Lockheed Martin Reports Third Quarter 2022 Financial Results

  • Net sales of $16.6 billion and net earnings of $1.8 billion, or $6.71 per share
  • Cash from operations of $3.1 billion and free cash flow of $2.7 billion
  • Returned $2.1 billion of cash to shareholders through share repurchases and dividends
  • Increased share repurchase authority by $14.0 billion
  • Increased quarterly dividend rate 7% to $3.00 per share
  • Increased backlog to $140 billion
  • Reaffirms 2022 financial outlook

BETHESDA, Md., Oct. 18, 2022 /PRNewswire/ -- Lockheed Martin Corporation [NYSE: LMT] today reported third quarter 2022 net sales of $16.6 billion, compared to $16.0 billion in the third quarter of 2021. Net earnings in the third quarter of 2022 were $1.8 billion, or $6.71 per share, compared to $614 million, or $2.21 per share, in the third quarter of 2021. Cash from operations was $3.1 billion in the third quarter of 2022, compared to $1.9 billion in the third quarter of 2021. Free cash flow was $2.7 billion in the third quarter of 2022, compared to $1.6 billion in the third quarter of 2021.

"Lockheed Martin delivered a solid quarter, highlighted by strength in free cash flow, orders, and operating margins, that positions us well to achieve our full-year commitments," said Lockheed Martin Chairman, President and CEO James Taiclet. "Our continuing ability to deliver strong financial performance in turn enables further investments in the 21st Century Security technologies essential to support our customers in conducting effective Joint All-Domain Operations. These technologies include hypersonics, directed energy, and autonomy, as well as cutting edge digital capabilities in our evolving 5G.MIL® open standards-based architecture. In addition, we are investing in production and sustainment capacity for the solutions needed now to defend our allies and our nation, including F-35, Javelin and HIMARS. Moreover, we today announced an additional $14 billion in share repurchase authority to go with our recently increased, industry-leading dividend for the benefit of our investors."

Adjusted earnings before income taxes, net earnings and diluted EPS

The table below shows the impact to earnings before income taxes, net earnings and diluted earnings per share (EPS) for certain non-operational items:

(in millions, except per share data)

Quarters Ended

Sept. 25,

2022

Sept. 26,

2021

Earnings
Before
Income
Taxes

Net
Earnings

Diluted
EPS

Earnings
Before
Income
Taxes

Net
Earnings

Diluted
EPS

As Reported (GAAP)

$     2,099

$     1,778

$       6.71

$        679

$        614

$       2.21

Pension settlement charge

1,665

1,309

4.72

Lockheed Martin Ventures investment

  losses (gains)

26

20

0.07

(98)

(74)

(0.27)

Losses (gains) on assets and liabilities
for deferred compensation obligations

33

25

0.09

(21)

(16)

(0.06)

Total Adjustments

59

45

0.16

1,546

1,219

4.39

As Adjusted (Non-GAAP)1

$     2,158

$     1,823

$       6.87

$     2,225

$     1,833

$       6.60

1

See the "Use of Non-GAAP Financial Measures" section of this news release for more information.

Summary Financial Results

The following table presents the company's summary financial results.

(in millions, except per share data)

Quarters Ended1

Nine Months Ended1

Sept. 25,

2022

Sept. 26,

2021

Sept. 25,

2022

Sept. 26,

2021

Net sales

$           16,583

$           16,028

$          46,993

$          49,315

Business segment operating profit2

$             1,856

$             1,850

$            5,213

$            5,365

Unallocated items

FAS/CAS operating adjustment

430

491

1,281

1,469

Severance and restructuring charges

(36)

Other, net3

(127)

(47)

(439)

(130)

Total unallocated items

303

444

842

1,303

Consolidated operating profit

$             2,159

$             2,294

$            6,055

$            6,668

Net earnings4,5

$             1,778

$                614

$            3,820

$            4,266

Diluted earnings per share4,5

$               6.71

$               2.21

$            14.31

$            15.32

Cash from operations6

$             3,133

$             1,937

$            5,874

$            4,953

Capital expenditures

(405)

(316)

(977)

(915)

Free cash flow2,6

$             2,728

$             1,621

$            4,897

$            4,038

1

The company closes its books and records on the last Sunday of the calendar quarter to align its financial closing with its business
processes, which was on Sept. 25 for the third quarter of 2022 and Sept. 26 for the third quarter of 2021. The consolidated financial
statements and tables of financial information included herein are labeled based on that convention. This practice only affects
interim periods as the company's fiscal year ends on Dec. 31.

