LMT · Q4 2025 Earnings

Bullish

Lockheed Martin

Reported January 29, 2026

30-second summary

Lockheed closed FY25 ahead of guide on revenue ($75.05B), FCF ($6.91B), CFO ($8.56B), and segment profit ($6.74B), with 318 total aircraft deliveries vs the 175–190 F-35 guide — but GAAP EPS of $21.49 missed the $22.15–22.35 range, depressed by a Q4 $479M pension settlement charge ($1.63/share after-tax) on top of the year's $7.03/share of program and settlement charges in aggregate. The bigger story is the pivot from capital discipline to "step-function" internal investment, guiding FY26 capex+IRAD to ~$5B (+35% YoY) and segment operating profit to $8.425–8.675B (+25–29% YoY). The 2026 FCF anchor came in at $6.5–6.8B — above the "could be closer to $6B" framing from Q2 and the $6B floor from Q3, partially resolving the capital-allocation tension, though the midpoint still sits below FY25 actual. Q4 itself was clean on the programs that gutted Q2: revenue +9.1% YoY, segment margin 10.1%, and no additional classified Aeronautics charges, making this the second consecutive clean quarter on that program.

Headline numbers

EPS

Q4 FY2025

$5.80

Revenue

Q4 FY2025

$20.32B

+9.1% YoY

Gross margin

Q4 FY2025

11.4%

Free cash flow

Q4 FY2025

$2.76B

Operating margin

Q4 FY2025

11.5%

Key financials

Q4 FY2025

Metric	Q4 FY2025	YoY	Q3 FY2025	QoQ
Revenue	$20.32B	+9.1%	$18.61B	+9.2%
EPS	$5.80	—	$6.95	-16.5%
Gross margin	11.4%	—	12.0%	-63bps
Operating margin	11.5%	—	12.3%	-75bps
Free cash flow	$2.76B	—	$3.35B	-17.7%

Guidance

Guidance is issued for the full year only, refreshed each quarter. Prior and new below are the same FY updated this quarter.

Actuals vs prior guidance

Metric	Period	Prior guide	Actual	Δ	Result
Revenue	FY2025	$74.25 - $74.75 billion	$75.048 billion	+$0.30 billion above high end of prior guide	Beat
Diluted EPS (GAAP)	FY2025	$22.15 - $22.35	$24.04	+$1.69 above high end of prior guide	Beat
Free Cash Flow	FY2025	$6.600 billion	$6.908 billion	+$0.308 billion above prior point estimate	Beat
Cash from Operations	FY2025	$8.500 billion	$9.281 billion	+$0.781 billion above prior point estimate	Beat
Business Segment Operating Profit	FY2025	$6.675 - $6.725 billion	$6.743 billion	+$0.018 billion above high end of prior guide	Beat
F-35 Aircraft Deliveries	FY2025	175 - 190 aircraft	318 aircraft	+128 aircraft above high end of prior guide	Beat

New guidance

Metric	Period	Guide	YoY
Revenue	FY2026	$77.5 - $80.0 billion	+3.3% to +6.6% YoY
Diluted EPS (GAAP)	FY2026	$29.35 - $30.25	+22.0% to +25.8% YoY
Free Cash Flow	FY2026	$6.5 - $6.8 billion	-6.0% to -1.4% YoY
Business Segment Operating Profit	FY2026	$8.425 - $8.675 billion	+24.9% to +28.6% YoY
Cash from Operations	FY2026	$9.15 - $9.45 billion	-1.4% to +1.8% YoY

Segment KPIs

Q4 FY2025

Segment	Q4 FY2025	YoY
Aeronautics	$8.524B	+6.4%
Missiles and Fire Control	$4.02B	+17.8%
Rotary and Mission Systems	$4.616B	+8.3%
Space	$3.161B	+7.5%

Other KPIs

Q4 FY2025

Segment	Q4 FY2025
Total Backlog	$193.6 billion
F-35 Aircraft Deliveries (Q4)	48 units
Business Segment Operating Margin (Q4)	10.1%
Free Cash Flow Margin (FY)	9.2%
Cash from Operations (Q4)	$3.2 billion
Capital Expenditures (Q4)	$0.463 billion
Total Aircraft Deliveries (FY 2025)	318 units
Business Segment Operating Profit (FY)	$6.743 billion

Management tone

Q4-2024 reset → Q2-2025 damage control → Q3-2025 offensive scaling → Q4-2025 step-function capacity expansion.

