The Lockheed Martin Second Quarter 2024 Earnings Conference Call is beginning with opening remarks from Maria Ricciardone, Vice President, Treasurer and Investor Relations. She introduces the speakers, Jim Taiclet, Chairman, President and CEO, and Jay Malave, Financial Officer. The speakers will be discussing forward-looking statements and non-GAAP measures. Jim Taiclet thanks everyone for joining and highlights the company's recent successes in enhancing security in various regions.

The company has made significant contributions to Allied and Partner defense through its advanced technology solutions. This has resulted in a strong performance and increased demand for their products. The second quarter saw a 9% increase in sales and improvements in supply chain and defense outlays. The company is also pleased with progress on the F-35 program, with deliveries of the TR-3 configured aircraft beginning and further enhancements in development.

The third paragraph discusses the ongoing updates and production of the F-35 program, with an emphasis on the TR-3 capabilities. The CEO has met with industry partners to enhance cooperation and increase efficiency in the program. International customers continue to recognize the superior capabilities of the F-35, with Israel increasing their fleet and Greece in final discussions to procure the aircraft. The F-35 is seen as a key component in the DoD's Joint All-Domain architecture.

During the Valiant Shield exercise in June, Lockheed Martin demonstrated advanced capabilities that enhanced real-time decision-making and operational agility for joint operations. These included integrating digital command and control capabilities with the Indo-Pacific Command's Joint Fires network, using an operational planning data fusion engine, and demonstrating the ability to autonomously optimize ISR collection and enhance imagery. The U.S. Army also tested the Precision Strike Missile against a moving maritime target, and Lockheed Martin signed an agreement with Australia's Department of Defense to build their future joint air battle management system.

Lockheed Martin is working on providing Australia with advanced air and missile defense capabilities and has successfully conducted flight tests using artificial intelligence technology. They are also making progress in hypersonic strike technology and are collaborating with Ryan Mittal on various defense opportunities. One of their initiatives is the development of the Global Mobile Artillery Rocket System.

The company is combining combat-proven systems to meet the demand for long-range rocket capabilities in Europe and other regions. They have strong international collaboration, including partnerships with Poland and Spain. The US defense budget is currently being finalized, and the company's portfolio is well-aligned with customer priorities. The company is encouraged by conversations at the recent NATO Summit, and the focus remains on elevated defense spending to strengthen the alliance's deterrence posture. The company's CFO, Jay, will provide more details on award highlights and financial results.

In this paragraph, the speaker discusses the financial performance of the company in the second quarter, highlighting a 9% increase in sales and a 10% increase in segment operating profit. They also mention the achievement of double-digit return on sales for all four business areas and a book-to-bill ratio just below one. The company also made investments in research and development and capital expenditures, and returned over 100% of their free cash flow to shareholders.

In the second quarter, MFC saw strong order strength with a book-to-bill ratio of over two, led by a $4 billion Army award and a large international order for JASSM ERs. Sikorsky also had a successful quarter, with multiple foreign military sales of Black Hawk helicopters and a letter of offer and acceptance from Greece for 35 upgraded UH-60M BLACK HAWKs. In the space domain, Lockheed Martin was selected by NASA to develop and build the next-generation weather satellite constellation. Aeronautics saw a 6% increase in sales, driven by higher volumes on the F-35 and F-16 programs.

In the ninth paragraph, the company reports a 5% increase in segment operating profit, driven by higher volume and favorable mix offset by lower profit booking rate adjustments. They also mention resuming F-35 deliveries and reaching a milestone of 1,000 F-35s delivered. In terms of other aircraft deliveries, they delivered four F-16s and five C-130Js in the quarter. In the Missiles and Fire Control segment, sales were up 13% due to production ramps on precision fires programs. Segment operating profit increased 21% due to higher profit booking rate adjustments. The backlog for MFC reached a record level of almost $35 billion, with key awards including the PAC-3 and launchers for HIMARS and M270 upgrades. In the rotary emission systems segment, sales increased 17% primarily driven by higher volume on radar and laser programs and the Canadian Surface Combatant program.

In the second quarter, Sikorsky saw higher volume and delivered several helicopters to international customers, resulting in increased revenue and operating profit. In space, sales and operating profit also increased due to higher volume on strategic and missile defense programs. As a result of strong performance and improved visibility, Lockheed Martin is raising its 2024 financial outlook for sales, segment operating profit, and earnings per share, with a 5% growth from 2023 and increases across all four business areas. The new outlook reflects a solid 10.5% segment operating profit margin.

The company's business area margins are consistent with previous guidance, with some changes in RMS and space. The earnings per share midpoint has increased by $0.35, and the free cash flow expectation remains the same. The company is taking proactive actions to offset potential headwinds and expects backlog to grow. The outlook also includes the expectation of F-35 18/19 being awarded this year.

The company expects $325 million in losses on the MFC classified program and does not anticipate any pension contributions in 2024. The first half results have led to an increase in the full year outlook for sales, profit, and EPS, while maintaining the cash flow outlook. The company is investing in people, processes, and systems through the 1LMX transformation to improve efficiency and program execution. The F-35 delivery guidance for the second half of the year is still wide and the company is working towards production catching up for the program.