2

Business segment operating profit and free cash flow are non-GAAP measures. See the "Use of Non-GAAP Financial Measures"
section of this news release for more information.

3

Other, net for the quarters ended Sept. 25, 2022 and Sept. 26, 2021 include net losses of $33 million ($25 million, or $0.09 per
share, after-tax) and net gains of $21 million ($16 million, or $0.06 per share, after-tax) due to changes in the fair value of
investments and liabilities for deferred compensation plans.

4

Net earnings for the quarters ended Sept. 25, 2022 and Sept. 26, 2021 include net losses of $26 million ($20 million,
or $0.07 per share, after-tax) and net gains of $98 million ($74 million, or 0.27 per share, after-tax) due to changes in
the fair value of investments held in the Lockheed Martin Ventures Fund.

5

Net earnings for the quarter ended Sept. 26, 2021 include a noncash, non-operating pension settlement charge of $1.7 billion
($1.3 billion, or $4.72 per share, after-tax) recognized in connection with the transfer of gross defined benefit pension
obligations of $4.9 billion and related plan assets to an insurance company.

6

See the "Cash Flows and Capital Deployment Activities" section of this news release for more information.

2022 Financial Outlook

The following table and other sections of this news release contain forward-looking statements, which are based on the company's current expectations. Actual results may differ materially from those projected. It is the company's practice not to incorporate adjustments into its financial outlook for proposed acquisitions, divestitures, ventures, pension risk transfer transactions, financing transactions, changes in law, or new accounting standards until such items have been consummated, enacted or adopted. For additional factors that may impact the company's actual results, refer to the "Forward-Looking Statements" section in this news release.

(in millions, except per share data)

Current 2022 Outlook1

Net sales

~$65,250

Business segment operating profit2

~$7,175

Total FAS/CAS pension adjustment3

~$740

Add: pension settlement charge3

$1,470

Net FAS/CAS pension adjustment - adjusted2,3

~$2,210

Diluted earnings per share

~$21.55

Cash from operations

≥$7,900

Capital expenditures

~$(1,900)

Free cash flow2

≥$6,000

1

The company's current 2022 financial outlook does not include any future gains or losses related to changes in valuations of the company's
net assets and liabilities for deferred compensation plans or the Lockheed Martin Ventures Fund's investments. The outlook assumes
continued accelerated payments to suppliers, with a focus on small and at-risk businesses. In addition, the outlook reflects no significant
reduction in customer budgets or changes in priorities, continued support and funding of the company's programs, and a continuing
statutory tax rate of 21%. It also includes known impacts to the company and broader defense supply chain from the COVID-19 pandemic
based on the company's understanding at the time of this news release and its experience to date.

2

Business segment operating profit, net FAS/CAS pension adjustment - adjusted and free cash flow are non-GAAP measures. See the
"Use of Non-GAAP Financial Measures" section of this news release for more information.

3

The net FAS/CAS pension adjustment - adjusted is presented as a single amount and includes total expected U.S. Government cost
accounting standards (CAS) pension cost of approximately $1.8 billion and total expected financial accounting standards (FAS) pension
income of approximately $410 million, excluding the noncash, non-operating pension settlement charge of $1.5 billion ($1.2 billion,
or $4.33 per share, after-tax) recognized in the second quarter of 2022 related to the purchase of group annuity contracts to transfer
approximately $4.3 billion of gross pension obligations and related plan assets to an insurance company on June 24, 2022. CAS pension
cost and the service cost component of FAS pension income (expense) are included in operating profit. The non-service cost components
of FAS pension income (expense) are included in non-service FAS pension income (expense). For additional detail regarding the pension
amounts reported in operating and non-operating results, refer to the supplemental table included at the end of this news release.

