | 1 | 2,025 | 2025-04-29 20:30:00 | The Coca-Cola Company | 26,642 | Operator: Our next question comes from Filippo Falorni from Citi. Please go ahead. Your line is open.
Filippo Falorni: Hi. Good morning, everyone. I wanted to ask you about your comment about the global trade dynamics. You mentioned that your operations are primarily local, but what are the portion of your business where you're actually seeing the tariff implication impacting your business? Any sense if you can give us a sense of quantifying the potential impact? I know aluminum is a component, but just any broader comment on the implication from the global trade environment? And then, a follow-up to that in the sense of the responses to just a general anti-American brand sentiment around the world from the global trade disputes. Are there any countries other than Mexico, which you call now where you're seeing a little bit more of a, I guess, some negative sentiment towards American brands? Thank you. |
4,009 | KO | 1 | 2,025 | 2025-04-29 20:30:00 | The Coca-Cola Company | 26,642 | James Quincey: Yeah. I'll take the second piece first, because it's very much linked to my previous answer, which is about reinforcing localness and really making sure we're on affordability and getting that really working and focused on driving the execution of that strategy. I'm not sure I would call out many other places. Obviously, there have been countries that have cycled through this problem over the last number of years. I'm sure there'll be more. I think the predominant issues have been, as we've seen this quarter so far in the U.S. and in Mexico, a little bit perhaps in Europe, and some of the other countries, but one has to pass apart sentiment from behavior. And therefore, it's very important that we're not responding to sentiment, we're responding to behavior. Turning back to the tariff dynamic, as we called out in our release, we see it as manageable. Obviously, we're not immune to global trade dynamics and we're talking now, knowing what we know today, and we're mindful the environment can change around us. Again, as I said before, I think our local franchise structure is an advantage. Our exposure to trade, import-export, is not massive in the major countries relative to our cost structure. So, if we were to take the U.S. for example, we are exposed on a couple of inputs like orange juice or some of the dispensing equipment we buy, our bottling system is a bit exposed to some of the resin and aluminum. But these are small pieces relative to the total size. And even if you focus just in on those elements exclusively and think about what impact they may have on marketplace pricing, you don't just have to take into account the tariff, you got to take into account, well, what's happened to the price of the underlying commodity? What's happened to the exchange rate from where you're buying it? What's happened to our hedging positions because we have long-term hedging positions. So, when you put all those things together and all the other levers across the cost elements of the business, that's how we |
4,010 | KO | 1 | 2,025 | 2025-04-29 20:30:00 | The Coca-Cola Company | 26,642 | So, when you put all those things together and all the other levers across the cost elements of the business, that's how we and the bottling partners locally make the decisions on pricing. So, as it comes to the U.S., given all the things I talked about, both we in the bits where we operate directly and the bottlers locally, we're sticking to our current pricing plans for the year and knowing what we know today. |
4,011 | KO | 1 | 2,025 | 2025-04-29 20:30:00 | The Coca-Cola Company | 26,642 | Operator: Our next question comes from Chris Carey from Wells Fargo. Please go ahead. Your line is open.
Chris Carey: Hi, everybody. I wanted to ask a question about margins and specifically operating margins. I think this is the best operating margin delivery going back in our model, I suppose, the modern era. I don't know, if they were 100 years ago, but let's say these are very, very strong operating margins. To what level are such margins sustainable? And do you envision any caveats in the quarter? I know you talked about marketing timing. And then just, connected to that, as you think about reigniting trends in some of your developed markets, North America, Europe, is there a scenario whereby you would need to use some of this, margin strength to drive that or is the price pack and RGM strategy strong enough that you can still offer affordability without sacrificing the margin strength? Thank you. |
4,012 | KO | 1 | 2,025 | 2025-04-29 20:30:00 | The Coca-Cola Company | 26,642 | John Murphy: Thanks, Chris. Yes. Pleased with the way we came out of the first quarter on the operating margin front, there is an element of timing in there that has benefited us. I would kind of step out of the quarter points to our longer-term algorithm and the embed -- embedded in that are our belief in our ability to expand margins over time. We have -- as you know, we have made a lot of progress over the last five years or six years to get to where we are north of 30, 31 as we go into the rest of this year, and we expect to be able to do that with the levers we have. And those levers are not just on the cost containment and management front, as you mentioned in your second question, they also flow through to being able to manage a quality top-line over time. And with regard to the investment thesis, we have to enable both the top and the margin line to expand in line with our algorithm, so a combination of the build-up over the last few years of a substantial spend behind our portfolio and the opportunity to leverage further productivity that we know we have over the next few years, we feel good about our ability to lean into growth, to invest behind the brands, and to adapt as we need to. This quarter is a good example of a quarter where there's been a lot of adaptation required to deliver the numbers we have delivered for the here and now. But we're confident that we have a sufficient ammunition to be able to do that for the next number of quarters and embedded in that assumption that we'll probably have to pivot again in some parts of the world or other.
Operator: Our next question comes from Rob Ottenstein from Evercore. Please go ahead. Your line is open. |
4,013 | KO | 1 | 2,025 | 2025-04-29 20:30:00 | The Coca-Cola Company | 26,642 | Operator: Our next question comes from Rob Ottenstein from Evercore. Please go ahead. Your line is open.
Robert Ottenstein: Great. Thank you very much. You mentioned in the opening comments that, fairlife growth may moderate, and Fairlife and Core Power have been phenomenal success. So wondering, if you can kind of one talk about the trajectory of that business starting now with kind of the service levels you have? When the capacity will come on? A sense of how much capacity is coming on? And where you see that brand going forward in terms of how big it could get? And then, also how you're going to protect that brand from an intellectual property perspective? Thank you. |
4,014 | KO | 1 | 2,025 | 2025-04-29 20:30:00 | The Coca-Cola Company | 26,642 | James Quincey: Sure. Thanks, Rob. Firstly, when we talk about the kind of the growth moderating at fairlife, we've -- we're very much focusing on the percent growth. And I think there you are starting to see the lot of big numbers. It's starting to get to be a very big business that compounded a very, very high double-digit percent growth rates over the last number of years. So, it's a comment relative to percentages rather than total business size. If you look, as I commented earlier, in the first quarter of this year, fairlife again was the brand that added most retail dollars to the beverage industry on top of doing so last year. So, the dollars, the robustness and the size of the business continues to grow substantially. It's just a percentage compounding question as it moderates a little. The capacity will come on towards the -- we've been increasing capacity in a number of different places in some of the existing locations and the major capacity uplift will happen at the end of the year and it will be more than enough to see us through a good number of years and certainly will make it unconstrained to the extent we get into that towards the end of the year. The long-term opportunity, I think, is still very substantial. There's a lot -- I mean, it's got a lot of reasons behind its underlying growth in terms of the quality of the product, the quality of the taste, the quality of the shelf-life, the lower no lactose, the higher product -- I mean, it's just a great product on many dimensions, which is part of what gives it a competitive advantage. It doesn't just depend on any one piece including the IP and the technology that comes with it for the filtration. So, it is a very strong business. Obviously, as we get into lots of extra headroom in terms of capacity, we can redouble down on marketing, innovation, and really continue to drive and expand that business. So, we've kept in the swim lanes of the core products at the moment because that's the most effective thing to do when you're running such growth |
4,015 | KO | 1 | 2,025 | 2025-04-29 20:30:00 | The Coca-Cola Company | 26,642 | the swim lanes of the core products at the moment because that's the most effective thing to do when you're running such growth rates and risk running out of capacity. Obviously, we haven't because we're continuing to grow in the first quarter, but we will get sooner into unconstrained opportunity to continue to really drive this master brand forward. |
4,016 | KO | 1 | 2,025 | 2025-04-29 20:30:00 | The Coca-Cola Company | 26,642 | Operator: Our next question comes from Andrea Teixeira from J.P. Morgan. Please go ahead. Your line is open.
Andrea Teixeira: Thank you, operator, and good morning, everyone. So I'll start with James, and then a clarification for John. First, James, can you comment on Europe, Middle East and Africa? You had the 3% growth in unit volume. And I'm assuming, of course, there's a lot of different dynamics given how large the region is. But can you comment on the performance of Western Europe, which is a very large component of your profit pool as you exit the quarter, as some CPG as you probably have been following, have been calling a deceleration in the consumer dynamics there as well? And then a clarification for John on the underlying results. I mean, it seems that the FX came in or the outlook is 100 basis points better, but it seems that the underlying profit is assumed to be 100 basis points worse to make for the all-in comparable EPS to be the same. So, can you comment on what got sequentially worse or is that some -- and you're embedding some of the risk of more punitive trading news or just conservatism despite the strong start of the year? Thank you.
John Murphy: Yeah. Let me get the clarification out of the way, Andrea. Thanks for the question. It's early in the year. Currency is a function of what we know today and our hedge positions, and there's still a long way to go. And so, we feel it's prudent at this juncture to guide as we have done so, and we'll continue to update on the currency front as we go through the year. |
4,017 | KO | 1 | 2,025 | 2025-04-29 20:30:00 | The Coca-Cola Company | 26,642 | James Quincey: Yeah. And then on -- in the EMEA segment, yes, the volume growth was principally driven by the Eurasia markets, actually including some of the North Africa ones, but it's a strong performance, particularly by the Eurasian market. The European business specifically, as is they calling out, it's a good profit pool. There the volume performance was actually in line with previous quarters. There were mixed performances between the East and the West, maybe the West a little softer. Again, Europe has some of the factors that we talked about in the case of the U.S. and Mexico, the shift of Easter, some of the macro uncertainties, and the political tensions. But again, just one online, like, it was very similar to what they were tracking from last year in terms of volume performance and there were some really strong bright spots in things like Coke Zero, Sprite Zero, Fuze Tea, Powerade and some really good marketing across not just Coke with kind of Everyday Tasty Celebrations and things, but partnerships with Xbox and Fanta. And as we look forward, we're really going to continue to focus on some of the RGM and affordability and the availability of cold drink equipment going into what is for Europe the most important season, which is the summer season.
Andrea Teixeira: Thank you.
Operator: Our next question comes from Bonnie Herzog from Goldman Sachs. Please go ahead. Your line is open.
Bonnie Herzog: All right. Thank you. Good morning, everyone. I just had a quick question on the away from home channel and consumer. Curious to hear how your away from home business trended in the quarter, I guess, versus even Q4? And then what's your outlook for the channel this year, given the consumer, I guess? And then, with that in mind, how should we think about the impact on your top line and margins if the away from home channel slows? And I guess is that factored in your guidance? Thanks.
James Quincey: Okay. Are you talking just U.S. or globally? |
4,018 | KO | 1 | 2,025 | 2025-04-29 20:30:00 | The Coca-Cola Company | 26,642 | James Quincey: Okay. Are you talking just U.S. or globally?
Bonnie Herzog: Honestly globally, but if you want to give some color on the U.S. as well, that would be helpful. Thank you.
James Quincey: Yeah. Sure. Look, I think let's start with the U.S. I mean, in the U.S. actually, immediate consumption actually held up better than future consumption. Some of the issues, particularly some of the pullbacks from consumers was more concentrated in the take home channel. So, if we were to look at the North American business, iced tea business actually did reasonably well and the future consumption business is where the impact was most felt. Similarly, in Europe, the impact was more on the future consumption. The iced tea was actually growing in Europe. I think that calls out the importance of affordability in the retail channels, and I think that's what it's kind of reflecting, and that's notwithstanding some of the geopolitics, that's what it's reflecting and that's what it's calling for in the months going forward. And then, if you kind of extract that to a global basis, both at home and away for home were both growing globally speaking, with away from home growing slightly faster than at home. So, on a global basis looking good, strong activations across a number of places, particularly Asia-Pacific, where away from home grew really strongly. And the bit that was a little bit more of the drag is the developed markets, particularly U.S. and Europe, it was in the future consumption where there was the bit of weakness, which as I said, calls for working with the retail customers on some affordability to really drive solutions there.
Bonnie Herzog: Okay. Thank you.
Operator: Our next question comes from Kaumil Gajrawala from Jefferies. Please go ahead. Your line is open. |
4,019 | KO | 1 | 2,025 | 2025-04-29 20:30:00 | The Coca-Cola Company | 26,642 | Operator: Our next question comes from Kaumil Gajrawala from Jefferies. Please go ahead. Your line is open.
Kaumil Gajrawala: Hey, everybody. Good morning. If I could ask a question on currency, maybe slightly differently is, since John and James your arrival, it's been about dollar based growth and worked very hard to be able to grow earnings in dollar terms. We may be coming towards the end of a strong dollar super cycle. And I'm curious to what degree are you contemplating that and does it change how you're sort of thinking about future investments, capital returns, things like that?
James Quincey: What do you tell us?
John Murphy: Do you want to take it? Yeah. We're not quite there yet Kaumil on celebrating the demise of the dollar, but yeah, we will continue to stay very focused on our core objective to grow U.S. dollar EPS. If there is a scenario over time whereby the dollar weakens to the extent that it impacts our total portfolio of currencies, we would expect to flow that through and we're -- we have that scenario in our pipeline. It's not the foremost scenario we have at the moment because I think the -- some of the headlines on dollar weakness are really linked to the U.S. dollar index, which covers only six currencies, most of -- and the heavy weighting towards the euro. So, for example, four of our top five market currencies are not covered in that index. So, I think the way we are looking at the U.S. dollar at the moment is in the context of our total currency basket and as reflected in our guidance, and if there is a significant change of course on that front in the course of this year, we'll adjust accordingly.
Operator: Our next question comes from Nik Modi from RBC Capital Markets. Please go ahead. Your line is open. |
4,020 | KO | 1 | 2,025 | 2025-04-29 20:30:00 | The Coca-Cola Company | 26,642 | Operator: Our next question comes from Nik Modi from RBC Capital Markets. Please go ahead. Your line is open.
Nik Modi: Yeah. Thank you. Good morning, everyone. So James, I just wanted to get your thoughts on innovation in the wellness and functional space. There's a growing popularity of ingredients like ashwagandha, and Lion's mane and turmeric among others in the U.S. Many of these ingredients have some kind of science backing on health and other functional benefits. So, just wanted to get an understanding how you're thinking about using these products or ingredients in terms of your innovation in the U.S.? Like, do you need clinical studies to support some of the health claims? A lot of these ingredients are used a lot overseas. And so given your global exposure, just curious on how you're thinking about this in terms of the U.S., especially as the population is aging? Thanks. |
4,021 | KO | 1 | 2,025 | 2025-04-29 20:30:00 | The Coca-Cola Company | 26,642 | James Quincey: Sure. Clearly from a -- we're going to, firstly, we're going to follow the consumer. And I think there are a couple of pieces to that. One is, what do they really want and how are they really behaving in terms of where they want to spend their money. And second piece that goes with that is, do they want product combinations. In other words, whatever that -- whatever the ingredient on your list is, do they want to take it through their beverage or do they want it a different way? And I'm going somewhere with that. Because at the end of the day, they generally want their beverages to taste good and adding certain ingredients affects the taste. So taste is in my mind still going to remain primary, but to the extent there are consumers that were willing to trade taste for ingredients, absolutely, we will follow that trend. You can go back and look in history. We once did a product where we combined a tablet people were taking to give themselves what effectively was a fake suntan into a beverage. This was in France many years ago and I think it was with Sanofi, they came up with this idea of well, people go to the pharmacy, they buy the Coke or they buy the drink and they buy the pills, why not put it all together. And it's what people do in France. And when they did it, no one bought the drink. They were not interested in combining the drink and the pill. They wanted to take the pill when they wanted to take the pill and they wanted to have the drink when they wanted to drink. And so, the idea that everything is going to mega combine into one overall product, I think is something yet to be tested. Clearly, there are segments of consumers that are interested in certain ingredients and they will go and they will try them and they'll be happy to have them in their beverage. And I think you see a little progress on that. I think it's more likely it will be around macro kind of ingredients like protein rather than more focused ones. And the last thing is, I don't think we are in the business of running |
4,022 | KO | 1 | 2,025 | 2025-04-29 20:30:00 | The Coca-Cola Company | 26,642 | ingredients like protein rather than more focused ones. And the last thing is, I don't think we are in the business of running clinical studies to the extent there are ingredients that we want to use, for sure we're interested in absolute product safety and quality, and then we may buy them in from someone else to use, but we will continue to follow the consumer. |
4,023 | KO | 1 | 2,025 | 2025-04-29 20:30:00 | The Coca-Cola Company | 26,642 | Operator: Our next question comes from Peter Grom from UBS. Please go ahead. Your line is open.
