Timing correction: Lockheed Martin is scheduled to report today, Thursday, July 23, 2026, before the U.S. market opens—not tomorrow. The earnings call is scheduled for 8:30 a.m. ET.
Lockheed Martin enters Q2 with an unusually favorable demand backdrop but a meaningful execution burden.
Global demand for air and missile defense, precision weapons, F-35 sustainment and strategic missile programs remains exceptionally strong. The central investor question, however, is no longer whether demand exists. It is whether Lockheed can convert that demand and its $186 billion backlog into clean earnings, higher margins and cash flow without another round of program charges.
The headline comparisons will be distorted by the large losses recorded in Q2 2025. Consequently, the most important elements of the report should be:
My view is that this is principally an execution and guidance report, not an EPS-beat report.
| Metric | Q2 2026 consensus | Q2 2025 reported/comparable | Current FY2026 guidance |
|---|---|---|---|
| Revenue | $19.28B | $18.16B | $77.5B–$80.0B |
| Adjusted EPS | $7.15 | Approximately $7.29 excluding major charges | $29.35–$30.25 |
| Segment operating profit | — | $571M reported, depressed by charges | $8.43B–$8.68B |
| Free cash flow | — | $(150)M | $6.5B–$6.8B |
Consensus implies approximately 6.2% revenue growth, but adjusted EPS slightly below the prior-year clean comparison. That combination suggests investors already expect healthy volume growth with continued pressure from program mix, investment spending and execution.
The year-over-year GAAP EPS comparison will be nearly meaningless. Q2 2025 included approximately $1.6 billion of program losses, principally:
The absence of similar charges this quarter will mechanically create very large reported earnings growth. Investors should look past that and focus on underlying segment margins and new estimate-at-completion adjustments.
Lockheed's valuation has been constrained by recurring concerns around fixed-price development programs and profit-booking adjustments. Q1 2026 did not produce another major classified-program charge, but it did include:
Management said in April that the major classified Aeronautics program had sufficient financial coverage, while acknowledging that technical risk remained. It also said there had been no estimate change on the large classified MFC program since Q4 2024.
Those assurances will be tested in Q2.
A clean quarter would matter more than a modest revenue or EPS beat. Conversely, another large charge would undermine confidence that the 2025 program reset was comprehensive.
Q1 sales were essentially flat at $18.0 billion, while segment operating profit fell 13% to $1.82 billion. Segment margin contracted from 11.6% to 10.1%.
Management said sales and margins should increase sequentially through the year, with more significant margin improvement in the second half as milestones are completed and program risks are retired.
The full-year guide makes that recovery necessary:
That equates to an average of roughly $2.20B–$2.28B per quarter after Q1.
Investors therefore should not be satisfied with revenue growth alone. The report needs to show that incremental sales—especially in missiles—are translating into profit rather than being absorbed by execution costs elsewhere.
MFC was the strongest segment in Q1:
Growth was led by PAC-3, JASSM, LRASM and PrSM production. Management subsequently described a potential mid-teens multiyear growth profile for the segment, assuming the planned multiyear procurement agreements are completed.
Key Q2 questions include:
The recently announced PAC-3 Adapted Capability Effector, a lower-cost interceptor intended to complement the higher-end PAC-3 MSE, strengthens the long-term product narrative. Management says it could cost less than half as much as an MSE and enter production within approximately 36 months. It will not materially affect Q2, but investors should listen for development spending, customer interest and potential production timing.
What matters: MFC should deliver both growth and margin stability. A slowdown here would be difficult to offset elsewhere.
Aeronautics produced a weak Q1:
The F-35 itself was a relative positive. Sustainment volumes increased, production performance generated favorable profit adjustments and management continues to describe sustainment as the program's primary growth driver.
Items to watch:
A strong Aeronautics result would likely consist of improving F-35 economics, resumed F-16/C-130 deliveries and no classified-program deterioration.