Cash Flows and Capital Deployment Activities

Cash from operations in the quarter ended Sept. 25, 2022 was $3.1 billion. Capital expenditures were $405 million, resulting in free cash flow of $2.7 billion. The increase in operating and free cash flows from the third quarter of 2021 was primarily due to timing of production and billing cycles (primarily the F-35 program) impacting contract assets, the collection of receivables (primarily F-35) and deferral of cash payments for accounts payable (primarily Aeronautics).

The company's capital deployment activities in the quarter ended Sept. 25, 2022 included the following:

  • paying cash dividends of $739 million; and
  • repurchasing 3.4 million shares for $1.4 billion, of which $112 million was paid in the fourth quarter of 2022 upon settlement of certain repurchased shares.

Multi-Year $14 Billion Share Repurchase Program and Dividend Rate Increase

On October 17, 2022, the company's board authorized the purchase of up to an additional $14.0 billion of Lockheed Martin common stock under its share repurchase program. This multi-year share repurchase program follows the substantial completion of purchases of common stock under the prior repurchase authorization. The company anticipates executing a $4.0 billion accelerated share repurchase program in the fourth quarter of 2022 bringing our total share repurchases for the year to approximately $8.0 billion. The remainder of the repurchase program authorization is expected to be utilized over a three-year period. The company expects to fund the repurchases through a combination of cash on hand and the issuance of debt. The stock repurchase program does not have an expiration date and may be amended or terminated by the board of directors at any time. The amount of shares ultimately purchased and the timing of purchases are at the discretion of management and subject to compliance with applicable law and regulation.

On Sept. 30, 2022, the company increased its quarterly dividend by $0.20 per share, to $3.00 per share, beginning with the dividend payment in the fourth quarter of 2022.

Segment Results

The company operates in four business segments organized based on the nature of products and services offered: Aeronautics, Missiles and Fire Control (MFC), Rotary and Mission Systems (RMS) and Space. The following table presents summary operating results of the company's business segments and reconciles these amounts to the company's consolidated financial results.

(in millions)

Quarters Ended

Nine Months Ended

Sept. 25,

2022

Sept. 26,

2021

Sept. 25,

2022

Sept. 26,

2021

Net sales

Aeronautics

$           7,089

$           6,568

$         19,352

$         19,621

Missiles and Fire Control

2,831

2,781

8,030

8,474

Rotary and Mission Systems

3,781

3,980

11,345

12,329

Space

2,882

2,699

8,266

8,891

Total net sales

$         16,583

$         16,028

$         46,993

$         49,315

Operating profit

Aeronautics

$             759

$             714

$           2,050

$           1,979

Missiles and Fire Control

382

413

1,184

1,210

Rotary and Mission Systems

414

459

1,165

1,350

Space

301

264

814

826

Total business segment operating profit

1,856

1,850

5,213

5,365

Unallocated items

FAS/CAS operating adjustment

430

491

1,281

1,469

Severance and restructuring charges

(36)

Other, net

(127)

(47)

(439)

(130)

Total unallocated items

303

444

842

1,303

Total consolidated operating profit

$           2,159

$           2,294

$           6,055

$           6,668

Net sales and operating profit of our business segments exclude intersegment sales, cost of sales, and profit as these activities are eliminated in consolidation and not included in management's evaluation of performance of each segment. Business segment operating profit includes our share of earnings or losses from equity method investees as the operating activities of the equity method investees are closely aligned with the operations of our business segments.

Business segment operating profit excludes the FAS/CAS pension operating adjustment, a portion of corporate costs not considered allowable or allocable to contracts with the U.S. Government under the applicable U.S. Government cost accounting standards (CAS) or federal acquisition regulations (FAR), and other items not considered part of management's evaluation of segment operating performance such as a portion of management and administration costs, legal fees and settlements, environmental costs, stock-based compensation expense, retiree benefits, significant severance actions, significant asset impairments, gains or losses from divestitures, and other miscellaneous corporate activities. Excluded items are included in the reconciling item "Unallocated items" between operating profit from our business segments and our consolidated operating profit.