Peter Grom: Thank you, operator. Good morning, everyone. I wanted to ask a follow-up on the 2Q commentary. It was flagged back in February and I know the world is clearly quite different today versus when you provided that outlook. But have your expectations for the second quarter shifted? James, you mentioned the word choppy a couple of times. So, I just wasn't sure if the 2Q comment was based on some of the performance you've seen thus far in April or kind of what you're expecting looking ahead or whether it's simply just kind of a reminder on the comparison? Thanks. |
4,024 | KO | 1 | 2,025 | 2025-04-29 20:30:00 | The Coca-Cola Company | 26,642 | James Quincey: Yeah. Sure. I think firstly, it's a reminder on the comparisons that it was the strongest quarter last year. So clearly, it's going to be more complicated and just on a cycling basis to cycle, although, we still want to do well in Q2. And as John said earlier, it's one of the four quarters that goes to make up our full year guidance. So, it's clearly got to play its role and have its personality, so to speak, in delivering the full year. The only thing that I would add relative to our previous commentary on Q2 is clearly there's -- and which is referenced as my choppy comment, there's clearly some short-term disruption in supply chains likely in the U.S., I think the simplest way of bringing that to life is looking at container shipping bookings for late May, early June. Again, back to my earlier comment, it's not because it drives and impacts our business. We are not expecting to see supply-chain disruptions for our business in Q2 in the U.S. But I think there's going to be some disruption around another -- a number of categories and industries around us, which will have some effect with the consumers. You can see the consumer sentiment has been impacted, but consumer spending still seems robust. So, I would just highlight there is an increased number of known unknowns, if you like, going into Q2, which is likely to produce a broader range of choppiness that we're going to have to respond to. And that's I think the texture I would add on to the previous comments. But again, let me underline what we said -- both said earlier, which is, we believe it's manageable given our business system, our strategy, and our ability to adapt as we go through the quarter and the year.
Operator: Our next question comes from Charlie Higgs from Redburn. Please go ahead. Your line is open. |
4,025 | KO | 1 | 2,025 | 2025-04-29 20:30:00 | The Coca-Cola Company | 26,642 | Operator: Our next question comes from Charlie Higgs from Redburn. Please go ahead. Your line is open.
Charlie Higgs: Yeah. Hi, James, John. Hope you're both well. I've got a question on Asia-Pacific volumes. I'm just wondering if you could unpack the plus 6% a bit more, but perhaps with a focus on China and how you're feeling about the consumer environment there, I know a lot of other consumer staples companies have spoken of a deflationary environment. So, how do you feel about the consumer, but also your now rationalized portfolio in China and the execution by the local bottles there? Thank you.
James Quincey: Yeah. Sure. Thanks, Charlie. Look, we had good momentum in Asia-Pacific this quarter with the 6% volume growth, that was very strongly driven by a good quarter in India, in particular, also with China growing. As you called out, I think the China growth is a function of a number of the actions we were taking last year to focus the portfolio and restage some of the brands. We cope doing better, good Lunar New Year, Sprite a little more of a work in progress. So, good recovery there, perhaps still early to call, but with continued focus on the soft drink portfolio in China and the good growth right there. As I said, India, really good start to the year as we brought to activated a number of things in the marketplace there and grew customers and cold drink equipment. Our long-term thesis remains intact. Obviously, it's not necessarily always going to be a straight line. A decent result in Japan and South Korea, Japan continuing to grow, some softness in ASEAN, but we're focused on working through that. So hopefully, that unpacks it a little bit for you.
Charlie Higgs: Great. Thank you.
Operator: Our next question comes from Kevin Grundy from BNP Paribas. Please go ahead. Your line is open. |
4,026 | KO | 1 | 2,025 | 2025-04-29 20:30:00 | The Coca-Cola Company | 26,642 | Operator: Our next question comes from Kevin Grundy from BNP Paribas. Please go ahead. Your line is open.
Kevin Grundy: Great. Thanks. Good morning, everyone. Thanks for the question. I want to follow up on Chris' margin question from earlier, but more from a North America perspective and within the context of kind of striking the right balance with volume growth. So, North America margin is clearly very strong, 30%. Historically, that's quite good. Price mix has been up materially the past four years, that was the case again in 1Q. Yet volumes have been flattish the past couple of years and took a step back in the first quarter for the reasons that we talked about. So James, can you comment on striking the right balance in North America between margin delivery and perhaps higher levels of volume growth and how that may differ in terms of how the company is going to go about that tactically in the near-term, given the uneven macro and then more in the intermediate term in a more normalized environment? So, thanks for that. |
4,027 | KO | 1 | 2,025 | 2025-04-29 20:30:00 | The Coca-Cola Company | 26,642 | John Murphy: Let me take this one. Yes. So in North America, if I step out of the quarter for a moment first, we have been on a journey for the last three years to four years now of consistently improving the overall margin profile of our business in North America. And that has been driven by a stronger core business and a much better revenue growth management approach in that core business. And then, we've had the addition of fairlife into the portfolio that has helped us. So, I think you should think about North America in that context is that, we're -- we continue to see opportunity to improve that margin profile to be more in line with what we have in other parts of the world, the developed world, particularly. And so there's a keen focus on leaning into the growth opportunity to investing behind that. But we also have had for some time now as a core enterprise priority for North America to play a more important and a bigger role in our overall quest to one of the earlier questions to get our overall operating margin back to levels which we are excited to see in the 30s.
Operator: Our next question comes from Michael Lavery from Piper Sandler. Please go ahead. Your line is open.
Michael Lavery: Thank you. Good morning. Also just looking at margins and keeping in mind last quarter, you touched on some SG&A leverage, calling out some -- a better marketing productivity. One of the examples you gave was using some generative AI in, working media or the non-working, the development of ads, which conceptually is straightforward enough. But I guess in terms of just the total spend, what outcomes do you focus on to know where the right level is and to make sure that the productivity is just efficiency and not reducing any effectiveness and how do you look -- how do you see that playing out as you're making a push to get more efficient this year? |
4,028 | KO | 1 | 2,025 | 2025-04-29 20:30:00 | The Coca-Cola Company | 26,642 | John Murphy: So maybe I can start. Yeah. I think we -- we're very focused on the activities that are needed to support the portfolio. And then working backwards from there, what is the most efficient way to execute those activities versus looking at the other way around and trying to drive efficiency through cutbacks or through taking sort of a blunt weapon at them. So, the approach has changed pretty significantly over the last few years to be, as I say, activity driven. We have a pretty clear understanding as to where the opportunities exist to drive more efficiency. So, for example, the relationship between the amount we spend on creative work versus the amount that we spend on bringing -- on engaging with those creatives is something that is a high priority and we have a work underway to get that to optimal levels and we're confident that we can do so. The use of new technology to be able to do activities, which in the analog world were more expensive and took a longer time to happen is something that we're embedding more and more into the marketing equation. The way in which we are planning our media using a much more sophisticated data sets, etc., etc. is another opportunity to create the same, if not higher impact more efficiently. So I just -- I think the name of the game is, focus on the activities and then challenge ourselves as to how those activities can be delivered either faster, cheaper, or both.
Michael Lavery: That's great. Thank you.
Operator: Our next question comes from Bill Chappell from Truist Securities. Please go ahead. Your line is open.
Bill Chappell: Thanks. Good morning. Just kind of a quick question. Could you remind us kind of what your business look like in both Ukraine and Russia four, five years ago, what it looks like today? And if there was peace there, what could look like down the road? |
4,029 | KO | 1 | 2,025 | 2025-04-29 20:30:00 | The Coca-Cola Company | 26,642 | James Quincey: Sure. I mean when -- four or five years ago, when we pulled out our brands, I think, we called out it was about a 1% to 2% of revenue and a similar-ish kind of amount of profits. So, that's kind of what we left on the table when we pulled out, whenever that was a few years ago. The Ukraine is a much smaller business. Obviously, it's been impacted by the war and -- but it's that -- it was a good business. We like the market, but it's not so big. I think any thoughts on the future are at this stage premature. There's a long way to go to get from A to B, and I think a lot of water has to pass under the bridge.
Operator: Our last question today will come from Robert Moskow from TD Cowen. Please go ahead, your line is open.
Robert Moskow: Hi. Thank you. James and John, could you be a little more specific as to where you think you are on clearing up the misconceptions about Trademark Coke that kind of impacted first quarter? And then secondly, maybe a little more detail on the state of the Hispanic consumer. You're uniquely capable of evaluating how those consumers are thinking, how they're spending in home, away from home. Can you touch on those two things? |
4,030 | KO | 1 | 2,025 | 2025-04-29 20:30:00 | The Coca-Cola Company | 26,642 | James Quincey: Yeah. Look, I think as it relates very specifically firstly to the false video, I think that's largely in the rearview mirror in terms of its virality and affecting the business. It wasn't the first piece of misinformation, disinformation, or anything else nefarious about the Coca-Cola brand, and I'm sure it won't be the last. But we are very focused on recovering from it. I called out some of the actions, particularly around localness, our local economic impact, our connectivity to the values and events that those consumers care about, but also driving affordability with some tailored promotions and value channels. The overall state of the Hispanic consumer, I think partly there was this video, so let's just leave that one aside for now. I think there was a little bit of pullback in purchasing and in traffic, not just on the U.S. side of the border. Remember that there's a significant portion of the industrial footprint in Northern Mexico, which provides exports, I mean, the highly integrated nature of the supply chain between Northern Mexico and the U.S. And I think some of the geopolitical tension was just causing people to be a little more cautious with their spend, a little less going out, a little more keeping the money in the pocket. And I think that will -- there's the kind of the shock of the event happening and then it tends to abate, which was kind of the comment on the U.S. consumer, the difference between -- the marked difference between sentiment and actual spend. Obviously, that as previously advertised could be choppy in the near term as resolution occurs. But that's kind of the general state. I think from our point of view, we've got to focus on our game plan, which is sticking to our all-weather strategy, focusing on the brands, the execution, the local connectivity, reinforcing, the Made in U.S. for the U.S. business and the Hecho en Mexico for the Mexican business. And I think that will see us through as we go through the balance of the year.
Robert Moskow: Thank you. |
4,031 | KO | 1 | 2,025 | 2025-04-29 20:30:00 | The Coca-Cola Company | 26,642 | Robert Moskow: Thank you.
James Quincey: Okay. Thanks very much, everyone. So to summarize, enabled by our all-weather strategy, we're focused on prioritizing agility, remaining consumer centric, and partnering closely across our ecosystem for the rest of the year. There'll be many types of environments and we're going to leverage our capabilities to drive the growth and the enduring value. Thank you for your interest, your investment in the company, and for joining us this morning. Thank you.
Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect. |
4,032 | LMT | 4 | 2,024 | 2025-01-28 11:00:00 | Lockheed Martin Corporation | 285,827 | Operator: Good day, and welcome everyone to the Lockheed Martin Fourth Quarter and Full Year 2024 Earnings Results Conference Call. Today's call is being recorded. [Operator Instructions]. At this time, for opening remarks and introductions, I would like to turn the call over to Maria Ricciardone, Vice President, Treasurer and Investor Relations. Please go ahead.