The company is committed to conducting safe and high-quality deliveries. They have designated resources such as test pilots, maintenance team, and engineers to ensure success. They expect to deliver anywhere between 75 to 110 aircraft in the next six months, with a target of 12 to 18 deliveries per month in the future. They have already delivered 10 aircraft since the restart and are making progress on reducing the backlog.

The company is working on monitoring their operating cadence to improve the flow of aircraft testing. They expect to deliver more F-35s next year than they produce and are negotiating final delivery payments with the customer. The final delivery payments will provide a timing benefit, but the revenue will not see much of an incremental increase. The company will continue to build at a 156 rate with stable production.

The speaker discusses the expected growth of F-35 and mentions that test activity will have a small impact. They also mention that the company is absorbing headwinds from funnel delivery payments and will see timing benefits in the future. The speaker is targeting a delivery time of 12 to 18 months for parked aircraft. The questioner asks about the company's future free cash flow growth and the speaker says they need to wait for pension headwinds to pass and see more growth acceleration before discussing a better outlook.

The company's goal is to increase free cash flow and share repurchases to achieve mid-single-digit free cash flow per share. They will provide a more detailed update on their multiyear forecast in October, but they expect to see growth in 2025. The company believes that the increase in backlog and higher sales in the first half of the year will lead to further growth in the future. Supply chain issues are a bottleneck, but the company expects growth to come from both increased demand and improved supply chain in the second half of the year.

The company is optimistic about their backlog and supply chain, with improvements in on-time delivery and parts shortages. They are taking proactive actions such as in-sourcing, dual sourcing, and product redesign to address any issues. The company's strategy includes driving digital technologies through an open architecture system to the DoD, and they are already seeing success in this with over-the-air updates to their AEGIS system.

Lockheed Martin's missiles and fire control division (MFC) is experiencing strong order flow and expects continued growth in the coming years. The division's book-to-bill ratio was above 2% in the last quarter, and they anticipate additional orders in the second half of the year. MFC is projected to be the highest growing division within Lockheed Martin for the next three to five years, with demand coming from both domestic and international customers. The key for the division is to meet this demand and ramp up production, which the team has been focused on achieving.

Lockheed Martin's CEO Jim Taiclet discusses the company's focus on the deterrence business and the role of their Missiles and Fire Control (MFC) division in contributing to deterrence. He mentions the importance of having enough ammunition stocks, the ability to ramp up production quickly, and the capability to produce and repair products in different locations. This is all part of their strategy to strengthen deterrence and show adversaries that they are prepared. Analyst Seth Seifman asks about the potential for growth in the coming years, to which Taiclet responds that there is potential for growth to be as strong as 2024 and 2025 and even accelerate.

The company is currently working on their multiyear outlook for 2025 and it is expected to be similar to 2024 due to strong backlog visibility. However, they are still working on operational capabilities to meet this demand. In terms of profitability, the second half of the year will be impacted by a program loss at MFC, with an expected $225 million recorded, putting pressure on margins.

The company's profit adjustment in the first half of the year will slow down in the second half due to program timing and risk retirements. However, the company is confident that their net margins will improve gradually over the next few years. They are not authorized to speak about the NGAD program, but they have invested in facilities to produce components for it.

The CEO of Lockheed Martin discussed the company's readiness to produce and design components for the NGAD concept using digital transformation engineering technologies and the digital twin. He also mentioned that the supply chain for the F-35 is being closely monitored and communicated with to ensure they can meet the demand for TR-3 and maintain production rates.

The speaker discusses the integration and planning of software across multiple companies, and their ability to meet demand. They mention a schedule for retrofitting TR-2 aircraft to TR-3, but note that it is ultimately up to the US government. They are prepared to do so at the government's requested rate. The next question asks for an update on cash flow, pension contribution, and CAS recovery for 2025 and potentially beyond.

In order to grow absolute dollar free cash flow in 2025, the company plans to address the pension headwind and focus on earnings growth, working capital, and reducing payments related to tax R&D capitalization. The CAS recovery is expected to decrease by $100 million this year and stay at that level for the next few years. The company also aims to improve efficiency in contract assets to convert them into faster billings.

In this paragraph, the speaker discusses the potential benefits of lower payments in the pension plan and the company's path to achieving low single digit growth. They also mention collaborations with other countries, such as Poland, Germany, and Australia, which will help increase production and meet demand for products like PAC-3, GMLRS, and Javelin. The company expects to see significant growth in these areas over the next few years.

Jim Taiclet discusses the lessons learned from the conflict in Ukraine and how it has impacted Lockheed's investments and development of new technologies. He mentions that traditional systems, like the Javelin, proved to be effective in defending against the initial invasion. However, he also emphasizes the need for continued innovation and development to address evolving threats.

The paragraph discusses the lessons learned from traditional land warfare systems, such as GPS and the PAC-3, and their adaptations to new threats, such as jamming and hypersonic missiles. It also mentions the importance of drones and unmanned aerial systems in modern warfare, particularly in the conflict in Ukraine. The company involved in the development of these systems is also mentioned.

The speaker discusses how their company is involved in a game and has learned lessons from the Ukraine war. They emphasize the importance of traditional systems and the need for adaptability. They also mention their digital technology efforts and the goal to improve legacy systems without waiting for a conflict to force them to do so. The speaker thanks their team for their hard work and dedication, and expresses confidence in the company's strong foundation for growth.

This summary was generated with AI and may contain some inaccuracies.