Changes in net sales and operating profit generally are expressed in terms of volume. Changes in volume refer to increases or decreases in sales or operating profit resulting from varying production activity levels, deliveries or service levels on individual contracts. Volume changes in segment operating profit are typically based on the current profit booking rate for a particular contract. In addition, comparability of the company's segment sales, operating profit and operating margin may be impacted favorably or unfavorably by changes in profit booking rates on the company's contracts. Increases in profit booking rates, typically referred to as favorable profit adjustments, usually relate to revisions in the estimated total costs to fulfill the performance obligations that reflect improved conditions on a particular contract. Conversely, conditions on a particular contract may deteriorate, resulting in an increase in the estimated total costs to fulfill the performance obligations and a reduction in the profit booking rate and are typically referred to as unfavorable profit adjustments. Increases or decreases in profit booking rates are recognized in the current period and reflect the inception-to-date effect of such changes. For more information on factors impacting comparability of our segment sales, operating profit and operating margins, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the company's Annual Report on Form 10-K for the year ended Dec. 31, 2021 and subsequent quarterly reports on Form 10-Q.

The company's consolidated net favorable profit booking rate adjustments represented approximately 25% of total segment operating profit in the quarter ended Sept. 25, 2022, as compared to 31% in the quarter ended Sept. 26, 2021.

Aeronautics 

(in millions)

Quarters Ended

Nine Months Ended

Sept. 25,

2022

Sept. 26,

2021

Sept. 25,

2022

Sept. 26,

2021

Net sales

$        7,089

$        6,568

$       19,352

$       19,621

Operating profit

759

714

2,050

1,979

Operating margin

10.7 %

10.9 %

10.6 %

10.1 %

Aeronautics' net sales during the quarter ended Sept. 25, 2022 increased $521 million, or 8%, compared to the same period in 2021. Net sales increased by approximately $425 million for the F-35 program due to the recognition of $325 million of sales deferred from the second quarter of 2022 to the third quarter of 2022 until additional contractual authorization and funding was received on the Lot 15 contract and higher volume and net favorable profit adjustments on production contracts; and about $100 million on classified contracts primarily due to higher volume that was partially offset by lower net favorable profit adjustments.

Aeronautics' operating profit during the quarter ended Sept. 25, 2022 increased $45 million, or 6%, compared to the same period in 2021. Operating profit increased approximately $70 million for the F-35 program due to the recognition of sales and associated operating profit on the Lot 15 contract as described above and higher net favorable profit adjustments on production contracts; and about $15 million for the F-22 program due to higher net favorable profit adjustments. These increases were partially offset by lower operating profit of approximately $40 million on classified contracts due to the combination of lower net favorable profit adjustments and $25 million of unfavorable profit adjustments recorded in the third quarter of 2022. Net favorable profit booking rate adjustments were $20 million lower in the third quarter of 2022 compared to the same period in 2021.

Missiles and Fire Control

(in millions)

Quarters Ended

Nine Months Ended

Sept. 25,

2022

Sept. 26,

2021

Sept. 25,

2022

Sept. 26,

2021

Net sales

$         2,831

$         2,781

$         8,030

$           8,474

Operating profit

382

413

1,184

1,210

Operating margin

13.5 %

14.9 %

14.7 %

14.3 %

MFC's net sales during the quarter ended Sept. 25, 2022 increased $50 million, or 2%, compared to the same period in 2021. The increase was primarily attributable to higher net sales of approximately $95 million for integrated air and missile defense programs due to higher volume (Patriot Advanced Capability-3 (PAC-3)).This increase was partially offset by a decrease of about $55 million for sensors and global sustainment programs as a result of closeout activities related to the Warrior program in 2021.