Maria Ricciardone: Thank you, Sarah, and good morning everyone. I'd like to welcome everyone to our fourth quarter and full year 2024 earnings conference call. Joining me today on the call are Jim Taiclet, our Chairman, President and Chief Executive Officer; and Jay Malave, our Chief Financial Officer. Statements made in today's call that are not historical facts are considered forward-looking statements and are made pursuant to the safe harbor provisions of federal securities law. Actual results may differ materially from those projected in the forward-looking statements. Please see today's press release and our SEC filings for a description of some of the factors that may cause actual results to differ materially from those in the forward-looking statements. We have posted charts on our website today that we plan to address during the call to supplement our comments. These charts also include information regarding non-GAAP measures that may be used in today's call. Please access our website at www.lockheedmartin.com and click on the Investor Relations link to view and follow the charts. With that, I'd like to turn the call over to Jim. |
4,033 | LMT | 4 | 2,024 | 2025-01-28 11:00:00 | Lockheed Martin Corporation | 285,827 | James Taiclet: Thanks Maria Good morning everyone and thank you for joining us on our fourth quarter and full year 2024 earnings call. As you saw in the press release this morning, our return to growth strategy that we implemented three years ago is well on its way and remains on a strong trajectory. In 2024, sales grew 5% year-over-year and our backlog of $176 billion reached yet another record, demonstrating the enduring global demand for our superior scalable and reliable products and systems. Each and every one of our four business areas saw backlog growth and ended the year with a book-to-bill ratio of greater than 1. We fully expect these positive trends to continue in our 2025 outlook with mid-single digit growth in sales segment, operating profit returning to 11% and double-digit growth in free cash flow per share. Jay and Maria will cover the financials in more detail, but I'd like to briefly comment on the earnings impact in the fourth quarter of two classified programs at MFC and Aeronautics respectively. Recording charges in Q4 on these two programs enabled us to de risk the financial profile of both these critical national security programs going forward as we move into their next phases. While these particular contracts were struck a number of years ago, there are no longer any must win competitions. Under today's Lockheed Martin wide bid process, every proposal adheres to a stringent risk adjusted ROI regime. This process is designed to compete aggressively for key opportunities while also being very committed to achieving positive results both in the short and long-term for our shareholders. At the same time, we are committed to ongoing investment in the business to further enhance our company's growth trajectory. Having successfully executed our Return to Growth initiative over the past few years. In 2024 we invested $3.3 billion in research and development and capital to support advanced scalable technology solutions for our customers. Equally important looking forward are investments to |
4,034 | LMT | 4 | 2,024 | 2025-01-28 11:00:00 | Lockheed Martin Corporation | 285,827 | to support advanced scalable technology solutions for our customers. Equally important looking forward are investments to enhance the attractiveness and performance of our key programs and initiatives such as America's preeminent 5th generation fighter, the F-35 and our internal digital transformation 1 LMX are expected to grow. Our financial focus remains on free cash flow and free cash flow per share. Our company continued to deploy significant free cash flow in 2024 and we've returned greater than 100% of that free cash flow to you, the shareholders. In addition to our consistent and healthy dividend, we maintain a robust share repurchase program with $3.7 billion of shares repurchased in 2024. Turning to the F-35, we delivered 62 aircraft in the quarter, bringing our total deliveries for 2024 to 110, the high end of our expected range. These deliveries included aircraft that were previously parked and new jets that rolled off the production line. We continue to expect deliveries will exceed the production rate over the next few years and estimate 170 to 190 F-35 aircraft deliveries in 2025. TR-3 capabilities continue to progress in flight testing. We completed qualification testing on a set of key TR-3 capabilities in 2024 and we're making solid progress on system performance and remaining TR-3 deliverables. We expect to release additional capability this year with further upgrades to follow. In addition, the undefinitized contract for Lot 18 F-35 production was awarded in December, bringing our backlog to 408 aircraft. We expect this contract will be definitized during the first half of 2025. We welcomed our 20th global customer, Romania, into the F-35 enterprise in November with its letter of offer and acceptance to procure 32 aircraft. The Romanian Air Force's F-35s will integrate with their existing F-16 fleets as well as other allied F-35s, highlighting the importance of the superior capabilities of this aircraft. Moreover, the F-35's seamless interoperability using our 5G.MIL architecture will be |
4,035 | LMT | 4 | 2,024 | 2025-01-28 11:00:00 | Lockheed Martin Corporation | 285,827 | superior capabilities of this aircraft. Moreover, the F-35's seamless interoperability using our 5G.MIL architecture will be crucial in establishing and maintaining command of the air, especially in the Indo Pacific, European and Middle Eastern theaters. Lockheed Martin's System of Integration expertise across land, air, sea, space, and cyber are essential to continually improving many important national security missions such as protection from air and missile attacks. In this example, our Defensive Guam Flight experimentation mission in December successfully demonstrated the integration of multiple Lockheed Martin and other OEM products into a single combined weapon system. Our Aegis Guam system was successful in acquiring and tracking targets using our TPY-6 radar, planning and conducting the missile engagement using our Aegis Combat system. Then we fired the interceptor from one of our vertical launching systems and ultimately destroyed the incoming weapon. Equally important was the accelerated pace from contact award to successful completion of this flight test mission in under two years and was a direct result of leveraging prior investments in all these proven technologies. Building on our production ready Air-Launched Rapid Response Weapon, or ARRW, America's hypersonics technology made another important milestone in the development of one of our most important in advanced weapon systems in December. The U.S. army and U.S. navy completed a successful end to end flight test of the common Hypersonic all up round the first live fire event for the long range Hypersonic weapons system. I'd like to shift gears now to current discourse about the defense industry landscape. Much has been said about defense primes, emerging startups, traditional and non-traditional companies. I see us all working together and I think that it's industry's role to help marshal the talent and expertise in our country to provide the best possible deterrent capabilities with both physical products such as ships, aircraft and |
4,036 | LMT | 4 | 2,024 | 2025-01-28 11:00:00 | Lockheed Martin Corporation | 285,827 | in our country to provide the best possible deterrent capabilities with both physical products such as ships, aircraft and satellites, as well as digital advanced technologies. We need to access the best talent, financial resources and technologies from both the aerospace and defense and commercial sectors to get ahead and stay ahead. To that end on the commercial front, I've long been an advocate of deepening partnerships across industries. And we have done so with companies such as Nvidia for Artificial Intelligence, Meta and IBM for large language models to more efficiently generate code, analyze data and enhance business processes Verizon for 5G networks, Microsoft for classified cloud modeling and simulation, and Intel and Global Foundries for advanced military hardened chips. We're also investing heavily on internal development, autonomy, AI and other enabling digital technologies to provide the best solutions for our customers. Skunk Works continues to drive the cutting edge, theater level security solutions. In real time, Live Flight demonstrations we had an F-35 flying from our facility in Fort Worth, Texas, sharing classified data via a Skunk Works open system gateway, through a commercial satellite communications and all the way over into a Royal Air Force lab in Farnborough, U.K. where it was integrated into their command and control system. This achievement marks a significant step toward a future integrated defense enhancing our F-35 interoperability in real time with an allied C-2 system using our 5G MIL architecture. In another first, our Lockheed Martin Skunk Works team, along with the U.S. navy and General Atomics, completed a live controlled flight demonstration of an uncrewed system, by the unmanned Carrier Aviation Mission Control Station, which was powered by our autonomy platform. This demonstration is a pathfinder that helps advance the complex technology necessary to enable human machine teaming as envisioned for autonomous systems. We're doing it right now. Turning to the budget, the |
4,037 | LMT | 4 | 2,024 | 2025-01-28 11:00:00 | Lockheed Martin Corporation | 285,827 | to enable human machine teaming as envisioned for autonomous systems. We're doing it right now. Turning to the budget, the current continuing resolution funds U.S. government operations through March. We look forward to working with the returning administration to continue pursuing a more agile and streamlined acquisition process that encourages speed, technology innovation and broader participation. We see DOGE as an opportunity to make great progress in all these areas and we will continue to share ideas and do our part to support efforts to eliminate unnecessary regulatory hurdles while working to increase efficiency in our own internal operations through our 1LMX digital transformation. Now I'll turn it over to Jay. |
4,038 | LMT | 4 | 2,024 | 2025-01-28 11:00:00 | Lockheed Martin Corporation | 285,827 | Jay Malave: Thanks Jim, and good morning everyone. Today I'll provide an overview of our consolidated financial results for the fourth quarter and full year, then hand off to Maria who will cover business area financials and I'll come back at the end to discuss our initial 2025 outlook. 2024 was a solid year. Our growth strategies are paying off with 5% top line growth while also growing backlog 10% to $176 billion. Another year end record. Our balanced portfolio enabled us to generate solid free cash flow and meet our deployment commitments exceeding 100%. Finally, we took prudent de risking actions on key programs that paved the way for a solid outlook in 2025 and beyond. Before I get into the results in more detail, I'll walk you through these de risking actions. Chart 4 provides two different reconciliations that detail the full impact of these items on our full year results and their partial impact to our prior expectations. We've also included a fourth quarter version of the same chart in the Appendix in Slide 20. For purposes of understanding the total impact on our full year results, I'll direct your attention to the middle section of the chart. We recorded net charges of $1.8 billion as follows. $1.4 billion related to the remaining expected future losses on the MFC classified program and $555 million associated with the Aeronautics classified program. With these amounts partially offset by $155 million benefit associated with our C-5 claim resolution. Moving over to the right side of the chart, you may recall that our last outlook in October had assumed some of these net charges, so let me walk you through that as well. Relative to our prior outlook, we recorded $1.4 billion of unplanned net charges consisting of $410 million for the Aeronautics Classified Program, $1.1 billion from the MFC classified program, with these amounts partially offset by $70 million of unplanned benefit from the C-5 claim resolution. Both reconciliations provide adjusted results that exclude the impact of these items for |
4,039 | LMT | 4 | 2,024 | 2025-01-28 11:00:00 | Lockheed Martin Corporation | 285,827 | benefit from the C-5 claim resolution. Both reconciliations provide adjusted results that exclude the impact of these items for comparison purposes. For the remainder of my prepared remarks, I will refer to the reported and adjusted amounts as shown on the left side of the chart unless otherwise noted. Okay, Moving to Chart 5 with fourth quarter results, sales of $18.6 billion were down slightly year-over-year. Sales in the quarter were unfavorably impacted by having one fewer a week in Q4 2024 compared to Q4 of 2023 partially offset by the F-35 lot 18 deferred revenue carryover from the third quarter. Segment operating profit, segment margins and earnings per share were all adversely impacted by the classified program charges at Aeronautics and Missiles and Fire Control. On an adjusted basis, segment operating profit would have grown 5% year-over-year to $2.1 billion, resulting in segment margins of 11.1%. Shifting to new business, we recorded over $29 billion of orders in the fourth quarter for a book-to-bill ratio of approximately 1.6. Aeronautics led the way with almost $20 billion in orders driven by the F-35 Lot 18 and fiscal year 2025 air vehicle sustainment contract awards. Both contracts will help secure the wide reaching F-35 U.S. production enterprise and ensure America's military is equipped with the most advanced fighter aircraft in the world. Free cash flow was $440 million in the quarter, including $990 million of pension pre funding to extinguish the 2025 required contributions. Continuing with capital deployment, we further advanced strategic and technical and operational capabilities by investing over $1.1 billion in the quarter towards independent research and development and capital expenditure projects, bringing full year internal investment to $3.3 billion. We continue to provide an unmatched combination of new technology advancement that can be also fielded with speed, so investing to deliver critical capabilities while maintaining our commitment to shareholders by returning $1.8 billion |
4,040 | LMT | 4 | 2,024 | 2025-01-28 11:00:00 | Lockheed Martin Corporation | 285,827 | speed, so investing to deliver critical capabilities while maintaining our commitment to shareholders by returning $1.8 billion of free cash flow via share repurchases and dividends. Turning to Chart 6 and our full year 2024 results, sales of $71 billion grew 5% driven by improved backlog conversion reflecting stronger throughput across the entire value chain. Similar to the fourth quarter segment operating profit, segment margins and earnings per share were impacted by the net program charges on Slide 4. On an adjusted basis, segment operating profit grew 7% year-over-year and adjusted segment margins were 11.1%. Book-to-bill for the year was greater than 1. In the third consecutive year we've increased backlog. We generated $5.3 billion of free cash flow including the pension pre funding. And finally, our consistent capital deployment continued in 2024 as we returned $6.8 billion to shareholders through repurchases and dividends. Now I'll turn it over to Maria to discuss business area results. |
4,041 | LMT | 4 | 2,024 | 2025-01-28 11:00:00 | Lockheed Martin Corporation | 285,827 | Maria Ricciardone: Thanks Jay. Today I'll discuss fourth quarter and full year results for the business areas. As Jay mentioned, you'll notice that we've included both reported GAAP and adjusted results for each business area in order to provide meaningful comparisons and a more realistic expectation of recurring operational performance. Starting with aeronautics on Chart 7, fourth quarter sales at Aero increased 5% year-over-year, primarily driven by higher F-35 volume on production and sustainment contracts due to contract awards in the quarter, including the awards for the Lot 18 undefinitized contract action and Air vehicle sustainment contract. Partially offsetting this was lower volume at Skunk Works, driven by the unfavorable sales impact associated with the classified program charge. Adjusting for the impacts of the classified program charge and the C-5 contract resolution, the adjusted sales growth at Aero was approximately 7% year-over-year in Q4 2020. Both reported and adjusted sales in the fourth quarter benefited from $700 million of F-35 sales deferred from the third quarter. Segment operating profit decreased 43% compared to Q4 2023. Lower profit booking rate adjustments due to the $410 million classified program charge in the quarter were partially offset by higher sales volume and the benefit related to the C-5 claim resolution. On an adjusted basis, operating profit year-over-year in the quarter increased slightly. For the full year, sales increased 4% driven by higher volume across the F-35 program and the production ramp on the F-16 program partially offset by lower volume at Skunk Works due to the sales impact related to the classified program charge. Full year segment operating profit decreased 11% driven by the same items we saw in the fourth quarter. Lower profit rate adjustments partially offset by sales volume and the C-5 claim resolution benefit. On an adjusted basis Aeronautics full year operating profit grew by 3% equating to 10.2% margin for the year. Turning to Missiles and Fire |
4,042 | LMT | 4 | 2,024 | 2025-01-28 11:00:00 | Lockheed Martin Corporation | 285,827 | basis Aeronautics full year operating profit grew by 3% equating to 10.2% margin for the year. Turning to Missiles and Fire control on Chart 8. MFC sales increased 8% year-over-year driven by production ramps on Joint Air to Surface Standoff Missile, JASSM, Long Range Anti-Ship Missile LRASM, Guided Multiple Launch rocket system, GMLRS and PAC-3. Normalizing for the extra week in the fourth quarter of 2023, MFC sales grew 16% year-over-year. Segment operating profit decreased significantly year-over-year in the quarter due to lower profit booking rate adjustments driven by the recognition of reach forward losses on the classified program. Adjusting for that item, segment margins were a strong 14.8% in the quarter. For the full year, MFC sales increased double digits, up 13% again due to production ramps on GMLRS, LRASM, JASSM and PAC-3 programs. Full year segment operating profit declined $1.1 billion year-over-year due to $1.4 billion of classified program charges which were partially offset by higher volume from the production ramps. Excluding the classified program charges, MFC's segment operating margin for the full year was a solid 14.4%. Shifting to Rotary & Mission Systems on Chart 9, sales decreased 10% in the quarter to approximately $4.3 billion primarily driven by lower volume on Seahawk, CRH, AEGIS and various C6ISR programs. Normalizing for the week difference in Q4 2023, RMS sales were down 3% year-over-year in the quarter. Similar to sales, operating profit was down 11% year-over-year due to lower profit booking rate adjustments and sales volume partially offset by favorable contract mix. For the full year, sales increased 6% at RMS primarily driven by higher volume on the Canadian Surface Combatant and laser programs within the integrated Warfare systems and sensors business, as well as various C6ISR programs and the CH-53K ramp at Sikorsky. Operating profit was up 3% for the year due to the higher sales volume and favorable contract mix, partially offset by lower profit booking rate adjustments. |
4,043 | LMT | 4 | 2,024 | 2025-01-28 11:00:00 | Lockheed Martin Corporation | 285,827 | the year due to the higher sales volume and favorable contract mix, partially offset by lower profit booking rate adjustments. Finally, with space on Chart 10, sales decreased 13% year-over-year in the fourth quarter. The reduction was driven by lower volume on NextGen OPIR Orion and Classified primarily due to program life cycles. Normalized for the number of weeks in the quarter year-over-year, sales were down 6%. Operating profit decreased 8% compared to Q4 2023, driven by lower volume and lower profit booking rate adjustments, partially offset by higher equity earnings from the United Launch Alliance. Turning to the full year, sales decreased slightly driven by lower volume on the same programs as in the fourth quarter, partially offset by higher volume on the fleet ballistic missile and reentry program. Meanwhile, operating profit increased 6% in 2024 due to favorable contract mix and higher ULA equity earnings, partially offset by lower profit booking rate adjustments. I'd like to note the photo on page 10. In December, Lockheed Martin supported the successful launch of the GPS-3 space vehicle 7, which we designed and built. This accelerated launch required complex integration and was the first to demonstrate operational agility for critical national security missions. With that, I will turn it back over to Jay to wrap up our prepared remarks. |
4,044 | LMT | 4 | 2,024 | 2025-01-28 11:00:00 | Lockheed Martin Corporation | 285,827 | Jay Malave: All right, thanks, Maria. Turning to Chart 11 and our forward expectations, our outlook for 2025 has improved since October along with our rising value chain performance expectations. In addition to the benefit from the de risking actions we took in 2024, we anticipate sales growth of 4% to 5% on top of the 5% we delivered in 2024. We expect MFC to again lead the way with 8% growth at the midpoint as we continue to ramp production across several programs to support the strong demand for our combat, proven munitions and integrated air and missile defense systems. As previously discussed, operating margins returned to 11% and free cash flow grows 9% at the midpoint from 2024 to adjusted results, setting up double digit growth in free cash flow per share in spite of non-cash FAS pension headwind lowering EPS. I'll step through segment operating profit and EPS bridges in more detail in the following charts. Chart 12 bridges the 2024 reported segment operating profit of 6.1 billion to the 2025 guidance midpoint of 8.15 billion. After accounting for the 2024 net charges, we expect operating profit growth from the adjusted 2024 position. The growth is primarily due to the volume drop through and partially offset by other items, mainly lower expected net profit rate adjustments. Importantly, segment margins are expected to return to 11% in 2025 earlier than planned. Next on chart 13 we have a similar walk for earnings per share. Here we expect EPS to decline slightly from the 2024 adjusted position mainly due to non-operational items, notably the FAS/CAS pension adjustment as well as higher interest expense. Bringing it all together, we expect solid sales growth in 2025 off the higher 2024 base operating margins at the 11% target and solid cash flow generation that enables consistent shareholder returns. So in summary on Chart 14, in 2024 we delivered stronger top line growth than initially expected, reflecting an improving operating cadence. We also expanded our backlog to a new record demonstrating the |
4,045 | LMT | 4 | 2,024 | 2025-01-28 11:00:00 | Lockheed Martin Corporation | 285,827 | initially expected, reflecting an improving operating cadence. We also expanded our backlog to a new record demonstrating the strength of our unmatched capability to deliver security solutions at speed while increasing investment to expand this capability and we prudently de risked programs, all the while dependably generating free cash flow and deploying it as committed. Taken together, these actions give us confidence to deliver a strong financial outlook for 2025. At the same time, we will continue to propel this industry forward with innovative solutions that integrate the best that commercial and military industries can offer and of course, we remain focused on operational execution to deliver on our commitments and create long term value for our customers and shareholders. With that, Sarah, let's open up the call for Q&A. |
4,046 | LMT | 4 | 2,024 | 2025-01-28 11:00:00 | Lockheed Martin Corporation | 285,827 | Operator: Thank you. [Operator Instructions] Your first question comes from the line of Seth Seifman. My apologies from JPMorgan. Your line is open.