RMS was the weakest operating segment in Q1 outside of difficult Space comparisons:
Lower radar and Sikorsky volumes were compounded by unfavorable helicopter-program adjustments. The segment also faced a difficult comparison because Q1 2025 included a $50 million intellectual-property recovery.
Potential positives include:
Nevertheless, RMS remains the most obvious source of downside risk because of the history of Canadian and Turkish helicopter charges. Stability in program estimates is likely more important than near-term revenue growth.
Q1 Space revenue increased 7%, supported by Fleet Ballistic Missile and Next Generation Interceptor activity. Operating profit nevertheless fell 26%, largely because the prior-year period included favorable benefits from completed commercial civil-space programs.
The fundamental growth drivers remain attractive:
The key question is whether Space margins can recover from Q1's 8.2% level. A return toward a roughly double-digit margin would make the full-year profit bridge more credible.
ULA also deserves attention. Lockheed's Q1 10-Q warned that Vulcan development, production or launch challenges could expose the company to operating losses, impairment or the need for additional financial support.
Q1 free cash flow was negative $291 million, compared with positive $955 million a year earlier. Working capital was the primary cause, including:
Management said the ERP-related disruption should be resolved during Q2 and retained its $6.5 billion–$6.8 billion annual free-cash-flow guide. It also suggested favorable tax guidance could support the upper end of that range.
After Q1, Lockheed needs approximately $6.8 billion–$7.1 billion of free cash flow over the final nine months to reach guidance. Management has repeatedly said cash generation will be weighted toward the second half, so Q2 does not need to deliver half of the annual target. Still, investors should expect visible improvement from Q1.
A revenue beat accompanied by another weak cash quarter would be low quality. Conversely, a meaningful working-capital recovery could be more important than a small EPS miss.
Lockheed reaffirmed all major guidance ranges in Q1:
At the Q2 consensus revenue estimate, first-half sales would be approximately $37.3 billion. Reaching the midpoint of annual guidance would then require approximately $41.5 billion in second-half revenue, or about $20.7 billion per quarter.
The implied earnings cadence is also back-end weighted. After Q1 EPS of $6.44 and Q2 consensus of $7.15, Lockheed would need roughly $16.2 of second-half EPS to reach the midpoint of its annual range.
That means investors need more than a mechanical reaffirmation. Management should provide evidence that:
An increase in free-cash-flow guidance—or language pointing clearly toward the upper end—would likely be the most credible positive revision. Raising sales guidance without increasing profit or cash expectations would be less compelling.
LMT closed July 22 at approximately $514, up about 6% year to date but down roughly 7% since the day before its Q1 report. The stock has given back much of its earlier defense-demand rally as investors refocused on execution, margins and the unusually back-end-loaded cash-flow target.
That creates a more balanced setup than the geopolitical headlines might suggest:
| Strong report | Weak report |
|---|---|
| No significant new program charges | Additional classified or helicopter losses |
| Revenue at or above roughly $19.3B | Revenue miss despite strong demand |
| Sequential improvement in segment margin | Margins remain near Q1 levels |
| Strong MFC growth with stable margins | Missile growth constrained by suppliers |
| F-16 and C-130 delivery recovery | Further delivery or integration delays |
| Working-capital reversal and improved FCF | Another weak cash quarter |
| Guidance raised or upper-end confidence | Guidance maintained but with greater back-half dependence |
| Clear progress on PAC-3/THAAD multiyears | Contract definitization pushed out |
The favorable defense environment provides Lockheed with substantial long-term opportunities, particularly in missile defense, precision weapons, F-35 sustainment and strategic space programs. But the market already understands the demand story.
The more consequential question is whether Lockheed has finally stabilized its problem programs and can translate demand into:
A clean quarter with improving cash flow and stronger confidence in the upper half of guidance would support the argument that 2025 marked the low point in execution. Another program charge—or a second weak cash quarter—would reinforce the concern that Lockheed's backlog is growing faster than its ability to execute profitably.