LMT Q3 Deep Dive: Backlog Growth and Demand Signals Offset Margin Concerns

Security and Aerospace company Lockheed Martin (NYSE:LMT) met Wall Street’s revenue expectations in Q3 CY2025, with sales up 8.8% year on year to $18.61 billion. The company’s outlook for the full year was close to analysts’ estimates with revenue guided to $74.5 billion at the midpoint. Its GAAP profit of $6.95 per share was 9.4% above analysts’ consensus estimates.

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StockStory’s Take

Lockheed Martin’s third quarter was met with a negative market reaction despite revenue aligning with Wall Street expectations and GAAP earnings surpassing analyst estimates. Management attributed the quarter’s performance to robust demand across major defense programs, highlighted by significant contract wins in missile systems, advanced aircraft, and space-based interceptors. CEO James Taiclet emphasized the company’s operational execution, pointing to a record backlog and growing international orders. However, management adopted a cautious tone regarding ongoing risks in certain classified and fixed-price development programs, noting efforts to address legacy challenges and stabilize margins.

Looking ahead, Lockheed Martin’s guidance rests on continued momentum in its core defense platforms and expectations for further growth in high-demand segments such as missile defense and aerospace. Management cited multi-year contracts, expanding international orders, and internal investments in new technologies as primary drivers of future performance. CFO Evan Scott stated, “We remain focused on capitalizing on unprecedented demand cycles while ensuring operational discipline.” The company also acknowledged that execution risks persist, particularly around production scaling and supply chain constraints, but expressed confidence in long-term demand for its portfolio.

Key Insights from Management’s Remarks

Lockheed Martin’s third quarter benefited from substantial order activity and operational improvements, while management addressed persistent risks in select programs and outlined steps to support future growth.

• Record backlog expansion: Management highlighted the company’s backlog reaching an all-time high, driven by large multi-year awards for missile systems (PAC-3, JASSM, LARASM) and new aircraft contracts like the F-35 Lot 18 and 19, providing production visibility into the next decade.
• Missiles and Fire Control momentum: The Missiles and Fire Control segment posted robust growth, with increased production for precision strike weapons and integrated air and missile defense solutions. CEO James Taiclet noted sustained demand for PAC-3 interceptors and international opportunities in artillery rocket systems.
• F-35 program developments: The F-35 fighter jet program saw continued strength, both in production and sustainment contracts. Management emphasized the importance of recent multi-year deals, the addition of new international customers, and the ongoing rollout of Block IV upgrades to enhance aircraft capabilities.
• Investment in advanced technologies: Lockheed Martin increased self-funded research and development, focusing on next-generation capabilities such as autonomous drones, space-based interceptors, and integration of sixth-generation technologies into existing platforms.
• Supply chain and production risks: Management addressed past margin pressures linked to classified and fixed-price development programs, describing efforts to re-baseline assumptions, allocate top engineering talent, and closely monitor supplier performance. CFO Evan Scott acknowledged that while many legacy risks have been addressed, technical and execution risks remain.

Drivers of Future Performance

Lockheed Martin sees sustained defense demand and multi-year contracts as central to its growth outlook, tempered by supply chain and execution risks.

• Sustained defense demand: Management expects ongoing geopolitical tensions and modernization requirements to drive continued demand for missile defense, advanced aircraft, and space-based solutions, resulting in mid-single-digit organic growth targets for the coming year.
• Operational scaling and supply chain: The company is investing in production capacity and working closely with suppliers to support higher delivery rates, particularly for munitions and missile programs. Management noted that success hinges on resolving bottlenecks in key components such as solid rocket motors.
• Margin and cash flow management: Lockheed Martin aims to balance growth investments with margin stability, planning disciplined capital allocation and pension pre-funding to offset future headwinds. CFO Evan Scott indicated that while capital expenditures and R&D allocations will remain steady as a percentage of revenue, margin improvement depends on successful execution and risk management.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will closely monitor (1) Lockheed Martin’s ability to scale production and address supply chain constraints for missile and aerospace programs, (2) progress on F-35 Block IV upgrades and international order expansion, and (3) the impact of new contract awards—particularly in missile defense and space systems—on backlog and revenue growth. Developments in government defense budgets and the Golden Dome homeland defense initiative will also be key indicators.

Lockheed Martin currently trades at $491.25, down from $505.90 just before the earnings. Is there an opportunity in the stock?The answer lies in our full research report (it’s free for active Edge members).

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