What Happened: Lockheed Martin has revised down its annual delivery forecast for F-35 fighter jets due to ongoing delays attributed to its supplier, L3Harris Technologies. As a result of he statement affecting the development of an upgraded version of the F-35, Lockheed’s stock saw a decline of 4.5 percent during afternoon trading. In a similar vein, L3Harris Technologies experienced a slight dip of approximately 1 percent in its stock value.
Previously, Lockheed had projected delivering between 100 to 120 F-35 aircraft for the year. However, due to the lingering issues, they now anticipate delivering 97 aircraft equipped with the current technology. Despite these challenges, the company has maintained its annual financial outlook.
What They Are Saying: “We have updated our F-35 TR-3 schedule projections with a first TR-3 aircraft delivery between April and June 2024,” Lockheed said. It earlier expected to deliver the first jet by the end of this year.
“The development of the Integrated Core Processor by L3 Harris has driven delays due to unexpected challenges associated with hardware and software development, component and system integration testing and system qualification testing,” it added.
Lockheed has deployed personnel to L3Harris to expedite the delivery of hardware and is collaborating with RTX (RTX.N) on the delivery of the Next Generation Electro Optical Digital Aperture System.
The Numbers: Lockheed’s advanced F-35 jet generated 27% of total consolidated net sales and 66% of aeronautics’ net sales in 2022 on the back of strong demand from countries ramping up their defense spending.The company has been upgrading the jets under the TR-3 (Technology Refresh 3) program that aims to improve displays and processing power.
The defense contractor stated in July that the conclusion of software integration testing would likely result in TR-3 jet delays. On Wednesday, Lockheed stated that it was manufacturing the jets at a rate of 156 per year and anticipated maintaining that rate even while it worked to complete TR-3 software development and testing.
Here is a look at Lockheed’s Q2 quarterly report from this year. This is always fun to benchmark their progress and useful for anticipating the next report and how this Lockheed/L3 development may impact it:
Lockheed Martin Corporation [NYSE: LMT] reported second quarter 2023 net sales of $16.7 billion, compared to $15.4 billion in the second quarter of 2022. Net earnings in the second quarter of 2023 were $1.7 billion, or $6.63 per share, compared to $309 million, or $1.16 per share, in the second quarter of 2022. Cash from operations was $1.1 billion in the second quarter of 2023, compared to $1.3 billion in the second quarter of 2022. Free cash flow was $771 million in the second quarter of 2023, compared to $1.0 billion in the second quarter of 2022.
“Lockheed Martin delivered strong financial results in the second quarter, with a record backlog of $158 billion and 8% sales growth year-over-year,” said Lockheed Martin Chairman, President and CEO Jim Taiclet. “Orders highlights included F-35 Lot 17 and significant awards to ramp-up PAC-3, GMLRS, and other major programs, positioning us well for the future. We continued our dynamic and disciplined capital allocation in the quarter, with nearly two times free cash flow returned to shareholders.”
“Given the strength of our year-to-date results and ongoing demand for our signature programs and advanced technologies, we are raising our full year sales and earnings per share outlooks for 2023. We are confident in our return to growth and ability to reward our shareholders over the long run with reliable free cash flow per share expansion and cash deployment. Along the way, we will continue developing and investing in our 21st Century Security vision to strengthen the resilience and responsiveness of the U.S. defense production system, elevate deterrence through the acceleration of digital technologies into critical missions with our commercial industry partners, and deepen our industrial relationships with allies and partner nations for production and sustainment operations.”
From Lockheed: I spoke with an anonymous employee from Lockheed Martin’s financial division about today’s development, and they said:
“10,000 things have to go right for an F-35 to be delivered. This isn’t your local Ford truck. This is an extremely advanced weapon system that is a testament to the collaboration of multiple companies and thousands of people. If a supplier holds off on the delivery of a component, that is out of our hands for the most part. L3 is a great partner of ours, but we are not directly integrated with their manufacturing. This forecast change is not a reflection of Lockheed’s ability to deliver, or even L3’s for that matter. It’s a demonstration of how intricate these machines are and how one component can halt a delivery. But we have parachuted some of our teams to L3 and I am confident we will be able to deliver the same revenue projections.”
The intricate world of defense manufacturing often presents us with unexpected challenges and opportunities for improvement. The F-35 program’s current setback serves as a reminder of the complexities involved in delivering cutting-edge technology. We’d love to hear your thoughts and insights on this topic. What strategies do you believe Lockheed Martin and other defense contractors should prioritize to enhance supply chain resilience and mitigate potential disruptions in the production of advanced military systems like the F-35 in the future?