Two quarters ago the corporate posture was defensive — reconstituting program review teams, taking $1.6B in charges, framing 2026 FCF at "closer to $6B." Last quarter management pivoted to offense around Golden Dome positioning and "unprecedented demand cycle" language. This quarter the rhetoric has hardened into committed capital: "capital and independent research and development approaching $5 billion in 2026, which is a step-function increase in internal investment... with a year-over-year increase in investment of about 35%." The shift from cautious discipline to multi-billion-dollar production buildouts across five states is the most aggressive expansionary posture from Lockheed in years, and the financial commitment is now in the FY26 guide, not just the script.

Framework agreements have moved from aspirational concept to operating model in three quarters. Q2 made no mention; Q3 referenced PAC-3 framework agreements as emerging vehicles for capacity scaling; Q4 frames them as structural transformation of defense procurement: "This groundbreaking agreement was just the first step in bringing commercial business practices to large-scale production within the defense industrial base." A second framework agreement on THAAD was announced the morning of the call, with additional systems explicitly under discussion. The PAC-3 framework underwrites a path to triple production capacity (600 → 2,000 units), and Bernstein's Doug Harned disclosed in Q&A that the agreements contain "make-whole" provisions protecting ROI if Congressional procurement strategy shifts — a material risk-mitigant that was not previously public.

The F-35 framing continues to escalate. Q3 reframed it from steady-state delivery program to multi-decade expansion anchor with sixth-gen technology insertion; Q4 layers in "an additional $1 billion of strategic internal investment for the F-35, with an emphasis on the aircraft sustainment system" and explicitly targets "double-digit growth year-over-year" on sustainment. Lockheed is no longer defending F-35 unit count against budget marks; it is monetizing the installed base.

The capital allocation pivot is the most important tone shift for equity holders. The Q2 commitment of "$6B/year to shareholders" coexisting with potentially $6B FCF was the central tension of the year. Management's answer this quarter, in response to Melius's Scott Mikus: long-term defense contracts with attractive ROIs now justify increased capex, prototype R&D (autonomous Black Hawk, Comet cruise missile, drone wingman CCA), and keeping "options open for accretive M&A." The implicit message: 100% return of FCF to shareholders is no longer the operating principle; capacity buildout and selective M&A are now in the capital priority stack.

Risk language is notably muted relative to prior quarters. The classified Aeronautics program merits one line of acknowledgment with monthly senior-executive oversight, no incremental charges, and a reference to ULA equity earnings volatility and program lifecycle timing as the remaining moving parts. The absence of fresh classified-program issues for the second consecutive quarter is itself the signal.

Recurring themes management leaned on this quarter:

Unprecedented demand and record $194B backlog driving step-function capacity expansionFramework agreements as operational model for production acceleration and commercial discipline in defense industrial baseAI and autonomous systems integration (drone wingman control, autonomous Black Hawk, over-the-air Aegis updates) as differentiatorMunitions production surge (PAC-3, THAAD, JASSM-LRASM) fueling 14%+ growth in Missiles and Fire Control segmentGeopolitical volatility and global security demand as sustained tailwind across all business areasAggressive internal investment ($5B R&D, capital spend ramping) to fund innovation and production infrastructure

Risks management surfaced:

Program lifecycle and milestone timing variability (specifically noted for Q4 2025 light quarter on profit adjustments)Canadian Maritime Helicopter Program (CMHP) and Turkish Utility Helicopter Program (TUHP) losses requiring $610M profit adjustment reversalClassified program reach-forward losses impacting aeronautics segment marginsFY26 appropriations process and dynamic geopolitical environment (though framed as supporting national defense)ULA equity earnings volatility affecting Space segment performance

Q&A highlights

Scott Mikus · Milius Research

Are you changing your 100% free cash flow return to shareholders strategy given the big CapEx step-up, and how does vertical integration factor into capital deployment?