MFC's operating profit during the quarter ended Sept. 25, 2022 decreased $31 million, or 8%, compared to the same period in 2021. The decrease was primarily attributable to lower operating profit for integrated air and missile defense programs due to lower net favorable profit adjustments of approximately $50 million for the PAC-3 program and an unfavorable profit adjustment of about $40 million on the Advanced Radar Threat System Variant 2 (ARTS-V2) program, partially offset by the impact of higher volume on PAC-3; and about $10 million for sensors and global sustainment programs primarily due to favorable profit adjustments on the Warrior program in the third quarter of 2021 as a result of the program being terminated in March 2021. These net decreases were partially offset by unfavorable profit adjustments of approximately $25 million on an energy program in the third quarter of 2021 that did not recur in 2022. Net favorable profit booking rate adjustments were $75 million lower in the third quarter of 2022 compared to the same period in 2021.

Rotary and Mission Systems

(in millions)

Quarters Ended

Nine Months Ended

Sept. 25,

2022

Sept. 26,

2021

Sept. 25,

2022

Sept. 26,

2021

Net sales

$        3,781

$        3,980

$      11,345

$      12,329

Operating profit

414

459

1,165

1,350

Operating margin

10.9 %

11.5 %

10.3 %

10.9 %

RMS' net sales during the quarter ended Sept. 25, 2022 decreased $199 million, or 5%, compared to the same period in 2021. The decrease was primarily attributable to lower net sales of approximately $160 million for Sikorsky helicopter programs due to lower production volume and net favorable profit adjustments (Black Hawk); and about $35 million for various C6ISR (command, control, communications, computers, cyber, combat systems, intelligence, surveillance, and reconnaissance) programs due to lower volume.

RMS' operating profit during the quarter ended Sept. 25, 2022 decreased $45 million, or 10%, compared to the same period in 2021. The decrease was primarily attributable to approximately $65 million for Sikorsky helicopter programs due to lower net favorable profit adjustments and volume (Black Hawk). This decrease was partially offset by an increase of about $10 million for IWSS programs due primarily to $45 million of unfavorable profit adjustments on a ground-based radar program in the third quarter of 2021 that did not recur in the third quarter of 2022, partially offset by lower net favorable profit adjustments on certain programs (TPQ-53 and Vertical Launching System (VLS)). Net favorable profit booking rate adjustments were $15 million lower in the third quarter of 2022 compared to the same period in 2021.

Space

(in millions)

Quarters Ended

Nine Months Ended

Sept. 25,

2022

Sept. 26,

2021

Sept. 25,

2022

Sept. 26,

2021

Net sales

$        2,882

$        2,699

$        8,266

$        8,891

Operating profit

301

264

814

826

Operating margin

10.4 %

9.8 %

9.8 %

9.3 %

Space's net sales during the quarter ended Sept. 25, 2022 increased $183 million, or 7%, compared to the same period in 2021. The increase was primarily attributable to higher net sales of approximately $155 million for strategic and missile defense programs due to higher development volume (Next Generation Interceptor (NGI)).

Space's operating profit during the quarter ended Sept. 25, 2022 increased $37 million, or 14%, compared to the same period in 2021. The increase was primarily attributable to approximately $50 million of higher equity earnings from the company's investment in United Launch Alliance (ULA) due to higher launch volume and launch mix. This increase was partially offset by a decrease of about $15 million for commercial civil space programs due to lower net favorable profit adjustments and lower volume (primarily the Orion and Human Lander System (HLS) programs). Operating profit for national security space programs was comparable as an unfavorable profit adjustment of $45 million on a commercial ground solutions program in the third quarter of 2021 that did not recur was offset by lower net favorable profit adjustments (Space-Based Infrared System (SBIRS) and classified programs). Net favorable profit booking rate adjustments were $15 million lower in the third quarter of 2022 compared to the same period in 2021.

Total equity earnings (primarily ULA) represented approximately $50 million, or 17%, of Space's operating profit during the quarter ended Sept. 25, 2022. Total equity earnings were not significant during the quarter ended Sept. 26, 2021.

