Lockheed Martin Corporation: Q1 2026 Filing Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended March 29, 2026. Lockheed Martin Corporation is a global aerospace and defense technology company organized into four business segments: Aeronautics, Missiles and Fire Control (MFC), Rotary and Mission Systems (RMS), and Space. The company primarily serves the U.S. Government (69% of sales) and international customers (31% of sales).
Key Financial Metrics
| Metric | Q1 2026 | Q1 2025 |
|---|---|---|
| Total Sales | $18,021 million | $17,963 million |
| Operating Profit | $2,063 million | $2,372 million |
| Net Earnings | $1,488 million | $1,712 million |
| Diluted EPS | $6.44 | $7.28 |
| Operating Margin | 11.4% | 13.2% |
| Effective Tax Rate | 16.1% | 15.9% |
| Cash from Operations | $220 million | $1,409 million |
| Free Cash Flow | $(291) million | $955 million |
| Cash & Equivalents (End) | $1,894 million | $1,803 million |
| Total Debt (Principal) | $21.9 billion | $22.9 billion |
| Backlog | $186.4 billion | N/A |
Material Changes vs. Prior Period
- Revenue: Total sales increased slightly by 0.3% ($58 million) year-over-year, driven by growth in MFC (+8%) and Space (+7%), offset by declines in Aeronautics (-1%) and RMS (-8%).
- Profitability: Operating profit decreased 13% ($309 million) and Net Earnings decreased 13% ($224 million). The decline was primarily driven by unfavorable profit booking rate adjustments and the absence of favorable adjustments recorded in the prior year.
- Cash Flow: Operating cash flow dropped significantly by $1.189 billion, largely due to working capital changes and timing of billing activities. Free cash flow turned negative at $(291) million compared to $955 million in Q1 2025.
- Debt: The company repaid $1.0 billion of long-term debt during the quarter. Total principal debt decreased by $1.0 billion.
- Share Count: No share repurchases were made under the public program in Q1 2026, compared to $750 million in Q1 2025. Weighted average shares decreased due to prior year buybacks.
Guidance, Outlook, and Risks
Management Commentary: Management highlighted that results were impacted by profit booking rate adjustments. Specifically, unfavorable adjustments of $125 million on the F-16 program and $85 million on the C-130 program were recorded, partially offset by a $130 million favorable adjustment on the F-35 program.
Program Risks and Contingencies:
- Aeronautics Classified Program: Cumulative losses recognized remain at approximately $1.8 billion. $450 million remains accrued. Management notes the risk of additional losses if performance issues or cost increases persist.
- MFC Classified Program: Cumulative losses recognized are approximately $1.46 billion, with $1.12 billion accrued. Future options are expected to be exercised at a loss.
- RMS Canadian Maritime Helicopter Program: Cumulative losses are approximately $670 million. Restructuring discussions with the Canadian government are ongoing; failure could lead to termination and further losses.
- Turkish Utility Helicopter Program: Cumulative losses are approximately $130 million. New contracts are in place, but failure to obtain export authorizations could result in additional losses up to $115 million.
Outlook: The company expects to recognize approximately 34% of its $186.4 billion backlog over the next 12 months. The FY 2027 Defense budget request seeks a historic $1.5 trillion, though final funding remains subject to congressional approval.
Investor Verification Checklist
- Profit Booking Adjustments: Verify the sustainability of margins given the $215 million net impact of profit booking adjustments in Q1 2026, specifically the unfavorable impacts on F-16 and C-130 programs.
- Working Capital Trends: Investigate the $1.5 billion swing in working capital that drove the sharp decline in operating cash flow.
- Loss Accruals: Monitor the status of the Aeronautics and MFC classified programs to assess the risk of additional "reach-forward" losses beyond the currently accrued amounts.
- Backlog Conversion: Assess the risk of backlog reductions without corresponding revenue recognition due to the retirement of risks on cost-reimbursable contracts.
- Legal Proceedings: Review the status of the securities-related class action filed in July 2025 regarding alleged misstatements on classified programs.