Lockheed Martin’s second-quarter earnings fell well short of Wall Street expectations on a bevy of one-time charges. Investors were ready for some extra expenses, but the magnitude recorded in the quarter will surprise some.
Lockheed reported earnings per share of $1.46 from sales of $18.2 billion on Tuesday morning. Wall Street was looking for EPS of $6.41 from sales of $18.5 billion, according to Bloomberg. In the second quarter of 2024, the company reported EPS of $7.11, net of charges, from sales of $18.1 billion.
Lockheed shares tumbled 6% in premarket.
Included in the second quarter earnings per share number were charges amounting to $1.7 billion, or $5.83 per share after tax. Charges for classified programs in the company’s aeronautics segment totaled $950 million. Two charges for helicopter programs totalled $665 million. Write-offs for the Air Force’s sixth-generation fighter jet awarded to Boeing amounted to $66 million.
Lockheed shares were up 0.4% in premarket trading at $462.35 in premarket trading, just before earnings were released, while S&P 500 and Dow Jones Industrial Average futures were down less than 0.1%.
Seaport analyst Richard Safran wrote in a preview report that aeronautics and sixth-generation fighter charges could be as much as $300 million. They turned out to be much larger. The cost to develop the required capabilities, bid years ago, exceeded the original fixed price contract value, explained CFO Evan Scott to Barron’s.
Safran rates Lockheed shares as Buy, but he was leaning “negative into the print as we see risk of higher than expected charges at Aeronautics and a downward guidance revision below consensus.”
As for guidance, Lockheed management now expects EPS to land between $21.70 and $22, down from a prior range of $27 to $27.30. The $5.30 reduction is a little smaller than the amount of the charges. Sales and cash flow guidance for 2025 didn’t change.
Safran’s price target for Lockheed stock is $670 a share, which values shares for about 22 times estimated 2026 earnings. Lockheed stock is trading for about 15.5 times estimated 2026 earnings, down from an average of roughly 17 times over the past few years.
Part of the reason for the depressed valuation multiple is investors’ angst over drones, U.S. spending priorities, and geopolitics.
Coming into Tuesday trading, Lockheed stock was down about 15% since Tesla CEO Elon Musk criticized manned fighter jets in a late November tweet. Since then, investors have been concerned that more expensive manned fighter jets, such as Lockheed’s F-35, would be phased out faster than expected in favor of lower-cost drones.
Fighters, including the F-35, have proven their worth in recent conflicts with Iran. The company delivered 50 F-35s in the quarter and still has more than 300 in the backlog. Lockheed also works on several unmanned technologies, including higher-priced, more technically advanced drones, swarm technologies, and anti-drone defense. All that, however, has done little to slake investor fears.
Scott also pointed out the company is well-positioned to benefit from President Donald Trump’s Golden Dome missile defense shield. (The dome should eventually cost hundreds of billions of dollars.)
New technologies and growth in defense spending in the U.S. and Europe are positives for Lockheed and other defense contractors. Investors, however, will probably focus on the current quarter and one-time charges in Tuesday trading.
Options markets imply shares will move about 4% up or down following earnings. Shares have moved an average of about 5% following the past four quarterly reports. Shares have risen twice and fallen twice over that span.
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