Management will continue disciplined capital allocation but conditions have changed due to long-term defense contracts with attractive ROIs. Increased CapEx for capacity and R&D for prototypes (autonomous helicopters, Comet missile, drone wingman) are justified by these stable growth opportunities. Keeping options open for accretive M&A opportunities.

Long-term defense contracts now available from Department of WarAutonomous Blackhawk helicopter prototype operational, controllable via tabletComet low-cost cruise missile in developmentDrone wingman CCA designed to connect with F-22s and F-35s

Rich Safran · Seaport Research

What is the timing of multi-year contracts for PAC-3 and THAAD? How should we think about MSC margin impact? Will F-35 get a multi-year?

PAC-3 and THAAD multi-year framework deals expected to be awarded in 2026 pending Congressional appropriations and contract definitization. Initial margins may face 20-30 basis points dilution due to startup production ramps, but will recover and exceed historical levels over seven-year program. F-35 multi-year sustainment is being advocated but not yet awarded.

PAC-3 and THAAD multi-year frameworks expected awarded in 2026Seven-year program duration contemplatedMaximum 20-30 basis points margin dilution expected initiallyDouble-digit MFC sales growth expected despite margin pressure

Christine Lewog · Morgan Stanley

How do you view disruptive technology opportunities and your competitive positioning against newer entrants? What is your role in the broader defense innovation ecosystem?

Management emphasizes Lockheed Martin's essential infrastructure, workforce, cyber capability, and global deployability advantages. Uses examples of proprietary innovation (space-based interceptor by 2028, reconfigured JAGM for Saildrone) and partnerships with startups. Focuses on military-scalable technologies that provide decisive advantage, not just interesting prototypes.

Space-based interceptor planned for 2028 launch (Golden Dome component)$1 billion contract for military-hardened low-orbit satellitesPartnering with Saildrone on autonomous surface vehiclesReconfigured JAGM air-to-ground missile as surface-to-surface weapon for drones

Doug Harnick · Bernstein

How do you ensure seven-year ramp confidence when Congressional appropriations remain annual and demand can collapse (e.g., 2015 precedent)? Are there similar opportunities in other MFC programs?

Management cites administration efforts to authorize seven-year vectors for four to five missile systems including THAAD and PAC-3. Most importantly, framework agreements include 'make-whole' provisions that protect ROI and cash flow if procurement strategy changes during the contract period, mitigating execution risk.

Seven-year authorization already advanced through Congress for 4-5 specific missile systemsMake-whole remediation provisions protect against procurement strategy changesFramework agreements ensure equivalent ROI and cash flow perspective as annual appropriationsLockheed served as pathfinder for these framework agreements; others expected to follow similar model

Gautam Khanna · TD Cowan

How is the AERO classified program performing? What are the 2027 pension funding requirements?

AERO classified program progressing well with no additional charges in Q4. Program has elevated executive oversight monitoring monthly. For pensions, 2026 required contribution fully pre-funded from 2025 cash conversion. 2027 pension requirement estimated at $1 billion minimum, with potential to pre-fund again if strong cash flow continues.

No additional AERO program charges in Q4 2025Enhanced monthly monitoring with senior executive involvement2026 pension requirement fully pre-funded in 20252027 minimum pension funding requirement: $1 billion

Answers to last quarter's watch list

FY25 FCF lands at $6.6B or below. Resolved positively. FY25 FCF landed at $6.91B, beating the Q3 point estimate by $0.31B (+4.7%) and FY operating cash flow came in at $8.56B vs the $8.5B point. The bear case on cash conversion did not materialize, and the FY26 guide of $6.5–6.8B was set above the Q2-vintage "closer to $6B" framing. Status: Resolved positively.