Seth Seifman: No worries. Thanks very much and good morning everyone.
James Taiclet: Morning, Seth.
Seth Seifman: I wanted to ask Jay emphasize kind of the de risking nature of the charges in Q4. I know maybe it's difficult to discuss because it's classified, but within aeronautics, all of the filing language has sort of emphasized continued risk there. Should we think that within following this charge, the potential for future charges there has really come down considerably and is there anything you can say about where we might be in the lifecycle of that program and when it might be able to provide some positive returns and then thinking maybe that the answer there might have to be a little bit circumspect. If you could just comment on the multi-year targets that you gave on the last call and how to think about those now. |
4,047 | LMT | 4 | 2,024 | 2025-01-28 11:00:00 | Lockheed Martin Corporation | 285,827 | Jay Malave: Okay, thanks Seth. There's about 16 questions in that one question, but I'll take a shot at all of them. Just as far as the risk, I would say we significantly reduced the risk. I can't really get into the life cycle of the program given the classified nature of it, but let me walk you through why I believe that we've significantly reduced the risk. We had realized this risk earlier in the year, causing us to perform a more comprehensive review of current performance versus our key assumptions included in the estimate to complete. We evaluated the risk and opportunities and made the determination that a cost reset was warranted. The amount route that we recorded in the quarter is the most conservative assessment we've made to date. We've also made a number of process changes. Aeronautics, along with our corporate staff, have implemented a more continuous monitoring process of the progress of this program in terms of technical milestones and added technical resources from the outside the program. This will enable both teams to work together to institute support measures as needed faster than before. We've also added technical resources and experts with experience in the risk areas to help bolster the team and mitigate risk as they arise. We've added automated testing procedures as well to accelerate test results and issue resolution should they occur. So all those things taken together give us confidence that we have significantly derisked this program and significantly reduce the risk of future charges on this. As far as maybe the multiyear outlook, you look at 2025 and certainly the 2025 outlook is better than what we had projected in October. If you recall, we had said our baseline was low single digit with an opportunity to get to a mid-single digit. Here we believe the opportunity was realized for 2025 which gave us confidence to increase our growth outlook to 4% to 5%. And that's the same type of process that we'll continue to look at in 2016 and beyond. And again, it's based on our ability to |
4,048 | LMT | 4 | 2,024 | 2025-01-28 11:00:00 | Lockheed Martin Corporation | 285,827 | And that's the same type of process that we'll continue to look at in 2016 and beyond. And again, it's based on our ability to really drive throughput through the entire value chain. As I mentioned before in my prepared remarks that we continue to have rising expectations there and rising confidence that not only our supply chain but our internal operations can move at a quicker pace, enabling the unlocking of this revenue growth. So our confidence is growing there. |
4,049 | LMT | 4 | 2,024 | 2025-01-28 11:00:00 | Lockheed Martin Corporation | 285,827 | Operator: The next question comes from Rob Stallard with Vertical Research Partners. Your line is open.
Rob Stallard: Thanks very much. Good morning.
James Taiclet: Good morning.
Rob Stallard: Question for Jim. At the same time as you're taking these charges on these classified programs, it looks like the new administration and the Department of Defence is actually getting more pro fixed price contracts in commercial terms. Are you worried that the defence industry could be taking on more risk and opening itself up for more charges in the future?
James Taiclet: Not necessarily, Rob, because we're going to apply this disciplined bid process to fixed price and cost plus contracts. And if the proportion is moving potentially towards fixed price, we're going to use the same discipline. And there's a trend in this industry to be much more deliberate about how each company bids. Each company has its own strategy. Ours is something I brought over from my last business experience, which is risk adjusted return on investment is the key criteria. And be honest about the risks up front and price them in. And if that price doesn't meet the competition, so be it. We'll move on to other things. So I'm not concerned about that. As I said, I look at DOGE as an opportunity because as far back as 2021, I've been advocating for systemic change in the way that the defense enterprise operates. And that's meaning Congress, executive branch, Pentagon, aerospace and defense industry, commercial tech startups. We need to expand our ability as a country to get everybody involved. And I welcome DOGE's effort and the administration's effort to reduce the bureaucracy, limit the administrative burdens that the Pentagon now puts on all companies, big and small, that want to work with it. So again, I look at all this as an opportunity and if it moves a bit more towards fixed price proportions, so be it. |
4,050 | LMT | 4 | 2,024 | 2025-01-28 11:00:00 | Lockheed Martin Corporation | 285,827 | Jay Malave: Rob, the other thing I would say is, we've seen really, to be honest, more over the last, probably year to 18 months a more of a contracting regime that's more commensurate with the risk associated with the program. So those that have lower technical maturity, higher risk, the customer has actually been much more receptive and cognizant that those probably are not going to be best delivered under a fixed price type of contracting regime. And so, you may be hearing words on the one end, but I think there has been a recognition more to make sure that the risk profiles commensurate with the right level of contracting. And that's shared both by the customer and as well as industry. And so there just had been, I think, a different approach. We'll see. You've got a change in administration and where that goes forward. But I would say there's been a recognition over the last 12 months that fixed price contracts for immature technology really doesn't help anyone.
Operator: The next question comes from Rich Safran of Seaport Research Partners. Your line is open.
Richard Safran: Thanks, Jim, Jay, Maria, good morning. What I'd like to ask is starting with your 2025 guide for 8% growth, I'd like to know if you could give us maybe a long-term look at MFC in terms of growth and margins and what the potential for the business is. Just kind of wondering the GD Rocket Motor deal and how that factors into your growth and margin outlook given the volume limitations you've had thus far. Thanks. |
4,051 | LMT | 4 | 2,024 | 2025-01-28 11:00:00 | Lockheed Martin Corporation | 285,827 | Jay Malave: Well, for MFC for 2025, it's really more of the same. We continue to see growth on programs like GMLRS, HIMARS PAC-3, JASSM and LRASM. And so many of the same growth factors and drivers in 2024 are also the growth drivers in 2025 that demand continues. We have projected orders growth in 2025, things like a multiyear definitization on JASSM and LRASM, which is pretty sizable multiyear contract. And so the demand cycle there, both domestically and international was quite strong. And as we've said before, that will be the growth driver for Lockheed Martin for years to come beyond 2025. And so again when you couple the backlog with the ongoing demand, we feel pretty solid again in these programs. There's just a solid back pinning of the underlying demand for those. On the margins we've talked about when you strip out the impact of the classified program, we've talked about 14%. If you look at the midpoint of our guide in that ballpark, we're right around 14%. Not necessarily as high as Maria reported on an adjusted basis for 2024. But that's because right now we're expecting some lower net profit adjustments, but their underlying margins are generally in line with what our longer term expectations are. And that's the way you should think about MFC, around 14%.
Operator: The next question comes from Ken Herbert of RBC Capital Markets. Your line is open.
Ken Herbert: Yes, hi Good morning.
Jay Malave: Morning.
Ken Herbert: Hey, Jay. In the past you've talked about working capital and specifically the opportunity there to improve the free cash flow. Can you provide a little bit more on what's implied in the 2025 guide for working capital improvement? And has anything structurally changed now as you look at the portfolio and the opportunity, as you've talked about taking days out and the ability to eventually or continue to drive towards sort of pre pandemic levels over time. |
4,052 | LMT | 4 | 2,024 | 2025-01-28 11:00:00 | Lockheed Martin Corporation | 285,827 | Jay Malave: Sure. You look at. I'll start with maybe 2024. We had a good year in 2024 in spite of some of the headwinds that we faced. We reduced our working capital days by a couple and we're in the mid-30s as far as cash conversion cycle. For our outlook in 2025, what's implied in there is about one day which essentially offsets the growth that we're going to see from we would otherwise see in working capital. So what we're trying to do here is just prevent it from being a use of cash and have it be neutral. The opportunity set obviously would be to drive beyond one day and there's still opportunity I talked about before, particularly in our contract assets, our unbilled receivable. There's some opportunity there as we work through on the F-35, both in production as well as sustainment, but there's really opportunities across the portfolio. Sikorsky has a number of opportunities there on their programs as well as even segments Space and MFC, those are outstanding working capital businesses on a standalone basis. But even so, there's opportunity in the contract assets there. So I would expect in the years to come that we still have opportunity to continue to drive asset productivity there and that's going to be part of our formula going forward, as it was in 2024 and our outlook for 2025.
Operator: The next question comes from Gavin Parsons with UBS. Your line is open.
Gavin Parsons: Hey, thanks. Good morning.
Jay Malave: Good morning.
Gavin Parsons: Could you just dig in a little further on the free cash flow bridges, the EBIT and EPS bridges were super helpful in the deck. But just given a lot of moving pieces in cash flow like the F-35 inventory unwind pension contribution recovery, Lot 18 cash timing. Maybe I missed that one. But if we could just kind of do a bridge walk on cash flow, that would be great. |
4,053 | LMT | 4 | 2,024 | 2025-01-28 11:00:00 | Lockheed Martin Corporation | 285,827 | Jay Malave: If you just start from this year, adjusted cash flow at 6.1. So adjusted for the pension contribution in 2024. As we mentioned that we expected anywhere around close to a billion dollars of benefit on F-35 with the delivery of -- with higher deliveries as well as progress on the withholds. We also, though, as you remember, in 2024 got the benefit of significant international advances to the tune of $600 million. So partially offsetting, that is, it's the net impact of those two things. About $400 million in that ballpark. We do expect a benefit from taxes with lower R&D capitalization as that's coming down, and we expect a little bit of benefit from, I'll call it cash based net income. All that taken together takes us from $6.1 billion to the $6.7 billion midpoint. So those are the key drivers of free cash flow for 2025.
Operator: The next question comes from Scott Deuschle of Deutsche Bank. Your line is open.
Scott Deuschle: Hey, thanks, Jay. It looks like if you're guiding. Looks like you're guiding Aeronautics margins down about 20 basis points year-over-year in 2025. If I add back those unplanned charges to the 2024 base.
Jay Malave: Yes.
Scott Deuschle: Can you talk a bit about what drives that underlying margin decline, particularly given that you are on these newer contracts for F-35.
Jay Malave: Yes. So for F-35, we do have. I'm sorry, for Aeronautics in total right now, the outlook for their margins does assume lower net profit adjustments, and that's called an apples to apples basis. So excluding the impact of the $555 million in the C-5 adjustment in 2024, profit adjustments, there are declining, there is a mixed benefit. But right now the net profit adjustments offset that, and that's what drives the margins down from 10.2 to around 10. We also have classified growth, which is just a mixed headwind there, but that's -- we've got some benefits from F-16 margins as well. But bottom line, again, it comes back to the net profit adjustments being lower. |
4,054 | LMT | 4 | 2,024 | 2025-01-28 11:00:00 | Lockheed Martin Corporation | 285,827 | Operator: The next question comes from Matt Akers with Wells Fargo. Your line is open.
Matthew Akers: Yes. Hey, guys, good morning. Thanks for the question. I guess a couple on F-35, you talked a little bit about the progress toward Tech Refresh 3. What exactly is left to get? Kind of the final withhold. How big is that? And are you assuming you get that within 2025 and then wondering if you could touch on Lot 19 and kind of how the discussions are going there.
Jay Malave: Well, on the TR-3 capability, we continue to make excellent progress there. There's a number of things that we still have to complete some mission system integration work as well as improving system stability overall. We expect that will continue throughout the year. We expect to meet some milestones this year. We're targeting as much as possible this year. But I think for purposes of financial modeling, we would expect, this to bleed into 2026. Ultimately, the declaration of full combat capability is one that is left with our customer. And so we'll be coordinating with them and working with them on that. But what I can tell you is that we're pleased with the progress we've made thus far and the team is working at a pretty good pace here with our supplier partners on improving A, the mission system capability and as well as improving overall system stability. The second part of the question was Lot 19. So that has been negotiated really in parallel with the Lot 18 negotiation. Just for clarity, Lot 18 is under undefinitized contract action. So we still have to definitize that under. As Jim mentioned, we expect that to be done in the first half of this year. And then shortly thereafter in the second half of this year, we would also expect to close out on the Lot 19 contract, which would be an order in a range of about $10 billion.
Operator: The next question comes from Myles Walton of Wolfe Research. Your line is open. |
4,055 | LMT | 4 | 2,024 | 2025-01-28 11:00:00 | Lockheed Martin Corporation | 285,827 | Operator: The next question comes from Myles Walton of Wolfe Research. Your line is open.
Myles Walton: Thanks. Good morning. I was curious on the charges that were unplanned, Jay, how should we think about the cash effect of those? And obviously the MFC part of that unplanned, you were just planning in the future. So I'm going to guess there's nothing really to think about there. But on the Aero side, $400 million of charges taken in the quarter, is that $400 million headwind being absorbed mostly in 2025. And then as we look to 2026, do you still have the pension funding requirement coming back about a billion dollars?
Jay Malave: Yes. Just starting with the Aero classified program. That will be certainly a cash flow drag over the next few years. It's not all born in 2025, but it's something that we expect over the next two years to three years that we will have to liquidate that from a cash perspective. As far as pension in 2026, we talked about ongoing cash contribution requirements. The formula to deal with that is similar to what we saw here and we've been talking about. We had the prior discussion here, one of the questions related to working capital. We're going to continue to see what we can do to drive working capital down, improve our asset productivity to offset as much as possible on the pension. And then we've got a very strong balance sheet that gives us a lot of optionality and flexibility. So we expect to continue to deal with pension with the options that we have before us.
Operator: The next question comes from Gautam Khanna with TD Cowen. Your line is open.
