Lockheed Martin delivers $1.7B in profit on solid demand for F-35 and munitions

Lockheed Martin posted $1.71 billion in net earnings for Q1 2025, or $7.28 per diluted share, exceeding the prior year’s earnings by over 10 percent. Total sales rose to $17.96 billion, driven by notable gains in Missiles and Fire Control (MFC) and Aeronautics, with operating profit growing 17 percent year-over-year to $2.37 billion. Gross margin improvements came despite headwinds from pension-related expenses and macroeconomic pressures. Lockheed’s backlog remains enormous at $173 billion, and management emphasized continued high demand for advanced systems like the F-35 and GMLRS.

• Profit surge in MFC: Operating profit in the MFC segment jumped from $311 million to $465 million, reflecting increased global demand for munitions and air defense systems amid rising geopolitical tensions.
• $480M in positive profit adjustments: Lockheed recorded $480 million in favorable profit booking rate adjustments, especially on civil space and classified programs—a dramatic 23 percent of total segment operating profit.
• Watchlisted programs remain a drag: Lockheed disclosed cumulative reach-forward losses of $825 million on a classified Aeronautics program and $1.46 billion on a classified MFC program. These losses highlight the ongoing risk from fixed-price development contracts in complex national security systems.

Looking ahead: International remains a key market for Lockheed, making up 27 percent of Lockheed’s Q1 revenue, with sustained FMS interest likely to keep pressure on production lines. Meanwhile, labor and material cost inflation, supplier disruptions, and macro volatility may continue to challenge Lockheed’s ability to sustain Q1 margins. Loss-making classified programs at Aeronautics and MFC remain high-risk; further cost growth or schedule delays could trigger additional earnings charges.

Northrop Grumman's earnings plunge 49% as B-21 costs soar

Northrop Grumman reported $481 million in net earnings for Q1 2025—down from $944 million in Q1 2024—a sharp 49 percent decline largely driven by a $477 million additional loss provision on the B-21 Raider stealth bomber. Revenue fell 7 percent to $9.47 billion, with significant declines in Aeronautics Systems and Space Systems, only partially offset by modest gains in Defense and Mission Systems. Operating income dropped 46 percent year-over-year, and earnings per share fell to $3.32, down from $6.32.

• Another $477M blow from B-21 program: Northrop posted a $226 million unfavorable estimate adjustment for the first two low-rate production lots and accrued another $251 million in losses for unexercised options. The remaining loss accrual for the program stands at $1.7 billion, and cost estimates continue to climb.
• Cash drain of $2.67 billion: Operating cash flow fell to -1.57 billion, compared to -$706 million in Q1 2024, due to a combination of B-21-related losses, higher inventory costs, and a surge in unbilled receivables—now at $6.86 billion, a 16 percent jump from the end of 2024.
• Pending $327M divestiture: Northrop plans to sell its Immersive Mission Solutions unit for $327 million in cash, aiming to streamline operations and focus on core defense technologies. A $150 million after-tax gain is expected when the deal closes mid-2025.

Looking ahead: The B-21 program remains a wildcard. With billions already lost and further cost overruns possible, investor confidence hinges on whether Northrop can stabilize the program’s economics. Though no new losses were recorded, the restructured ICBM program remains in its early phases. Any hiccups could affect future earnings. Look for cash recovery from the IMS sale and continued execution of a $3.7 billion share repurchase authorization to support EPS stability.

RTX reports $20.3B in revenue and $1.54B in profit, plus legal overhang and EAC adjustments

RTX Corporation reported $20.3 billion in revenue for Q1 2025, a 5 percent increase from Q1 2024, with net income attributable to shareholders of $1.535 billion. While revenue growth was solid across product and service lines—particularly at Pratt & Whitney and Raytheon—earnings per share declined to $1.14, down from $1.28 a year ago. This was driven by higher taxes, legal settlements, and a $158 million reduction in operating profit from unfavorable contract estimate changes (EACs). Net operating cash flow improved to $1.3 billion, a significant jump from just $342 million in the prior-year quarter.

• $158M in operating profit reductions from EAC adjustments: RTX disclosed new unfavorable cost projections on key contracts, reducing profit by $158 million—an indicator that inflation, labor challenges, and defense program delays are still biting.
• Legal settlements and monitors cloud outlook: RTX remains under multiple federal deferred prosecution agreements (DPAs) and an SEC administrative order, requiring independent compliance monitors for at least three years. These stem from violations of the Foreign Corrupt Practices Act and contract pricing inherited from Raytheon.
• $1.4B still set aside for GTF powder metal fallout: Pratt & Whitney continues to absorb costs from the inspection crisis affecting its PW1100G-JM engines. The fleet disruption is expected to last through 2026, with significant ongoing compensation to customers.

Looking ahead: Ongoing risks around fixed-price defense contracts and aerospace cost overruns may continue to impact margins. RTX is offloading flight control businesses and managing $11.7 billion in offset obligations, which could unlock cash or trigger further compliance requirements. With $5.15 billion in cash and moderating capital outlays, RTX could prioritize stock buybacks and debt paydown—but watch the impact of any additional government enforcement actions.