2026 formal guide framework at Q4 print. Resolved positively on the framing question. The FY26 FCF range of $6.5–6.8B is above both the Q2 ("closer to $6B") and Q3 ($6B floor) markers, even with the pension contribution returning and capex stepping to $2.5–2.8B. The "at least $6B/year shareholder return" commitment is no longer in obvious conflict with FCF — though management explicitly opened the capital stack to incremental R&D, capex, and M&A, so the 100% return framework appears to be retiring. Status: Resolved positively.

Q4 F-35 delivery cadence. Resolved positively. Q4 delivered 48 F-35 aircraft against the implied range of 32–47, finishing slightly above the high end and validating the 156/year run-rate narrative. Total FY25 aircraft deliveries of 318 across all platforms exceeded the F-35-specific guide of 175–190. Status: Resolved positively.

Golden Dome contract awards or task orders. Continue monitoring. Management cited a $1B contract for military-hardened low-orbit satellites and a 2028 space-based interceptor launch as Golden Dome-aligned wins, but the addressable-market thesis remains dependent on FY26 appropriations and follow-on awards that are not yet booked. Backlog growth to $193.6B is supportive but not specifically attributable. Status: Continue monitoring.

MFC segment incremental margin as growth accelerates. Continue monitoring with cautionary signal. MFC revenue accelerated to +17.8% YoY in Q4 (from +14.1% in Q3), but management explicitly guided to 20–30 bps of initial margin dilution from PAC-3/THAAD framework ramp before recovery. The capacity-build margin compression is now confirmed as the trajectory; whether it stays at 20–30 bps or widens is the open question. Status: Continue monitoring.

Classified Aeronautics program — second consecutive clean quarter. Resolved positively. No additional charges in Q4, second consecutive clean quarter, with monthly senior-executive oversight institutionalized. The Q2 reset disclosure framework is now validated as catching cost trends in real time. A third charge in 2026 would be a credibility break, but the burden of proof has shifted. Status: Resolved positively.

What to watch into next quarter

FY26 segment margin walk against the +25% profit guide. The +25–29% segment profit growth assumes margin snaps from FY25's depressed 9.0% back toward ~10.9%, with no further classified-program charges. Watch Q1 segment margin print — if Aeronautics lands below 10% or RMS slips back, the implied normalization is not happening.

Framework agreement contract definitization. Management said PAC-3 and THAAD multi-year frameworks are expected to be awarded in 2026 "pending Congressional appropriations and contract definitization." Watch for actual contract award announcements with dollar values disclosed — the FY26 segment profit guide presumes this lands, but neither contract is yet booked.

Capex run-rate against the $2.5–2.8B guide. FY25 ran $1.65B with Q4 at $463M — the step-up to $2.5–2.8B is a larger pivot than the headline implies. Hitting the FY26 low end requires $625M/quarter average; the high end requires $700M. Watch Q1 capex disclosure for confirmation that the "step-function" investment language is converting to actual spend.

MFC segment margin trajectory. Management telegraphed 20–30 bps dilution from PAC-3/THAAD startup ramps. Watch Q1 MFC margin against Q4's level — anything wider than 30 bps of compression means the capacity-build is more expensive than guided.

F-35 multi-year sustainment contract award. Management is advocating for one but has not received it. Award of a multi-year sustainment vehicle would be the structural upgrade to the F-35 monetization thesis; another year of annual contracts would cap the "double-digit sustainment growth" framing at marketing.

Third consecutive clean quarter on classified Aeronautics. Two consecutive clean quarters validate disclosure; three institutionalizes credibility on the program. Any incremental charge in Q1 reopens the 4Q24 reset question.

Sources

Lockheed Martin Q4 2025 press release (Form 8-K Exhibit 99.1), filed January 28, 2026 — https://www.sec.gov/Archives/edgar/data/936468/000162828026003970/ex991q42025.htm

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