Gautam Khanna: Yes, good morning. I was wondering at the M&FC [ph] program that have the charge, is there an opportunity on that program as you scale it to improve the profitability dramatically? I'm just curious, over the option period I imagine demand is pretty strong for that product and I don't know if the pricing may adjust favorably at some point. If you could speak to that again. |
4,056 | LMT | 4 | 2,024 | 2025-01-28 11:00:00 | Lockheed Martin Corporation | 285,827 | Jay Malave: Again, it's a classified program, Gautam. So there's not really all that much. What I can tell you is outside of the fixed pricing related to this next phase, that the pricing would be open and we would expect to return to reasonable type margins over that period of time outside of where we have the fixed committed pricing. I wouldn't expect it to bounce back to MFC like margins at that point in time. There still would be kind of ramp ups that you got to deal with but certainly the margin profile will get substantially better.
James Taiclet: And we expect this to be a long lived program based on the technology and the value to the U.S. government. The next Air Force pilot, I can assure you this is something they will want.
Operator: Your next question comes from the line of Peter Arment with Baird. Your line is open.
Peter Arment: [Indiscernible] opportunities to maybe still grow your backlog. Your backlog is at record levels. It's up 10% for the year. Big drivers in MFC and space. But how are you thinking about the opportunities to grow backlog in 2025 and any international kind of awards that you're kind of pursuits that you would highlight? Thanks.
James Taiclet: So Peter, it's Jim. I'll just start with some of the public statements of the administration which is reforming the Pentagon an opportunity. There is more long lead time orders, less fragility in the system. In addition to that multiyear contracting which has been so far limited to munitions. Makes sense in a lot of other places in the Pentagon budget. So if some of those policy changes get implemented, you might see backlog for a company like ours accelerate due to multi years and longer lead time preorders. Jay? |
4,057 | LMT | 4 | 2,024 | 2025-01-28 11:00:00 | Lockheed Martin Corporation | 285,827 | Jay Malave: Yes. The line of sight, we do have a line of sight to growth again in 2025. I wouldn't say that it's 10%, but we certainly have some level of growth that we're expecting in 2025. On the backlog, I talked about the $10 billion order on the F-35 on Lot 19. I talked also earlier about the JASSM LRASM multiyear. That's in the range. That's multiple billions of dollars. There's others. There's the international opportunities as well. Türkiye's on the F-16 aircraft. There's just a whole slew of opportunities. We also have just continued F-35 sustainment contract which will also be multiple billions of dollars as well. CH-53K, Lot 9 is another one we'll be negotiating this year which is well above a billion dollars. So there's still an excellent line of sight to continue to grow this backlog. But as you know, we're also focused on making sure that we can accelerate the speed of our throughput and drive that backlog conversion faster.
Operator: The next question comes from Pete Skibitski with Alembic Global. Your line is open.
Pete Skibitski: Hey, good morning, guys. Jim or Jay. Just a follow up on MFC. As you guys think about what DoD is signaling to you in terms of the peak production volumes on the key munitions and MFC, do you guys need additional supplemental bills to kind of get to those levels and sustain those levels? Or do you already have kind of funding line of sight from the Ukraine supplemental and maybe what's in the 2025 baseline budget? Maybe the 2026 baseline? I just wanted to get a sense of budget risk there in terms of what your peak rates are assuming. |
4,058 | LMT | 4 | 2,024 | 2025-01-28 11:00:00 | Lockheed Martin Corporation | 285,827 | Jay Malave: Yes, it's really not dependent on additional supplementals. I mean a lot of this is a lot of the capacity is going to be committed and or contracted with our customer. We just, and I'll run through a couple programs. We had always been under contract to get the 550 on the PAC-3 program in 2025. We initially self-funded the investment associated with getting ourselves a 650 on PAC-3. We recently received the contract award for incremental funding on that related to the facilitation. We are driving towards 14,000 on GMLRs. We've been driving, as Jim has mentioned in the past, to 4,000 on Javelin, 96 on HIMARS. And again, the line of sight to those and the funding that's been allocated to those is quite strong, much of which is under contract already. So we view that as fairly low risk at the moment.
Operator: The next question comes from Doug Harned of Bernstein. Your line is open.
Douglas Harned: Good morning. Thank you.
Jay Malave: Hey Doug.
Douglas Harned: On F-35, there's been some noise as the new administration has come in about the F-35, but if I put all of that aside during the first Trump administration in each of the budgets F-35 volumes were cut. There seemed to be a view that we didn't need as many. Congress of course added some back. But when you look forward, you're looking at still 156 per year production rate for a while. How do you think about the interplay of budget decisions in the U.S. with what has been some very strong export demand? In other words, if we should see some reductions in quantities in the U.S. are you still very confident you're going to be able to continue with that 156 level? |
4,059 | LMT | 4 | 2,024 | 2025-01-28 11:00:00 | Lockheed Martin Corporation | 285,827 | James Taiclet: Doug, it's Jim. I'll start off and say, yes, I am confident of the 156 and I think it will come from strong demand from the U.S. government and from our international partners. And one reason for that is basically part of deterrence theory, is that you have to have the capability to make the adversary reconsider an adverse action against you. And China, based on open source reporting, has increased production of the J-20, which I don't believe just sort of personally that it's equivalent to F-35, but it is their fifth generation airplane to over 100 units a year. We're doing 156. We're ahead of them. I think if there was a dramatic change in even U.S. order book and production that might be a signal that would be adverse to maintaining an effective deterrent to them. And similar with munitions. Right? I mean, everybody's watched a Dirty Harry movie or Clint Eastwood movie, knows that when you run out of ammunition, you're highly, highly vulnerable. And that supports some of the conversation Jay was just having. So my view is that there are some very capable people coming into the administration. They understand deterrent theory. The last thing I think this President and administration would want is to create a period of vulnerability with any of our major adversaries in the next few years. So I feel really confident about F-35 production. And the other thing I'll add is that we can already control out of an F-35 up to eight autonomous drones. We've shown this as Secretary of the Air Force a few months ago. It's public knowledge. There's some classified things that we're doing in the same arena, if you will, to be able to drive manned unmanned teaming off the F-35 and the F-22. And the reason we're starting with the F-35 is because of TR-3. TR-3 gives the F-35 the three things that you need for an effective node and a 5G Internet of Things system, which is what we're talking about. Those three capabilities are data processing. With our core processor, it's about 10x from the prior it's data |
4,060 | LMT | 4 | 2,024 | 2025-01-28 11:00:00 | Lockheed Martin Corporation | 285,827 | talking about. Those three capabilities are data processing. With our core processor, it's about 10x from the prior it's data storage. We have a larger storage unit and multipath connection back to the cloud, as you define the cloud, ours is DoD classified. But those are the three technical elements you need to have to be able to drive 5G level connectivity among nodes in a network like this. And that's what we have to build. F-35 and we're upgrading F-22 in the same way will have at least one and often more orders of magnitude capability in those digital arenas than the fourth generation fighter jets we have. And so the capabilities alone that the F-35 can bring to an integrated fight with drones and manned aircraft is unique. |
4,061 | LMT | 4 | 2,024 | 2025-01-28 11:00:00 | Lockheed Martin Corporation | 285,827 | Jay Malave: Doug, I'll just also add that just maybe one data point here is that the, the age of the existing fleet is beyond 25 years. And so that is necessitating a recapitalization with the F-35. And so there's a certain reality that is going to require the demand of the F-35 to bring the age of that existing fleet back down.
James Taiclet: And then the last thing I'll say is that there's based on again, open source reporting, the experience of the Israeli Air Force against the Iranian air defense system, which they took out in one night with what they characterize as fifth generation aircraft and you can match up what's in their inventory with no losses. That would clear the way for 4th gen aircraft drones to come in and devastate that country if the Israelis decided to do so. That's the kind of impact that the high end platforms have. Especially if you can network satellite imagery, autonomous vehicle drone imagery and a companion control speed that no one else can muster. You can have that kind of lopsided victory. And that's another reason I think that the F-35 is going to demonstrate its value here through the Israeli experience.
Operator: The next question comes from Michael Ciarmoli with Truist Securities. Your line is open.
Michael Ciarmoli: Hey, good morning guys. Thanks for taking the questions. Maybe Jim or Jay just give a little bit more color on supply chain. I know the general update had been the demand signals were pointing to mid-single digit. Any changes with that under the new administration? And then just given supply chain and the new administration, should we think about that multiyear kind of framework being now firmly in mid-single digits for both revenue and cash flow? |
4,062 | LMT | 4 | 2,024 | 2025-01-28 11:00:00 | Lockheed Martin Corporation | 285,827 | Jay Malave: It's a good question. Let me just answer your question. Kind of supply chain operationally. We have seen improvement. We saw improvement certainly in 2024 and we're at levels where, they have approached and in certain cases have exceeded what they were pre-COVID. Having said that, there are still discrete issues that we're dealing with across the portfolio. I think MFC is a good example. They've done an outstanding job of managing a number of supply chain issues, but yet they still are. And so that while we have a solid growth outlook there and a strong growth outlook there, they're still being paced to a certain extent. And that bodes across much of the portfolio. Sikorsky's another one, CH-53K has been hampered and while we have seen improvement, it's still not to the level where we need to be operating at from a contractual standpoint. If we continue to see though what we have seen, then sure, I would feel a lot more confident in a multiyear outlook that is more in its 4% to 5% range like we're guiding for, for 2025, I think that we need to just go through a little bit more the passage of time as we go through midway through this year, we get a better outlook on how 2025 is shaping up and how that informs 2026. We'll be able to give you a clearer, a clearer view longer term. But at the moment we're encouraged by what we're seeing and surely we've seen it here in 2025 and we're starting to gain confidence, as I mentioned before, that it can continue in 2026.
Maria Lee: Sarah, let's take one more question. I think we're approaching the top of the hour. And then after this question we'll hand off to Jim for closing comments. So one more question please.
Operator: Thank you. The last question will come from Ron Epstein of Bank of America. Your line is open. |
4,063 | LMT | 4 | 2,024 | 2025-01-28 11:00:00 | Lockheed Martin Corporation | 285,827 | Operator: Thank you. The last question will come from Ron Epstein of Bank of America. Your line is open.
Ronald Epstein: Hey, thanks guys for the question. Maybe just kind of like a two parter. The first part is easy, I think maybe when they discuss this iron dome over the U.S. isn't that NGI, the contract that you guys already won? Or am I thinking about that wrong? Because isn't that what NGI is? |
4,064 | LMT | 4 | 2,024 | 2025-01-28 11:00:00 | Lockheed Martin Corporation | 285,827 | James Taiclet: Ron, Jim here. It would be an integral part of a more comprehensive solution to homeland defense. And what the administration has laid out is a defense of the homeland against a multiple set of attack options for any adversary. One of them is, as you say, intercontinental ballistic missile attack. That is something that the NGI is specifically designed to accomplish. But then there's also hypersonic attack. We have a counter hypersonic attack effort in this company. Knowing that we're going to need to be able to do that. And by the way, to do it you're going to need AI and you're going to need high speed data transmissions and you're going to have to have multi sensors and multi domains to do it. So that's the second one. A third one is cruise missiles. Right. We've shown that for example, we can shoot down cruise missiles with lasers now and that could be part of the solution. And then maybe the lowest level adversary would be a cheap in country UAV attack, a drone attack on a public place or an air force base or some other U.S. located facility or asset. And that's another set of technologies which is counter UAS, and we haven't heard back from this administration yet on this topic, but we offered the prior administration at the SecDef [ph] level to organize a national team on counter UAS because I think we have some pretty good technologies. We want to add a lot more from some mid and large companies that do have the relevant technologies as well. So I might have ran you out of time on your second part of your first question. But that's what I think of when I consider what Iron Dome would have to look like.
Ronald Epstein: Got it. So it's a broader thing and just sort of just call it missile defense.
James Taiclet: Yes, yes. And there's a public statement by the U.S. Government that outlines a lot. |
4,065 | LMT | 4 | 2,024 | 2025-01-28 11:00:00 | Lockheed Martin Corporation | 285,827 | James Taiclet: Yes, yes. And there's a public statement by the U.S. Government that outlines a lot.
Ronald Epstein: Yes. If I can just squeak in one last one and then we'll. I know we got to go. How are you thinking about, I mean, Denmark is an important F-35 international customer. And there's a lot of rhetoric in the press around the U.S. wanting Greenland. How do you think about, about that and mixing that up with them being an important customer and what message that might send other customers?
James Taiclet: Look, these are policy issues by the U.S. Government completely out of our purview. So I'll just leave that there. The demand for the aircraft we talked about keeps building, especially in international customers. And really that's all I to comment on a policy matter such as this.
James Taiclet: All right. Thank you, Maria, for managing all the questions. Before we close, I want to thank the Lockheed Martin workforce for constantly pushing the boundaries of innovation to help our country and our allies accomplish their missions and maintain our ability to provide a strong deterrent to armed conflict. And if we must, defeat any enemy that attacks us. In the Air Force we used to call that fly fight and win. As we did in this first term, we look forward to a very productive working relationship with President Trump, his team and the new Congress to strengthen our national defense. We share a commitment to achieving peace through strength and we're focused on delivering the best mission critical defense technology in the world and at the greatest value to the American taxpayer. So with that, we'll wrap up the call. Thank you everybody that joined today and we'll see you in April on our first quarter call.
Operator: This concludes today's conference call. Thank you for joining. You may now disconnect. |
4,066 | LMT | 3 | 2,024 | 2024-10-22 11:00:00 | Lockheed Martin Corporation | 285,827 | Operator: Good day, and welcome everyone to the Lockheed Martin Third Quarter 2024 Earnings Results Conference Call. Today's call is being recorded. [Operator Instructions]. At this time, for opening remarks and introductions, I would like to turn the call over to Maria Ricciardone, Vice President, Treasurer and Investor Relations. Please go ahead.
