A sign for Lockheed Martin Corp. stands outside the company’s headquarters in Bethesda, Maryland, U.S., on Friday, Nov. 16, 2012. Photographer: Andrew Harrer/Bloomberg via Getty Images
WASHINGTON — Higher than expected engineering costs and other difficulties forced Lockheed Martin to book $2 billion in losses on two classified programs in 2024, with a $1.7 billion hit occurring in the final quarter of the year, the company said in results today.
The world’s largest defense contractor recorded total year end losses of $1.4 billion on a classified program in its missiles and fire control (MFC) portfolio as well as a $555 million overrun on a program in its aeronautics division, Lockheed said in a news release. Of that sum, the MFC program logged a $1.3 billion charge in the fourth quarter, with the aeronautics program incurring a $410 million charge during the same period.
The MFC program losses stem from a contract where Lockheed can be reimbursed for costs during the initial phase of the program, but where follow-on contract options are locked under a fixed-price deal that holds Lockheed responsible for paying costs above a certain threshold. Lockheed estimates that all options exercised over the “next several years” would be performed at a loss to the company, with the first $100 million charge occurring in the first quarter of 2024.
“During the fourth quarter of 2024, the company again assessed the likelihood that additional options may be exercised and now believe it is probable that all options will be exercised based on performance to date, future requirements of the program, discussions with the customer and suppliers, and anticipated customer funding, among other factors, resulting in the recognition of additional losses,” Lockheed said in a release.
When Lockheed executives first disclosed the hit to the MFC program in April, CEO Jim Taiclet characterized the program as a long-running franchise that will deliver a strong return on investment after going through a period of teething pains, while Chief Financial Officer Jay Malave said the effort was expected to become profitable on an annual basis around the 2028 timeframe.
Meanwhile, Lockheed described the impacted aeronautics program as a fixed-price incentive fee contract involving “highly complex design and systems integration.” The company conducted a review of the program due to undisclosed near-term milestones and trends experienced in the fourth quarter, and recorded losses based on “higher projected costs in engineering and integration activities that are necessary to achieve those forthcoming milestones,” it said.
Because of the classified program losses, Lockheed missed its target earnings per share for 2024, which was projected to be $26.65 in September but amounted to $22.31. It recorded $5.3 billion in free cash flow for 2024, missing its free cash flow target of $6.2 billion primarily due to a pension contribution of $990 million. However, net sales increased 5% to $71 billion, meeting its yearly target.
“2024 was another successful and productive year for Lockheed Martin,” Taiclet said in a statement accompanying results. “Our 5% sales growth and record year-end backlog of $176 billion demonstrate the enduring global demand for our advanced defense technology and systems.”
The company expects net sales of about $73.7 billion to $74.7 billion in 2025, with a free cash flow target of around $6.6 billion to $6.8 billion.
