Lockheed’s Guidance Hit by Pensions, Despite Record Backlog
LMT posted EPS beat, but we intend to revisit our price target post-earnings call.
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Shares of Lockheed Martin LMT are trending lower following the company’s quarterly report that revealed earnings per share of $7.67. That amount easily cleared bottom-line expectations of $6.62. But revenue for the quarter, at $18.62 billion, was a tad shy of the market forecast of $18.87 billion.
The problem? While Lockheed sees continued year-over-year top-line and operating-profit growth in the coming year, management issued downside EPS guidance of $27-$27.30 compared to 2024 -- and the $27.88 market consensus. Following the recent surge in LMT shares, without a beat-and-raise quarter, we should not be surprised to see LMT shares give up some of their recent gains. Management is holding its earnings call at 11 a.m. ET today.
We’ll have to investigate the cause of the expected year-over-year decline in EPS, which appears to be pension-adjustment related, especially given forecast increases in cash from operations and free cash flow compared to 2024. Lockheed has contended with such adjustments in the past and, generally speaking, Wall Street has to update its thinking as those details emerge. It's a cost of doing business, but it hits bottom-line expectations. As we parse the details, we’ll factor that into our price target, which will likely need to be revised lower, if only to reflect slower EPS growth in the near term.
We include reconciling the 2025 EPS guidance with the telegraphed $3.0 billion in share repurchases Lockheed expects to make this year following the $3.7 billion completed in 2024. We’ll also want to understand the puts and takes behind management’s mid-point operating margin forecast of 11.0% for this year, which is little changed compared to its 2024 margin.
Parsing through its guidance, Lockheed does forecast greater year-over-year operating profit at its Aeronautics, Missiles and Fire Control, and Rotary and Mission Systems segments, more than 80% of its revenue stream. On the earnings call, we should get more details on that including how ramping F-35 production fits into that picture. When it comes to the F-35, we and the market will be looking for more specifics on its delivery schedule and milestones toward Tech Refresh 3 requirements.
While it may seem that we are taking a critical view of Lockheed’s outlook, its backlog rose to a record $176 billion exiting 2024, up from $165 billion at the end of September. To that we can add more recent program wins that include another $1.2 billion in US Navy and Air Force contracts. We see that rising backlog as a good indicator of future revenue and profits, and on the earnings call we’ll be interested in comments about non-US program wins.
We’ll also be curious to hear management’s view on the Department of Government Efficiency (DOGE) and what impact that may have had on its guidance, if any.