Maria Ricciardone: Thank you, Steve, and good morning. I'd like to welcome everyone to our third quarter 2024 earnings conference call. Joining me today on the call are Jim Taiclet, our Chairman, President and Chief Executive Officer; and Jay Malave, our Chief Financial Officer. Statements made in today's call that are not historical facts are considered forward-looking statements and are made pursuant to the safe harbor provisions of federal securities law. Actual results may differ materially from those projected in the forward-looking statements. Please see today's press release and our SEC filings for a description of some of the factors that may cause actual results to differ materially from those in the forward-looking statements. We've posted charts on our website today that we plan to address during the call to supplement our comments. These charts also include information regarding non-GAAP measures that may be used in today's call. Please access our website at www.lockheedmartin.com and click on the Investor Relations link to view and follow the charts. With that, I'll turn the call over to Jim. |
4,067 | LMT | 3 | 2,024 | 2024-10-22 11:00:00 | Lockheed Martin Corporation | 285,827 | James Taiclet: Thanks, Maria. Good morning, everyone, and thank you for joining us on our third quarter 2024 earnings call. The demand for Lockheed Martin systems and services remains robust across all four of our business areas. We ended Q3 with record backlog of more than $165 billion, reflecting a book-to-bill ratio of 1.3 in the quarter. Precision and Air defense munitions drove the increase, including large orders for Javelin, guided multiple launch rockets and joint air-to-surface standoff and long-range antiship missions. Compared with last year's third quarter, sales increased and segment operating margins expanded 20 points to 10.9%, led by Missiles & Fire Control, reflecting increased production volume. Free cash flow was $2.1 billion in the quarter as we continue to implement working capital efficiencies and optimization. High confidence in our future cash generation prospects supported our Board's recent decision, to raise the quarterly dividend by 5% to $3.30, the 22nd consecutive year of increases and to extend our share repurchase authorization. Turning to the F-35, we delivered 48 F-35 aircraft in the quarter. We expect to deliver 90 to 110 aircraft in 2024 and the remaining balance of the Lot 15 to 17 aircraft thereafter. In addition, TR-3 flight testing continues with 95% of combat capabilities validated and additional capabilities progressing. With over 1,040 aircraft delivered and growing, the F-35 fleet has become an essential component of the collective security of the U.S. and our global allies. For example, by the 2030s, over 600 F-35s will be in operation across more than 10 European nations. And in July, Greece announced that it will be the 19th nation to fly the F-35 and will acquire 20 aircraft. Plus the rollout of the initial F-35 for Poland in August marked a significant milestone in our 20-plus year partnership with that country. The F-35 superior sensors, stealth and data sharing capabilities are setting new standards for interoperability and joint operations with our allies, |
4,068 | LMT | 3 | 2,024 | 2024-10-22 11:00:00 | Lockheed Martin Corporation | 285,827 | stealth and data sharing capabilities are setting new standards for interoperability and joint operations with our allies, serving as the cornerstone for NATO's deterrence and defense posture. To further augment the capabilities of the F-35 and our other major platforms, we are investing heavily in autonomy and AI as well as other enabling digital technologies. As an example, our Lockheed Martin AI Center and our RMS business area conducted realistic teaming scenarios with uncrewed aerial systems or drones, and uncrewed ground vehicles at the U.S. Army in their recent experimental demonstration event. The successful demonstrations exhibited our abilities for using AI, by launching an autonomous drone to provide guidance and navigation instructions to a ground-based robot to help it navigate a dangerous urban environment and enable greater safety for our soldiers than any current approaches can do. The rapid integration of digital technologies and capabilities is one element of our 21st Century security strategy. Another example of this, in the third quarter, was Lockheed Martin Skunk Works team partnered with the U.S. Air Force Test Pilot School to conduct full-scale live flight tests of an adaptive technology that makes real-time adjustments to flight control algorithms, resulting in substantial time and cost savings. And we do these kind of tech insertions on real, scalable combat platforms. Those that were implemented on mass can have theater-level effects on combat capability and thereby deterrents from great power armed conflict. The second element of 21st Century Security is designing resilience and antifragility into the defense industrial base. To this end, we signed a teaming agreement with our partner, General Dynamics in the third quarter for the production of solid rocket motors. The initial work will focus on producing SRMs for the GMLRS rocket and will start in 2025 at GD's facility in Camden, Arkansas. This third source of solid rocket motors will enable us to move more quickly to ramp production |
4,069 | LMT | 3 | 2,024 | 2024-10-22 11:00:00 | Lockheed Martin Corporation | 285,827 | facility in Camden, Arkansas. This third source of solid rocket motors will enable us to move more quickly to ramp production for critical defense capabilities and strengthen the defense supply chain. The third element of 21st Century Security is the implementation of a global and regional approach to production and sustainment with our allies and partners. We have expanded international collaborations to enable indigenous military capability development in countries, including Australia, Germany, Poland and India. I recently had the opportunity to discuss the expansion of Lockheed Martin sustainment and production operations in India with Prime Minister Modi in July, including growing the capacity and the capabilities of our joint ventures with Tata that already manufacture C-130J empennages, F-16 wings and helicopter cabins in Hyderabad. Turning to the U.S. defense budget. We are currently in a continuing resolution that funds U.S. government operations through December 20 of 2024. For our part, our teammates across all of Lockheed Martin will thereby be able to continue to work diligently to deliver on our customer commitments. We'll also be dedicated to delivering strong financial performance through the remaining months of 2024 and to carry that momentum into the coming year as well. So now I'll turn it over to Jay. |
4,070 | LMT | 3 | 2,024 | 2024-10-22 11:00:00 | Lockheed Martin Corporation | 285,827 | Jay Malave: Thanks, Jim, and good morning, everyone. Today, I'll provide an overview of our consolidated financials and operational highlights in the quarter before handing off to Maria, who will cover business area results, and I'll come back to discuss the 2024 outlook and some longer-term trending. Starting on Chart 4. Sales of $17.1 billion were up 1% year-over-year, led by MFC and RMS. As expected, Aeronautics was down primarily due to delayed revenue recognition of approximately $700 million associated with the lapse in F-35 program funding as we continue to work through Lot 18 negotiations. Normalizing for that impact, consolidated sales would be up 5% year-over-year. Segment operating profit of $1.9 billion was up 3% year-over-year, with consolidated margins at a respectable 10.9%. Net profit adjustments in the quarter were higher than prior year and amounted to 20% of segment operating profit. GAAP earnings per share of $6.80 increased 1% year-over-year, driven by higher profit and lower share count, partially offset by higher interest expense, a higher tax rate and lower pension income. Turning to new business. We recorded over $22 billion of orders in the third quarter, for a book-to-bill ratio of approximately 1.3, led by MFC with orders exceeding $8 billion and driving overall backlog to over $165 billion. Free cash flow was $2.1 billion in the quarter, aided by strong collections, including international program advances. This brings our year-to-date total free cash flow to just over $4.8 billion, enabling another $700 million of independent research and development and capital expenditures in the quarter. Further enhancing our leadership position in 21st Century Security and integrated deterrence. Finally, we returned $1.7 billion of our free cash flow to shareholders via share repurchases and dividends. Turning to some key operational milestones and program highlights in the quarter. At Aeronautics, through the third quarter, we delivered 48 F-35s. In addition, the team continues to make progress |
4,071 | LMT | 3 | 2,024 | 2024-10-22 11:00:00 | Lockheed Martin Corporation | 285,827 | the quarter. At Aeronautics, through the third quarter, we delivered 48 F-35s. In addition, the team continues to make progress towards Tech Refresh 3 combat capability with incremental milestones on track for completion in the fourth quarter. Beyond the F-35, the C-130 franchise had a very successful quarter. The worldwide fleet of over 550 C-130J Super Hercules surpassed three million flight hours, demonstrating the platform's unmatched global reach and multi-mission versatility. We also delivered the first eight C-130J-30 tactical air lifters to the Ohio Youngstown Air Reserve station in July, and delivered the first J variant aircraft to longtime C-130 customer, New Zealand. At RMS, the U.S. Marine Corps formally accepted the 23rd and final next-generation VH-92A Presidential helicopter built by Sikorsky, marking a significant milestone for the company, whose aircraft have flown every U.S. President since 1957. This is highly tailored solution, based on the proven S-92 helicopter, meets the Marine Corps unique and critical mission of supporting the Commander in Chief around the world. And at Space, in September, NASA awarded Lockheed Martin, a contract to design and build the next-generation Lightning Mapper instruments for the National Oceanic and Atmospheric Administration or NOA, GeoXO program. The baseline contract is valued at approximately $300 million for two instruments with options for an additional two. This award follows on the GeoXO award we received in June to design and build the core NOA spacecraft constellation. This continues our long tradition of designing and building weather and environmental spacecraft, including many earth observation instruments. I'll stop here and hand it over to Maria to talk more about the business area of financials. |
4,072 | LMT | 3 | 2,024 | 2024-10-22 11:00:00 | Lockheed Martin Corporation | 285,827 | Maria Ricciardone: Thanks, Jay. Today, I'll discuss third quarter year-over-year results for the business areas. Starting with Aeronautics on Chart 5. Third quarter sales at Aero declined 3% year-over-year, primarily driven by lower F-35 volume due to delays in the Lot 18/19 contract negotiations that Jay previously mentioned. Partially offsetting that headwind with higher volume at C-130 and the continued production ramp on the F-16 program. Segment operating profit decreased 2%, with lower volume and unfavorable mix being partially offset by higher profit booking rate adjustments, mainly due to a favorable adjustment related to a legacy C5 claim. With the F-35 surpassing 1,000 aircraft deliveries this quarter, I'd like to highlight a few other notable items from the other major platforms. More than 2,600 C-130 aircraft have been delivered to 63 nations, with more than 550 J variants delivered to 22 countries and Egypt set to become the 23rd. And the F-16 has delivered more than 4,600 aircraft to 27 countries over the past 50 years. Turning to Missiles & Fire Control on Chart 6. MFC had another solid quarter with sales up 8% year-over-year, driven by production ramps on precision fires programs within the Tactical & Strike Missiles segment, primarily guided multiple launch rocket system, GMLRS and Long Range Anti-Ship Missile, LRASM. Segment operating profit increased 15% year-over-year, due to the higher volume and the higher booking rate profit adjustments primarily at PAC-3, while margins were again solid at 14.4%. MFC's book-to-bill ratio in the quarter was a strong 2.7, leading to another record backlog now over $40 billion, driven by continued global demand. In the quarter, the U.S. Army awarded the largest single year production contract for Javelin and related equipment, worth $1.3 billion to the Javelin joint venture, as well as a $4 billion contract for GMLRS. The Air Force awarded an over $3 billion multiyear large lot procurement contract for JASSM, LRASM, providing a key antifragility measure to |
4,073 | LMT | 3 | 2,024 | 2024-10-22 11:00:00 | Lockheed Martin Corporation | 285,827 | awarded an over $3 billion multiyear large lot procurement contract for JASSM, LRASM, providing a key antifragility measure to increase industry resilience and ensure operations can be ramped more quickly going forward. Shifting to Rotary & Mission Systems on Chart 7. Sales increased 6% in the quarter to $4.4 billion, primarily driven by higher volume at integrated warfare systems and sensors on radar programs, as well as the Canadian Surface Combatant program. Sikorsky programs also saw higher volume led by CH-53K, Blackhawk and Seahawk. Operating profit was comparable to the prior year with higher volumes being offset by lower profit booking rate adjustments. Finally, at Space on Chart 8, sales decreased slightly year-over-year. The reduction was driven by lower volume at commercial civil space, primarily on the Orion program, partially offset by higher volume at strategic and missile defense on our strategic reentry programs. Operating profit increased 5% compared to Q3 2023, driven by favorable mix, partially offset by lower equity earnings from United Launch Alliance, ULA. Recently, Space was awarded a contract to continue nearly 70 years of partnership between the U.S. Navy and Lockheed Martin through the Fleet Ballistic Missile FBM program, a key component of our nation's strategic deterrence. Under the contract, we will provide Trident missile production support and reentry system hardware as well as operations and maintenance to support the readiness and reliability of the missile systems. FBM will continue to be a growth driver for Space for years to come. Now I'll turn it back over to Jay to wrap up our prepared remarks. |
4,074 | LMT | 3 | 2,024 | 2024-10-22 11:00:00 | Lockheed Martin Corporation | 285,827 | Jay Malave: Thanks, Maria. All right. Turning to Chart 9 and our outlook for 2024. With one quarter remaining, we've shifted to approximate point estimates that reflect increased expectations for sales, segment operating profit, earnings per share and free cash flow. We have slightly reduced our share repurchase target for the year to approximately $3.7 billion, primarily due to the redeployment of capital to the Terran Orbital acquisition. All told, we still expect to return greater than 100% of free cash flow to shareholders in 2024 via repurchases and dividends. Quickly stepping through the other metrics, we estimate sales of approximately $71.25 billion, reflecting growth of 5% over 2023 as our backlog continues to convert across the portfolio. We're also increasing the segment operating profit expectation driven by the higher sales volume to approximately $7.475 billion, and we continue to anticipate consolidated segment operating profit margins of approximately 10.5%. Moving to earnings per share. We're increasing our forecast by $0.30 from the prior midpoint to approximately $26.65. Primary drivers of the change are incremental profit of about $0.17, with other below-the-line items and taxes bringing in an additional $0.13. And lastly, on free cash flow. We now estimate approximately $6.2 billion for the year, up slightly from the prior midpoint while absorbing the unfavorable impact of the recent F-35 Lot 15 to 17 aircraft delivery settlement, which we estimate will be approximately $600 million in 2024 with expected recovery over the next few years. Before I talk about trending, I'd like to reiterate a few key assumptions regarding our 2024 outlook. First, we expect F-35 Lot 18-19 to be awarded this year, maintaining program funding and continuity. We continue to make progress in negotiations towards a contract that secures our mutual goals of delivering advanced fifth-generation fighter capability to our services. Should the negotiation time line extend beyond year-end, the financial impact would be |
4,075 | LMT | 3 | 2,024 | 2024-10-22 11:00:00 | Lockheed Martin Corporation | 285,827 | fighter capability to our services. Should the negotiation time line extend beyond year-end, the financial impact would be one of timing. We could see about 3% or $2 billion of our sales shift into 2025 along with associated impacts to profit and about $1 billion of free cash flow. The second key assumption is that we continue to anticipate $325 million of full-year losses on the MFC classified program. That said, we will continue to assess facts and circumstances that could lead to the recognition of additional losses in the year. And third, this outlook does not assume any pension contribution in 2024. All right. So let's shift now to the outlook beyond 2024, and I'll provide a multiyear framework on Chart 10. To start with, our record backlog position provides a strong foundation for sustained top line growth over the coming years. Looking at sales through the 2027 time line, our baseline assumption still reflects a low-single-digit compound annual growth rate off of the higher-than-expected sales expectation for 2024. As I stated previously, the demand signals point to mid-single-digit growth through 2027, but the outlook remains tempered by our current assessment of the pace at which the value chain can meet the demand. Our confidence in a mid-single-digit growth rate will grow as clarity increases on new business campaigns, funding stability and capacity acceleration of the production systems. On segment margins, we anticipate improvement of 10 to 20 basis points per year based on our continued focus on operational excellence and program performance, combined with program derisking. So in other words, steady improvement to a more normal range of around 11% ROS by 2027. Thinking about EPS trends over the three-year horizon, while we anticipate year-over-year benefits from higher segment operating profit and a lower share count, these benefits will be diluted by continued FAS/CAS pension headwinds, particularly in 2025, and higher effective tax rates from a change in certain deductions based on current law. |
4,076 | LMT | 3 | 2,024 | 2024-10-22 11:00:00 | Lockheed Martin Corporation | 285,827 | headwinds, particularly in 2025, and higher effective tax rates from a change in certain deductions based on current law. For free cash flow, we continue to target a low single-digit CAGR through 2027, based on delivering cumulative working capital reductions that partially offset known pension contribution headwinds. While offsetting the pension contributions dollar-for-dollar in each year with working capital reductions alone is a challenge. We have confidence that we could fully offset the headwinds and improve the growth rate to mid-single-digits through the combination of organic and inorganic cash generation initiatives. We'll provide more details in January as we show our plans with better visibility to 2024 pension asset returns, post-election policy and interest rates. Overall, this baseline multiyear framework remains consistent to the investment thesis we've discussed previously. We still expect single digit – low-single-digit free cash flow growth over the next three years, supplemented by share repurchases to deliver mid-single-digit free cash flow per share return over the same horizon with upside potential. So in summary, on Chart 11. Performance year-to-date gives us confidence to raise the full-year outlook for 2024 and in our ability to deliver solid sales and free cash flow growth over the next few years. At the same time, we continue to invest in digital transformation capabilities and innovative technologies that will help differentiate our mission solutions for customers. And we remain focused on operational execution to deliver on our commitments and long-term value for our customers and shareholders alike. With that, Steve, let's open up the call for Q&A. |
4,077 | LMT | 3 | 2,024 | 2024-10-22 11:00:00 | Lockheed Martin Corporation | 285,827 | Operator: We will now begin the question-and-answer session of today's conference. [Operator Instructions] Our first question will come from the line of Ron Epstein of Bank of America. Please go ahead.
Ronald Epstein: Yes, thank you. Good morning, Jim and Jay.
