Lockheed Martin (NYSE:LMT) Reports Bullish Q2, Full-Year Sales Guidance Is Optimistic
Security and Aerospace company Lockheed Martin (NYSE:LMT) reported Q2 CY2024 results exceeding Wall Street analysts' expectations , with revenue up 8.6% year on year to $18.12 billion. The company's full-year revenue guidance of $71 billion at the midpoint also came in 1.8% above analysts' estimates. It made a non-GAAP profit of $7.11 per share, improving from its profit of $6.73 per share in the same quarter last year.
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Lockheed Martin (LMT) Q2 CY2024 Highlights:
Revenue: $18.12 billion vs analyst estimates of $17.01 billion (6.5% beat)
EPS (non-GAAP): $7.11 vs analyst estimates of $6.45 (10.3% beat)
Gross Margin (GAAP): 11.8%, down from 12.5% in the same quarter last year
Free Cash Flow of $1.51 billion, up 19.8% from the previous quarter
Market Capitalization: $113.9 billion
"Over the past few months, Lockheed Martin's people, systems, and platforms have again demonstrated their ability to enhance security in Eastern Europe, the Red Sea, and the Middle East. From the PAC-3's critical role in air defense, to the Aegis Combat System with AI augmentation, to the F-35 with its advanced sensor and data management capabilities, our company has made major contributions to allied and partner defense. We continue to demonstrate the impact of our 21st Century Security® strategy by harnessing the latest digital technologies to continuously improve mission effectiveness, strengthening and scaling the defense production system, and expanding industrial cooperation among our allies and partners. Consequently, demand for our defense technology solutions remains robust, with a backlog of nearly $160 billion, greater than two times annual revenue," said Lockheed Martin Chairman, President and CEO Jim Taiclet.
Headquartered in Maryland, Famous for the F-35 aircraft, Lockheed Martin (NYSE:LMT) specializes in defense, space, homeland security, and information technology products.
Defense Contractors
Defense contractors typically require technical expertise and government clearance. Companies in this sector can also enjoy long-term contracts with government bodies, leading to more predictable revenues. Combined, these factors create high barriers to entry and can lead to limited competition. Lately, geopolitical tensions–whether it be Russia’s invasion of Ukraine or China’s aggression towards Taiwan–highlight the need for defense spending. On the other hand, demand for these products can ebb and flow with defense budgets and even who is president, as different administrations can have vastly different ideas of how to allocate federal funds.
Sales Growth
Examining a company's long-term performance can provide clues about its business quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Unfortunately, Lockheed Martin's 4.3% annualized revenue growth over the last five years was sluggish. This shows it failed to expand in any major way and is a rough starting point for our analysis.
We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Lockheed Martin's annualized revenue growth of 5.2% over the last two years aligns with its five-year trend, suggesting its demand was consistently weak.
This quarter, Lockheed Martin reported solid year-on-year revenue growth of 8.6%, and its $18.12 billion of revenue outperformed Wall Street's estimates by 6.5%. Looking ahead, Wall Street expects revenue to remain flat over the next 12 months, a deceleration from this quarter.
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Operating Margin
Operating margin is an important measure of profitability. It’s the portion of revenue left after accounting for all core expenses–everything from the cost of goods sold to advertising and wages. Operating margin is also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.
Lockheed Martin has been an optimally run company over the last five years. It was one of the more profitable businesses in the industrials sector, boasting an average operating margin of 13%.
Analyzing the trend in its profitability, Lockheed Martin's annual operating margin decreased by 1.5 percentage points over the last five years. Even though its margin is still high, shareholders will want to see Lockheed Martin become more profitable in the future.
In Q2, Lockheed Martin generated an operating profit margin of 11.9%, in line with the same quarter last year. This indicates the company's overall cost structure has been relatively stable.
EPS
Analyzing long-term revenue trends tells us about a company's historical growth, but the long-term change in its earnings per share (EPS) points to the profitability of that growth–for example, a company could inflate its sales through excessive spending on advertising and promotions.
Lockheed Martin's EPS grew at an unimpressive 6.5% compounded annual growth rate over the last five years. This performance was better than its 4.3% annualized revenue growth but doesn't tell us much about its day-to-day operations because its operating margin didn't expand.
Diving into the nuances of Lockheed Martin's earnings can give us a better understanding of its performance. A five-year view shows that Lockheed Martin has repurchased its stock, shrinking its share count by 15.6%. This tells us its EPS outperformed its revenue not because of increased operational efficiency but financial engineering, as buybacks boost per share earnings.
Like with revenue, we also analyze EPS over a shorter period to see if we are missing a change in the business. For Lockheed Martin, its two-year annual EPS growth of 11.9% was higher than its five-year trend. This acceleration made it one of the faster-growing industrials companies in recent history.
In Q2, Lockheed Martin reported EPS at $7.11, up from $6.73 in the same quarter last year. This print easily cleared analysts' estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Lockheed Martin to perform poorly. Analysts are projecting its EPS of $28.11 in the last year to shrink by 5.3% to $26.61.
Key Takeaways from Lockheed Martin's Q2 Results
We were impressed by how significantly Lockheed Martin blew past analysts' revenue and EPS expectations this quarter. We were also glad its full-year revenue guidance came in higher than Wall Street's estimates. Zooming out, we think this was a fantastic quarter that should have shareholders cheering. The stock remained flat at $478 immediately following the results.
Lockheed Martin may have had a good quarter, but does that mean you should invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.