Lockheed Martin Surprises with Earnings, But Investors Remain Cautious

Lockheed Martin (NYSE: LMT) announced its earnings on Tuesday, and the reaction was tepid.

Despite a substantial earnings beat, investors responded with a lack of enthusiasm. Analysts had predicted Lockheed would report a profit of $6.31 per share on sales of $17.8 billion. Instead, the company delivered $18 billion in sales and a profit of $7.28 per share, exceeding expectations by 15%. Yet, two days later, Lockheed’s stock remains up only a couple of percentage points.

Why this muted response? It seems sales growth, which only increased 4% year over year, might be a factor. Although earnings rose 14% and profit margins improved to nearly 13%, investors may be concerned about the sustainability of these gains.

Analyzing Lockheed Martin’s Q1 Performance

Lockheed’s earnings quality raises questions. While accounting results reflect an improvement, operating cash flow decreased to $1.4 billion, down from a year prior. Additionally, free cash flow (FCF) fell from $1.3 billion in Q1 2024 to $955 million in Q1 2025. Consequently, for every $1 in reported GAAP profit, the actual cash profit stands at only $0.56.

This ratio is concerning, but there is potential for improvement moving forward.

Segment Performance Review

Three of Lockheed Martin’s four primary business segments saw sales growth, with the exception being its space division. The missile and fire control division reported the strongest performance, generating $3.4 billion in sales with a remarkable operating profit margin of 13.8%, up 340 basis points from last year.

Conversely, the aeronautics segment, which produces F-16 and F-35 jets, displayed the weakest results, with only a 3% sales increase. Profit margins here saw minimal improvement, leading to just a 10.2% margin for the quarter. Given that aeronautics remains Lockheed’s largest segment, this trend raises concerns for future profitability.

Image source: Getty Images.

Future Guidance from Management

Looking ahead, guidance may explain why investors aren’t reacting strongly to the earnings beat. Management estimates revenue for 2025 will be between $73.75 billion and $74.75 billion, close to the Wall Street expectation of $74.27 billion. However, projected earnings fall short of expectations, with estimates between $27 and $27.30 per share, leaving the midpoint $0.07 below the consensus estimate.

This announcement suggests that despite a strong first quarter, full-year guidance remains unchanged, and Lockheed may underperform later this year. Although the anticipated shortfall is minor, any earnings miss could concern investors.

Lockheed Martin Stock Outlook

On a positive note, despite mixed profit outlooks, free cash flow could rebound significantly this year. Last year, Lockheed generated $5.3 billion in free cash flow, matching its net income. This year, the company expects free cash flow to range from $6.6 billion to $6.8 billion, representing strong potential growth of 26% compared to the projected 4.5% sales growth.

If Lockheed achieves its cash flow target, it would imply a valuation of about 16.2 times current-year free cash flow. Given the company’s forecasted profit growth of nearly 13% annually over the next five years and a 2.8% dividend yield, the stock may be considered reasonably priced.

Investment Considerations

Before making an investment in Lockheed Martin, potential investors should weigh various factors. Despite recent earnings growth, the stock was not among the top recommendations for current investments.

In summary, while Lockheed Martin offers several appealing metrics, cautious investors may want to consider broader market trends and company performance before committing capital.

The views and opinions expressed herein are those of the author and do not necessarily reflect the views of Nasdaq, Inc.