James Taiclet: Good morning, Ron.
Ronald Epstein: Maybe circling back on some of your prepared comments, Jim. When we think about the current situation in kind of the tactical fighter world, where it seems the Air Force is giving a rethink to NGAD, the system, what it should be. You mentioned some of the work you guys are doing on AI and drones. If you look at how Increment 1 of CCA was awarded to maybe nonusual companies, right, and kind of new players, how are you thinking about Increment 2? And what the interplay between man and unmanned systems, tactical fighters, drones? I mean, does it change how you think about going forward, what NGAD could be and what it means for Lockheed? |
4,078 | LMT | 3 | 2,024 | 2024-10-22 11:00:00 | Lockheed Martin Corporation | 285,827 | James Taiclet: Sure, Ron. We're preserving our optionality based on what the U.S. government and service is determined to be their strategy for tactical fighter deployment over the next 20, 30 years. And so part of that strategy is having our Skunk Works continue to develop technologies that could be implemented for a generation, sixth-generation tactile aircraft, it's a step function above what the F-22 and F-35 can do today. So we are investing time, talent and energy into that in Skunk Works which is in this setting, all we can really say about that. The second piece of it, though, is the crewed, uncrewed teaming, element of whether it's NGAD or F-35 plus CCA, if you will, or multiple CCAs. We're already working that out too. We've developed a pod that will enable the F-35 to control even today, CCAs, if you will. And we have a flight control system and communication system and development that will enable that as well. And that could be converted, I think, to F-22 as well. So we are working both of those elements. But the key part of it is you still got to have volume, and I'm an ex-Air Force pilot myself. We have to be able to meet the J-20, which is the Chinese combat tactical aircraft, fifth generation as well, with enough numbers in the Pacific, or at least field enough numbers of -- it's F-35 and F-22 now is the only really competitive jets against the J-20, 1:1. We have to field enough of those aircraft in a short enough time frame to maintain an effective deterrent in the Pacific. And the Russians are also developing fifth-generation aircraft as well. So the threat will emerge in Europe too. So we got to have volume to start with on fifth gen. We need to be able to bring autonomy in the CCA concept into fifth gen and sixth gen, if there is one. So we're keeping all of those avenues open and we're investing really in all three again to preserve the optionality for the defense industrial base and our partners to be able to deliver on which of those strategies or what combination that the U.S. government |
4,079 | LMT | 3 | 2,024 | 2024-10-22 11:00:00 | Lockheed Martin Corporation | 285,827 | base and our partners to be able to deliver on which of those strategies or what combination that the U.S. government decides to pursue. |
4,080 | LMT | 3 | 2,024 | 2024-10-22 11:00:00 | Lockheed Martin Corporation | 285,827 | Jay Malave: And I'll just add, Ron, just in our outlook, the multiyear outlook that I gave you, that accounts for and assumes that we'll have incremental -- significantly incremental investment in areas such as autonomy, AI, crewed, uncrewed teaming and manned control systems. So we feel that our investment is going to the right places as these platforms and systems evolve.
James Taiclet: Yes. And as far as Increment 2 on the CCA, Ron, the way it's been described to us is Increment 1 was proof-of-concept, more of an experimental kind of approach. Increment 2 is going to be -- targeted to be fieldable combat-ready, scalable design and production of the uncrewed teaming half of the system. So we are fully dedicated to that. Like I said, we have Skunk Works working on both the parent and the child, if you will, when it comes to all CCA concepts and Increment 2 is going to be really where we're, I think, most competitive because we can show that we can control these vehicles with today's technology already at scale. So we're going to be eager to compete for that.
Operator: Our next question comes from the line of Sheila Kahyaoglu of Jefferies. Please go ahead.
Sheila Kahyaoglu: Good morning, Jim and Jay. Jay, maybe one for you. Maybe if we could go to Slide 10. I appreciate you giving the long-term -- medium-term targets for low-single-digit revenue growth. Can you maybe rank order the segment with MFC leading. I think you've talked about mid-single-digit growth of $750 million there. And what other segments follow. What campaigns get you to that mid-single-digit opportunity for top line growth? |
4,081 | LMT | 3 | 2,024 | 2024-10-22 11:00:00 | Lockheed Martin Corporation | 285,827 | Jay Malave: Yes, sure. Thank you, Sheila and good morning. You kind of nailed it in your question. The leader of growth will be MFC over this time period through 2027. And I would put them at the high-single-digit clip very comfortably based on the backlog that they have today and the visibility we have to incremental orders. The other three business areas in this framework, at least starting off with this low-single-digit, the rest of them will be in this low-single-digit framework pretty kind of consistently. Now how do we go from a low-single-digit to a high single-digit? Quite frankly, a lot of that opportunity is already sitting in the backlog. If the system can convert, and I'd say the entire enterprise, so it's not just supply chain, it's our operations as well can convert on that backlog quicker, and we did see this in 2024. If you recall, we came into the year thinking that we would grow low-single-digit, and we converted that and changed it to 5% growth here in 2024. So under the same framework, it is a step change from where we are in 2024, but we demonstrated that we can improve throughout the year. So as that visibility gets better, that would enable us to go from a low-single-digit to mid-single digit. Yes, there are other campaigns and some of those are classified. If you go back a few years, we talked about the four pillars of growth, new awards was an element of that as well as classified growth. New awards, we got one of those, which is the next-generation interceptor. So that's already a win. The other one would be in our -- really our classified portfolio, and those are campaigns that will happen over the next, I would say, six to 18 months. But as I mentioned -- and I mentioned in my prepared remarks, the foundation for the growth to mid-single digit is pretty solid. At least in the short term, is more of a conversion issue.
Operator: Our next question comes from the line of Noah Poponak of Goldman Sachs. Please go ahead.
Noah Poponak: Hey, good morning everyone.
James Taiclet: Good morning. |
4,082 | LMT | 3 | 2,024 | 2024-10-22 11:00:00 | Lockheed Martin Corporation | 285,827 | Noah Poponak: Hey, good morning everyone.
James Taiclet: Good morning.
Noah Poponak: Jay, I was hoping to get some more help from you on the MFC margin. Do the last two quarters suggest the operating performance is better? Or is it just that the loss accrual is loaded into the fourth quarter? And I guess, remind me why the accounting is that way as opposed to taking it all when you know you have it? And I don't know if you could talk about how you expect that to progress through '25. But I guess just fundamentally… 0 to 31 *** Part 31-end …is that way as opposed to taking it all when you know you have it? And I don't know if you could talk about how you expect that to progress through '25. But I guess just fundamentally, like is the new classified program or the overall operating performance in the segment, is it improving or worsening? Or is it just the volatility is accounting? |
4,083 | LMT | 3 | 2,024 | 2024-10-22 11:00:00 | Lockheed Martin Corporation | 285,827 | Jay Malave: Yes. I would say the volatility is kind of, I would say in this year-to-date, their performance is better than prior year. We've seen an improvement. When you put aside the losses related to the classified program, their profit adjustments year-to-date have shown growth, and they're performing, I think, pretty well in the base. So this was a good quarter, as an example, we didn't really record any losses related to the classified program, and we delivered 14.4% margins in the quarter, and that's essentially where they're operating this year ex the losses. You got it right as far as timing, we would expect, we recorded $100 million in the first quarter. So that would say that about $225 million were record or what's included in our guidance for the fourth quarter. As far as your question on the accounting, it's a good question. It really depends on the facts and circumstances and the probability. We have to make an assessment and a probability of the exercise of certain options. And so the visibility is clear as things are more short term and the visibility gets a little bit more murkier as you go out a little bit further. So you have to make assessments of similar facts such as customer interactions that we have, their intentions, visibility to funding over a longer period of time, the performance of the system is one in how we're doing from a testing perspective. So all of these factors taken together have to go into the assessment to determine if and when we record a forward loss. And so that's where we are. As far as 2025, a baseline assumption would be that we -- you go from $325 million to anywhere between say $250 million to $300 million in losses in 2025, assuming a one per year type of framework. As I mentioned in my prepared remarks, we have to take another look at whether or not there will be additional losses that have to be recognized early on to your question. And again, that's a really quarter-to-quarter assessment that we have to make. |
4,084 | LMT | 3 | 2,024 | 2024-10-22 11:00:00 | Lockheed Martin Corporation | 285,827 | Operator: Our next question comes from the line of Myles Walton of Wolfe Research. Please go ahead.
Myles Walton: Thanks. Good morning. Hey, Jim, just a follow-up first on CCA. Are you currently competing on the autonomy portion of Increment 1? And is that what gives you a better feeling for where Increment 2 Lockheed could be? And then, Jay, could you just update us on the ARRW classified contract? I think you booked another charge in the quarter. I'm just curious if there's any line of sight to when you're sort of back on the right side of that program?
James Taiclet: So Myles, based on the classification of the CCA program, especially longer term, I can't refer to it directly as far as who's competing for what element of it. But what I can tell you is, echoing in Jay, we are investing heavily in autonomy, AI, 5G connectivity distributed remote node cloud, those kinds of things that enable a CCA type device to be effective. Now we're testing in open air, I'll call it, these kind of technologies with existing platforms, which is another use case, but it's one we could talk about. So you've already seen potentially that we've got an autonomous Black Hawk up and running full capability helicopter that can do missions with you sitting on your couch in your living room, programming the mission in and changing it in a flight on your iPad, right? This is scalable, big hardware, big effect platforms that can be elevated in their capability with autonomy, AI, et cetera. We've also done the same thing within F-16 with the Air Force that shows that we can actually dog fight an F-16 without a pilot in it and be effective. So these technologies. If you -- one could probably surmise if you can apply them to legacy hardware at that level of scale that you can certainly apply them to hardware that is a smaller scale on crude as well. |
4,085 | LMT | 3 | 2,024 | 2024-10-22 11:00:00 | Lockheed Martin Corporation | 285,827 | Jay Malave: On the question on the classified program at aeronautics we did realize incremental risk in the quarter. In the press release, we had about $80 million there. Year-to-date, we're about $145 million. So we have, obviously, realized some incremental learnings that have converted to incremental losses. It's a classified program, so I can't really talk too much about what it is. But what I can tell you is that we are essentially meeting our scheduled objectives, albeit at a higher cost. And I would say the cost is really a function of the aggressive pricing that we bid originally. And so as we recalibrate, we are kind of keeping an eye on our cost. We'll do continuous reviews, as you would expect us to do. And we'll have another review here in November with the team so we can go back and understand and pressure test the risk management plan. But it's not just an oversight function. I think it's incumbent upon us as a leadership team to not only provide the oversight, but also make sure that we're providing the tools and the resources to make sure they're successful. This program will be managed as a whole team, and we're all in it together. And as I mentioned on the cost, it's -- again, it was bid aggressively. Jim and I have been pretty firm over the past few years that really reining in those practices, and we really haven't seen any of those since that time. And so we've got a contractual commitment that we've got to meet, and we will meet, and we'll manage this program as best as we possibly can. And I think part of what we're trying to do is change the trajectory, drive towards better outcomes, while at the same time deliver the mission capability that we've contracted to give our customer. |
4,086 | LMT | 3 | 2,024 | 2024-10-22 11:00:00 | Lockheed Martin Corporation | 285,827 | James Taiclet: And Myles, I can speak to one command and control system that we have demonstrated because it was, again, an open space. Recently, the Air Force put on its [indiscernible] space force put on its sort of annual gathering, if you will, outside of Washington, D.C. And in our -- it's a bit of a trade show set up, so it was public. We were demonstrating to our customers there in open space, again, not classified, our ability to use that iPad technology to control eight CCAs off an F-35 flight control and comm systems. So we've already shown that out in the open. But again, that's technology we've been working on for literally a decade or two at Skunkworks.
Operator: Our next question comes from the line of Doug Harned of Bernstein. Please go ahead.
