Earnings

Lockheed Raises 2026 Free Cash Flow Outlook To $7.8 Billion-$8.0 Billion, But F-35 Costs Have Passed Funding

Third-quarter sales rose 11% to $20.7 billion and backlog hit a record $292.0 billion, while F-35 Lot 20 talks remain open.

Matteo Parrino Jonathan Ponciano

Matteo Parrino, Jonathan Ponciano

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Lockheed Raises 2026 Free Cash Flow Outlook To $7.8 Billion-$8.0 Billion, But F-35 Costs Have Passed Funding

Lockheed Martin lifted its 2026 forecast for the second consecutive quarter after third-quarter sales of $20.7 billion, up 11% from $18.6 billion a year earlier, according to an 8-K filed Thursday. The same release warns that F-35 costs have begun to exceed the funding authorized by the U.S. government.

What the results show

Net earnings rose 14% to $1.8 billion, or $7.97 per share, from $1.6 billion, or $6.95 per share. All four business segments grew.

Backlog, the work under contract but not yet delivered, reached a record $292.0 billion, up 27% since the second quarter. It includes $52.5 billion tied to the multi-year award to produce PAC-3 Missile Segment Enhancement interceptors. Chairman, President and CEO Jim Taiclet said the backlog allowed the company to raise its dividend for the 24th year in a row.

Missiles and Fire Control sales rose 24% to $4.5 billion, on production ramps for PAC-3, THAAD, GMLRS and PrSM. Aeronautics sales rose 13% to $8,214 million, led by $710 million more on the F-35 program. Rotary and Mission Systems grew 3% and Space 4%.

Cash from operations was $3.4 billion, down from $3.7 billion a year earlier. Free cash flow was $3.0 billion, against $3.3 billion. The company attributed the decline mainly to higher customer receipts in the third quarter of 2025.

The raised outlook and the F-35 warning

The company now expects diluted earnings per share of about $30.35 to $30.75, up from $29.95 to $30.65 in July. Free cash flow is guided to about $7,800 million to $8,000 million, from $7,000 million to $7,200 million. Sales guidance is about $80,000 million to $82,000 million, versus $79,750 million to $81,750 million in July.

The release says Lockheed remains in negotiations with the government on production contracts for F-35 lots 20 and higher. Costs on the Lot 20 advance acquisition contract began to exceed the current authorization and funding during the third quarter.

The company states that without more authorization and funding, its results of operations, cash flows and financial condition "will be negatively impacted in future periods." F-35 deliveries were 43 in the quarter, versus 46 a year earlier.

What to watch

Lockheed holds its earnings webcast at 8:30 a.m. ET Thursday, where management may address the F-35 negotiations.

The next filing to check is the 10-Q, where the F-35 Lot 20 language may be spelled out further.

Sources

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