Lockheed's missile ramp lifts its quarter as F-35 funding runs short

What happened

Lockheed Martin reported on Thursday 22 October that third-quarter sales were $20.7 billion, against $18.6 billion a year earlier, and net earnings were $1.8 billion, against $1.6 billion. ^{[1, 2]}

Segment operating profit, the company's measure before items it does not assign to a business, was $2.23 billion against $2.03 billion. Cash from operations was $3.4 billion and free cash flow, cash from operations less capital spending, was $3.0 billion. Both were lower than a year earlier, which the company put down to higher customer receipts in the third quarter of 2025. ^[1]

Why it matters

The backlog, work ordered but not yet delivered, reached a record $292.0 billion, 27 percent more than at the end of the second quarter. It includes $52.5 billion from a multi-year award to produce PAC-3 MSE interceptors for the Patriot air-defense system. Reuters reported that stockpiles of those interceptors were heavily used by US and allied forces in the Iran war. ^{[1, 2]}

A higher outlook

The company raised its 2026 outlook for the second quarter in a row and now expects sales of about $80 billion to $82 billion, against $79.75 billion to $81.75 billion in July. It narrowed segment operating profit to about $8.575 billion to $8.675 billion, from $8.5 billion to $8.7 billion. Free cash flow is now expected at about $7.8 billion to $8.0 billion, from $7.0 billion to $7.2 billion. ^{[1, 2]}

Missiles up, a jet contract short

Missiles and Fire Control sales grew 24 percent to $4.5 billion, which the company said came from production ramps on PAC-3 and THAAD interceptors and on GMLRS and PrSM missiles. Aeronautics sales grew 13 percent to $8.2 billion, $710 million of it from higher F-35 production and sustainment. The company delivered 43 F-35s in the quarter, against 46 a year earlier. ^{[1, 3]}

Lockheed said its costs on the advance contract for F-35 Lot 20 began to exceed the authorization and funding in place during the quarter. Talks with the US government on contracts for Lots 20 and higher continue. Without more authorization and funding, the company said, its results, cash flows and financial condition will be hurt in future periods. ^{[1, 2, 3]}

What settles it next

Lockheed and the Department of War announced on Thursday 22 October a 10-year framework covering 850 US F-35s and at least $7 billion of company-funded investment, Reuters reported. Reuters described the framework as finalized and guaranteeing at least 850 aircraft. Defence Industry Europe reported that contract terms, pricing and schedules are set only if multiyear authority and appropriations are granted. ^{[2, 4, 5]}

Chief financial officer Evan Scott told Reuters that a fourth-quarter increase in capital spending would go mainly to expanding munitions production capacity. The fourth quarter of 2026 runs 14 weeks against 13 a year earlier, by the company's calendar. The release refers readers to the quarter's Form 10-Q for the factors that may affect its outlook. ^{[1, 2]}

Who it reaches

Lockheed Martin (LMT) is direct: the results, the backlog and the F-35 warning are its own. RTX (RTX) and Northrop Grumman (NOC) are adjacent: Reuters reported that both raised their forecasts this week on the same demand for munitions, air-defense systems and military aircraft. ^{[1, 2]}