Douglas Harned: Good morning. Thank you. On F-35, you said that you expect a lot -- you don't know for sure, but the lot 18 and 19 negotiations hopefully will be completed in Q4, [indiscernible] three are 95% through. What I'm trying to understand are really two things. A lot of times, you can have 5% left on something. We've -- this has been going on a long time getting Tech Refresh three done. How do we get confident that you're going to get there in Q4. And does this have an interplay with the lot 18 and 19 negotiations? Because if I can just ask separately, we're trying to understand what the cash implications are in 2025, if you get all this done or perhaps if it slips? |
4,087 | LMT | 3 | 2,024 | 2024-10-22 11:00:00 | Lockheed Martin Corporation | 285,827 | James Taiclet: So Doug, it's Jim. I'll start off. I want to lay out the fundamental framework of the F-35 program. And then I'll turn it over to Jay for some of the cash flow impacts and expectations in the financial results of that. So first of all, just to reiterate, there's a very important distinction between the F-35 production system and how we book revenue and profit on the production system versus the event of final aircraft delivery, which is actually a fairly small proportion of the revenue and profit that an aircraft F-35 aircraft generates for industry, right? So that important distinction. Now there's two current program conditions that you touched on that affect both of these outcomes, right? So what I want to also emphasize is both of the outcomes are not necessarily economic value outcomes. They are timing-related outcomes. So there's a time value money aspect of it, but the economic value of an F-35 that's delivered out of the system is not much affected, if you will, by these two issues, but the timing is effective. So let me just start with TR3 software finalization. So that's one of the conditions that we're managing through with the F-35 program and how that affects the delivery schedule. So about 1.5 years ago, we had conversations, and I did personally about a release one and release two concept. The government calls that truncation, but that's really what the concept is like we would do. And tech or telecom, we're going to do a release one of software. We're going to work through the discovery of that. And then when that is ready, we will be able to have an initial product. And the initial product is TR3 which is capable of doing unit standup, facing operations and training at operating Air Force and Navy and Marine bases as well as our allies with the TR3, I'll call it, again, release on software in it. You can fly the jet, you can practice basic and advanced fighter maneuvers. You can deal with -- develop tactics in your squadron and you can train your maintainers on how to do this new |
4,088 | LMT | 3 | 2,024 | 2024-10-22 11:00:00 | Lockheed Martin Corporation | 285,827 | maneuvers. You can deal with -- develop tactics in your squadron and you can train your maintainers on how to do this new aircraft. So if you're swapping out F-15 Squad and two F-35 Squad and the maintainers actually need to get their hands on the planes just as much as the pilots do. And then make sure all the tooling and everything is working for them. So Release 1 is what's being delivered now. That was the 48 in the third quarter. They all have Release 1, you can fly the jet. What it doesn't have are some of those incremental software validations that show that all combat systems and all weapons will be able to be effectively deployed because the testing program in flight test and bench test has been completed and we get a certification of reliability for that weapon, for example. There are a lot of test points there. And those test points are going to be developed, not just in the fourth quarter, but they're going to be developed over the course of 2025 as well, because when I say a weapon, is it an [indiscernible] is it an A9, what weapon are we talking about? There's literally dozens of weapons and there are multiple test points on things like the distributing after system, et cetera. So this is a complex path to what I'll call Release that's the full up combat capability. And as we work through those capability certifications individually, they'll be diminishing cat withholds along the way as those flight tests are completed and the certifications happen. Jay can kind of aggregate that for you in a minute. But that's how this part of the program works on a fundamental basis. So we feel that our projection of in 2024, 90 to 110 deliveries out of that process and to Release 1. In 2025 and beyond 180 deliveries a year of F-35. Now those are going to be a mix of those coming off the line, brand new and those that are parked. So the 180s will be a mix of those. We're working on a weekly basis right now to prioritize specific aircraft deliveries, literally one at a time. There's one go to the Dutch Air Force |
4,089 | LMT | 3 | 2,024 | 2024-10-22 11:00:00 | Lockheed Martin Corporation | 285,827 | basis right now to prioritize specific aircraft deliveries, literally one at a time. There's one go to the Dutch Air Force first and the marine second. And whenever we reprioritize what we're doing by the week based on the needs of the customer base, we need to change bill of materials. We'll do other things and parked aircraft may remain when a new aircraft may come right out to the fleet. So the complexity of this TR3 software definitization and release is going to take some time, but we will be able to deliver a mix of aircraft above the 156 production rate for the next few years because we'll be mixing based on what the customer is looking for. So that's one of the issues that you talked about. The other issue is actually, I would consider it completely unrelated from this. And that issue is any lot negotiation for a program such as this and at the scale that this program is at. So we are on a lot of contractual negotiation with the U.S. government. And by we, I mean, our major suppliers with us and all the way down to our smaller suppliers. Now currently, that lot negotiation is '18 and '19, and it's not completed yet. And under the federal acquisition regulation, if the government does not have a formal agreement with the supplier completed, the government cannot pay for either work being done under that undefinitized contract. In fact, it's not completed contract to be clear. Or pay for a product that is actually completed either. So that is where we as an industry then have to prioritize keeping our production system on pace, while the government by law, cannot pay us. So it's essential for the health of the lower-tier suppliers that we do that. We all kind of step up and do it as an industry. But the prime and major subs cannot book our revenue and profit even though we're expending cost. And that's where the cash impact of the negotiation comes in. We're not going to stop the production line because it would be unwise, I'll say, until the formal agreement is signed, we are going to keep it going until |
4,090 | LMT | 3 | 2,024 | 2024-10-22 11:00:00 | Lockheed Martin Corporation | 285,827 | production line because it would be unwise, I'll say, until the formal agreement is signed, we are going to keep it going until the formal agreement is signed, at which time these cash payments will be releasable. So those are the two issues we're facing. I want to say one of the things Doug -- why you've asked about this top of F-35. This isn't just a Lockheed Martin commitment to make this program a success. It's an industry-wide commitment, and I would also add a government commitment to make it a success. I'll just give you a few of the things that we've been part of and led over the last, I'd say two, three months. We held a CEO Summit of the top five industry partners in Fort Worth at the factory where we took an entire day determining how we could integrate our systems, IT systems, test systems, our processes, how we develop subassemblies and other items that go on the jet and integrate them with the jet those processes and personnel, moving more people between companies on either a temporary or almost semipermanent basis to make sure we've got the best talent working on every problem. So that's one thing that we've done. That same CEO level team followed up with the government and the meeting there was chaired by the Chief of Staff of the Air Force, the joint program office leader was their General Schmidt, the U.S. Navy and Marines had their air bosses there and that was in the Pentagon to lay out a similar integration framework with U.S. government systems, processes and personnel that's appropriate under law and regulation. And then we add another CEO update with U.S. senior government officials and this was just two weeks ago and seven partner nation customer officials in Washington to trade status of what we were all doing together. And in two more weeks, I'm bringing my executive team at Lockheed Martin across all the businesses and functions. We're going to gather in Fort Worth to make sure that every resource, every operational practice, every supply chain element that we can bring from across |
4,091 | LMT | 3 | 2,024 | 2024-10-22 11:00:00 | Lockheed Martin Corporation | 285,827 | Worth to make sure that every resource, every operational practice, every supply chain element that we can bring from across the company and certainly all the technical talent is devoted to this program. That is what we are doing to make sure this is a success. And the last thing I'll say there is that the customers need and want this aircraft. That was the opinion of the U.S. government in our meeting with the chief. There are six customers since 2020. I think these are all the competitions that we're in actually that chose the F-35 that weren't in the original partner group or the original order team. Switzerland, Finland, Germany, Canada, the Czech Republic and Greece. And then follow-ons from partners that already have the aircraft in operation also were added Japan, Netherlands, Republican Korea and Israel. So the demand for the aircraft and actually essential need for the aircraft is there. Industry is getting together with the government, and I think in ways that we haven't done before to really make this a success. And we've got to work our way through the lot negotiation, which is, again, it's a timing issue as far as payments, and we got to work our way through TR3 integration, which is a technical issue. But literally, it's an all hands on deck, not just an industry, but I'd say in government to get this all done. Jay, any... |
4,092 | LMT | 3 | 2,024 | 2024-10-22 11:00:00 | Lockheed Martin Corporation | 285,827 | Jay Malave: Yes. Let me just add to -- Doug, I'll try to give you a little bit of color on the cash impact to your question. As Jim mentioned, what we're looking at here is an output estimate of about 180 aircraft deliveries per year over the next three plus years. So effectively, what will happen is cash collections will smooth out over this period of time. This is important to point out that, that remains consistent with the low single-digit free cash flow growth framework that we've articulated today and previously. Just maybe a little bit on 2024. As I mentioned in my prepared remarks, we estimated the impact this year of unfavorable impact of about $600 million. That consists of two factors. Number one, less deliveries than the 156 rate. So we'll deliver in that range of 100 aircraft or so. So there's going to be less aircraft delivered and so there's an impact for cash flow from that. The second impact is the impact of the withholds. While we will release some of those with holds this year based on completion of milestones, there will still be some that carry over into next year and a little bit into 2026. Now in 2024, that's unfavorable impact was $600 million, that was entirely offset by other working capital efficiencies in the rest of the portfolio of about $600 million, mostly through advances that we've seen there. And so the net impact and then what enabled us to deliver the same free cash flow and, in fact, better than the midpoint that we had originally guided to was that offset. As you go to 2025, will deliver more aircraft. And so we will see the benefit of having delivered more aircraft and we will also see the benefit of having incremental withholds released. I would quantify that today at around $300 million to $400 million. And then that will then continue to flow in 2016 and beyond. And hopefully, that helps.
Operator: Our next question will come from the line of Rich Safran of Seaport Research Partners. Please go ahead. |
4,093 | LMT | 3 | 2,024 | 2024-10-22 11:00:00 | Lockheed Martin Corporation | 285,827 | Operator: Our next question will come from the line of Rich Safran of Seaport Research Partners. Please go ahead.
Richard Safran: Jay, on your opening remarks on pension, I think in the past, you made some comments about possibly reducing some out-year pension headwinds. So I want to know if you could maybe update us on what your thinking is there, if you still intend to reduce the headwinds after 2025 using debt or cash? And if so, what the timing of that might be?
Jay Malave: Yes. Thanks, Rich. Essentially, in my prepared remarks, I talked about the inorganic and organic means of managing this pension headwind. The inorganic would essentially be the issuance of debt as a primary enabler to be able to do that. That's still on the table. As I said on my prepared remarks that we're going to go through between here and the end of the year and finalize our plans based on various factors. And as you would expect, we're trying to exhaust all of the opportunities on an organic basis. So what can we bring out in working capital over this period of time to be able to offset as much as possible. To the extent that we can't, we do have the ability to go on financing to take out. I think the key takeaway there is that I remain confident that we'll be able to do that through the combination of organic working capital reduction as well as some level of inorganic mostly on the debt side.
Operator: Our next question will come from the line of David Strauss of Barclays. Please go ahead.
David Strauss: Just wanted to clarify on the longer-term framework relative to what you had said previously on 2025. I think you had talked about a 2025 growth in line with 2024, which is at 5%. So is that still the case or not? I know this is out through 2027. If you could just touch on that. And then Maybe, Jim, if you could touch on progress on the solar rocket motor side of things in terms of how that's going? Obviously, you announced this partnership with General Dynamics during the quarter as well. Thanks. |
4,094 | LMT | 3 | 2,024 | 2024-10-22 11:00:00 | Lockheed Martin Corporation | 285,827 | Jay Malave: Just on the framework as it relates to 2025. 2025 is very consistent with the multi-year framework that's on that chart, which is our starting point here is a low single-digit growth framework off of the 2024 number. And again, it's -- we're looking at MFC being the driver there, kind of starting off at a high single-digit rate. And the other business areas being either flat, slightly flat or on the up in this low-single digits. And so that's really our starting point. Again, we'll give a lot more color in January as we finalize these plans. But I'd say '25 is consistent with what we're saying in the multi-year framework. I guess just a reminder, David, I think it applies to '25 as it does in the three year framework. When you went to '24, we started at low-single digit. We upgraded it to mid-single digit. I think as our visibility improves, as I mentioned in my prepared remarks, there's still the case where we could be mid-single digits in 2025, but we need to see it come through. We need to see the production and operating systems be able to consistently grow at a mid-single digit CAGR, which is a lot easier said than done in the environment that we've been living under over the past few years. |
4,095 | LMT | 3 | 2,024 | 2024-10-22 11:00:00 | Lockheed Martin Corporation | 285,827 | James Taiclet: And David, as far as the solid rocket motor industrial base, I think this is a really positive example of how industry does come together in the service of national security, right? So first of all, I've just circulating this question with our Chief Operating Officer, Frank St. John, who's outstanding on Northrop Grumman and Aerojet Rocketdyne, which is now managed by L3 Harris. My question to Frank is, are these companies putting all the resources that we think they could be putting into their solid rocket motor operations, quality, delivery schedule, personnel, et cetera and open to us collaborating with them to make sure those deliveries happen? And his answer to me was yes. So our industry -- existing industry partners are stepping up to try to meet the elevated demand and investing to do that. So that's great. But we still need a third source from, I think, an antifragility perspective as we call it. And that is a partnership with General Dynamics, and that started off at the CEO level, and we figured out there was complementary capabilities between General Dynamics and Lockheed Martin, where we could actually have the design done at Lockheed Martin for the SRM and the General Dynamics had the ability, the facilities and the kind of production operations and personnel that could actually produce it. And so we are working together on that. We'll have to get that new solid rocket motor certified. It will be, again, Lockheed Martin IP design, if you will, and General Dynamics is standing up simultaneously the ability to produce them at rate. We have to do a few test articles next year in 2025. There'll be further testing that's done by the services to get their certification, the military services in 2026 and should be producing at rate we hope by 2027. And that will add a third supplier for the national defense industrial base, not just for Lockheed Martin, but for others as well and really strengthen our ability to produce these systems. |
4,096 | LMT | 3 | 2,024 | 2024-10-22 11:00:00 | Lockheed Martin Corporation | 285,827 | Operator: Our next question comes from the line of Jason Gursky of Citi. Please go ahead.
Jason Gursky: Hey, good morning, everybody. Thanks for taking the question.
Jay Malave: Good morning.
Jason Gursky: Jay, I just want to really, really pound the table -- not pound the table [indiscernible] horse here, I should say. And make sure I fully, fully understand the multi-year outlook here. So what you're saying is low-single digits as the baseline you can outperform that into the mid-single digits. So long as the supply chain and the production system kind of maybe performs as well as it did this year relative to expectations. What's the blue sky scenario here? Let's say that the supply chain all steps back into place, the production system is working well. You are then in this context, producing mid-single digit growth. But I would imagine that you've got a pipeline of additional opportunities out there. Is there a blue sky scenario where you're actually doing better than mid-single digit?
Jay Malave: It's a great question, Jason. Let me just first say terms in the framework. I mean, obviously, over 2025, there's better visibility than there would be for 2027. So the outlook feels good. And so my comment in terms of confidence as far as the demand signal being able to drive to a mid-single digit growth rate in '25 is heightened by better visibility. If you think about what we've seen in over, and I'll take '24 as an example in answer to your question, given what we've seen the demand cycle would have also enabled a higher growth rate than 5% in 2024. So I think the answer to your question in the short term is yes. I don't know that I could sit there and say that a multi-year framework would be a high-single digit number. But I think that given all the right circumstances, you could definitely see a year that could deliver high-single digit. But again, we're starting from low, we got to get to mid, we get to mid and then we can talk about anything beyond that. First things first. |
4,097 | LMT | 3 | 2,024 | 2024-10-22 11:00:00 | Lockheed Martin Corporation | 285,827 | Operator: Our next question will come from the line of Rob Stallard of Vertical Research. Please go ahead.
Rob Stallard: Thanks very much. Good morning.
Jay Malave: Good morning.
Rob Stallard: Jay, a question on the cash situation. Can you give us an idea of just how much working capital benefit you have to get through in the next couple of years to offset pension? And just how risky is this prediction?
Jay Malave: Well, Rob, the way I would characterize it is just quick math, one day equates to about $200 million of free cash flow. And I would say through '25 and '26, we would have to do at least two days of working capital improvement. So is it possible? Yes, in both years, so you'd have to do cumulatively four days through '25 and '26. It's possible, but it's a stretch. And that's why I believe kind of a better, higher confidence plan would be to combine the initiatives on working capital with some of potential inorganic capabilities or cash generation with the ability to really draw that back down over a period of time with continued cash flow growth. And so I think it's -- what I would say next year is that we've probably got two days that are not yet solution between now and the end of the year that we got to go figure out. And to the extent that we can and that relates to 2025, will that be -- the inorganic becomes the gap filler.
Maria Ricciardone: All right. Steve, this is Maria. I think we've come to the top of the hour. So I'll turn it back over to Jim for some final thoughts. |
4,098 | LMT | 3 | 2,024 | 2024-10-22 11:00:00 | Lockheed Martin Corporation | 285,827 | James Taiclet: Sure. Thanks, Maria. Look, I just want to recognize the employees across Lockheed Martin, their dedication, their resilience and they consistently are innovating now in ways I think we never have and cooperated across businesses and functions before like we never have. So I want to really make sure that they're recognized this afternoon. We want to make sure that our allies in our country can defend itself and therefore, deter any aggression against us, and that's what they think they're doing and what they are doing every day. So I want to thank them and thank you for joining us all. I look forward to connecting you again for our Q4 call in January. So we'll see you then. Steve, that concludes the call for today. Thanks, everybody.
Operator: Ladies and gentlemen, that does conclude our conference call for today. On behalf of today's conference call. We'd like to thank you for your participation, and thank you for using AT&T. Have a wonderful day. You may now disconnect. |
4,099 | LMT | 2 | 2,024 | 2024-07-23 11:00:00 | Lockheed Martin Corporation | 285,827 | Operator: Good day, and welcome, everyone, to the Lockheed Martin Second Quarter 2024 Earnings Conference Call. Today's call is being recorded. [Operator Instructions] At this time, for opening remarks and introductions, I would like to turn the conference over to Maria Ricciardone, Vice President, Treasurer and Investor Relations. Please go ahead.
Maria Ricciardone: Thank you, Lois, and good morning. I'd like to welcome everyone to our second quarter 2024 earnings call. Joining me today on the call are Jim Taiclet, our Chairman, President and Chief Executive Officer; and Jay Malave, our Financial Officer. Statements made in today's call that are not historical facts are considered forward-looking statements and are made pursuant to the Safe Harbor provisions of federal securities laws. Actual results may differ materially from those projected in the forward-looking statements. Please see today's press release and our SEC filings for a description of some of the factors that may cause actual results to differ materially from those in the forward-looking statements. We've posted charts on our website today that we plan to address during the call to supplement our comments. These charts also include information regarding non-GAAP measures that may be used in today's call. Please access our website at www.lockheedmartin.com and click on the Investor Relations link to view and follow the charts. With that, I'd like to turn the call over to Jim. |
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