Income Taxes

The company's effective income tax rates were 15.3% and 9.6% for the quarters ended Sept. 25, 2022 and Sept. 26, 2021. The rate for the quarter ended Sept. 26, 2021 was lower than the rate for the quarter ended Sept. 25, 2022 primarily due to lower earnings before income taxes resulting from a noncash, non-operating pension settlement charge of $1.7 billion, which reduced tax expense by approximately $355 million. The rates for both periods benefited from the research and development tax credit, tax deductions for foreign derived intangible income and dividends paid to the company's defined contribution plans with an employee stock ownership plan feature.

Use of Non-GAAP Financial Measures

This news release contains the following non-generally accepted accounting principles (non-GAAP) financial measures (as defined by U.S. Securities and Exchange Commission (SEC) Regulation G). While management believes that these non-GAAP financial measures may be useful in evaluating the financial performance of the company, this information should be considered supplemental to, and not a substitute for, financial information prepared in accordance with GAAP. In addition, the company's definitions for non-GAAP financial measures may differ from similarly titled measures used by other companies or analysts.

Business segment operating profit

Business segment operating profit represents operating profit from the company's business segments before unallocated income and expense. This measure is used by the company's senior management in evaluating the performance of its business segments and is a performance goal in the company's annual incentive plan. Business segment operating margin is calculated by dividing business segment operating profit by sales. The table below reconciles the non-GAAP measure business segment operating profit with the most directly comparable GAAP financial measure, consolidated operating profit.

(in millions)

 

Current Update

July 2022

Business segment operating profit (non-GAAP)

~$7,175

~$7,175

FAS/CAS operating adjustment1

~1,710

~1,710

Other, net

~(570)

~(525)

Consolidated operating profit (GAAP)

~$8,315

~$8,360

1

Reflects the amount by which expected total CAS pension cost of $1.8 billion, exceeds the expected FAS pension service cost and excludes
expected non-service FAS pension (expense) income. Refer to the supplemental table "Selected Financial Data" included in this news release
for a detail of the FAS/CAS operating adjustment.

Free cash flow

Free cash flow is cash from operations less capital expenditures. The company's capital expenditures are comprised of equipment and facilities infrastructure and information technology (inclusive of costs for the development or purchase of internal-use software that are capitalized). The company uses free cash flow to evaluate its business performance and overall liquidity and it is a performance goal in the company's annual and long-term incentive plans. The company believes free cash flow is a useful measure for investors because it represents the amount of cash generated from operations after reinvesting in the business and that may be available to return to stockholders and creditors (through dividends, stock repurchases and debt repayments) or available to fund acquisitions. The entire free cash flow amount is not necessarily available for discretionary expenditures, however, because it does not account for certain mandatory expenditures, such as the repayment of maturing debt and pension contributions.

Adjusted earnings before income taxes; adjusted net earnings and adjusted diluted EPS

Earnings before income taxes, net earnings and diluted earnings per share (EPS) were impacted by certain non-operational charges for all periods. Management believes the presentation of these measures adjusted for the impacts of these non-operational items is useful to investors in understanding the company's underlying business performance and comparing performance from period to period. The tax effects related to each adjustment that impacted earnings before income taxes are based on a blended tax rate that combines the federal statutory rate of 21% plus an estimated state tax rate.

Net FAS/CAS pension adjustment – adjusted; Total FAS pension income - adjusted

Total FAS/CAS pension adjustment and Total FAS pension income have been adjusted for the noncash, non-operating pension settlement charges recorded in the second quarter 2022 and third quarter 2021. Management believes that the exclusion of the pension settlement charge is useful to understanding the company's underlying business performance and comparing performance from period to period.

Webcast and Conference Call Information

Lockheed Martin Corporation will webcast live the earnings results conference call (listen-only mode) on Tuesday, Oct. 18, 2022, at 11 a.m. ET on the Lockheed Martin Investor Relations website at www.lockheedmartin.com/investor. The accompanying presentation slides and relevant financial charts are also available at www.lockheedmartin.com/investor.

For additional information, visit the company's website: www.lockheedmartin.com.

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