Why did Lockheed Martin's free cash flow turn negative in the first quarter?

Cash from operations was $220 million, well below the $1.4 billion in Q1 2025. Management attributed the decline mainly to higher working capital, particularly contract assets rising to $15.9 billion from $13.0 billion at year-end and inventory build, partly offset by lower receivables. Capital expenditures of $511 million then pushed free cash flow to $(291) million. Timing of billing activities is cited as the primary driver.

What caused the drop in segment operating profit?

Business segment operating profit fell $262 million, or 13%, mainly because of lower favorable profit booking rate adjustments. Aeronautics absorbed $125 million of unfavorable adjustments on the F-35 program and an $80 million prior-year benefit did not recur. RMS took unfavorable adjustments on the CH-53K and Seahawk programs, and Space lost a $125 million benefit from prior-year commercial civil space program completions.

Is Lockheed Martin still on track to meet its 2026 guidance?

Management reaffirmed all 2026 outlook figures, including sales growth of about 5%, segment operating profit growth of about 25% year over year, and free cash flow of $6.5-6.8 billion. Reaching the free cash flow target would require a substantial cash recovery over the remaining three quarters after a negative first quarter, so the outlook carries execution risk.

What are the new framework agreements with the Department of War?

Lockheed Martin signed multiyear framework agreements to accelerate and scale production of advanced PAC-3 Patriot interceptors, THAAD interceptors and PrSM missiles. The company says multiyear demand commitments will fund investments in production infrastructure, the supply chain and workforce, with the goal of raising production rates by 3-4 times current levels. The agreements are described as commercially inspired arrangements that could serve as a template for future contracting.

Why did backlog decline, and what does it signal?

Total backlog fell about $7.2 billion to $186.4 billion from $193.6 billion at year-end, with Aeronautics down about $4.4 billion and RMS down about $1.9 billion. Backlog reflects sales recognized against existing contracts and the timing of new awards. Investors should watch whether the framework agreements and future awards replenish backlog in coming quarters.

LMT 8-K: Earnings & Results

01—Abstract

Summary

Summary of the 8-K filed April 23, 2026. Cited figures are marked; the original filing is the authoritative source.

Lockheed Martin reported first-quarter 2026 results that were essentially flat on the top line but weaker on profitability and cash generation.

Sales were $18.0 billion^a, unchanged from $17.96 billion a year earlier, as growth at Missiles and Fire Control (+8%) and Space (+7%) was offset by declines at Rotary and Mission Systems (-8%) and Aeronautics (-1%). Business segment operating profit fell 13% to $1.82 billion, with segment margin compressing from 11.6% to 10.1%. The decline was driven mainly by lower favorable profit booking rate adjustments, including unfavorable adjustments on the F-35 and CH-53K/Seahawk programs and the absence of prior-year favorable items at Space and Aeronautics.

Diluted EPS dropped to $6.44^b from $7.28, and net earnings fell to $1.5 billion from $1.7 billion. Cash performance was the most notable weakness. Cash from operations was only $220 million versus $1.4 billion a year ago, producing negative free cash flow of $(291) million, which management attributed primarily to working capital build and billing timing.

Contract assets rose sharply to $15.9 billion, and cash fell to $1.9 billion^c after $1.0 billion of debt repayment and $816 million of dividends. Total backlog declined to $186.4 billion from $193.6 billion at year-end, with Aeronautics and RMS showing the largest drops. Management reaffirmed full-year 2026 guidance: sales of $77.5-80.0 billion, segment operating profit of $8.425-8.675 billion, diluted EPS of $29.35-30.25, and free cash flow of $6.5-6.8 billion.

Management also highlighted multiyear framework agreements with the Department of War to expand production of PAC-3, THAAD and PrSM, which it says could raise output rates by 3-4 times current levels. Investors will want to watch whether the first-quarter cash shortfall reverses in later quarters, since the reaffirmed free cash flow target implies a strong recovery over the remainder of the year.

02—Key points

Key Highlights

Sales flat at $18.0B (vs. $17.96B in Q1 2025); MFC (+8%) and Space (+7%) growth offset by RMS (-8%) and Aeronautics (-1%) declines
Business segment operating profit down 13% to $1.82B; segment margin fell to 10.1% from 11.6%, largely on lower profit booking rate adjustments
Diluted EPS of $6.44 vs. $7.28 a year ago; net earnings of $1.49B vs. $1.71B
Free cash flow of $(291)M vs. $955M prior year; cash from operations of $220M vs. $1.4B, driven by working capital and billing timing
Total backlog declined to $186.4B from $193.6B at year-end 2025, with Aeronautics down about $4.4B and RMS down about $1.9B
2026 full-year guidance reaffirmed: sales $77.5-80.0B, EPS $29.35-30.25, free cash flow $6.5-6.8B
Framework agreements with the Department of War targeting 3-4x production rate increases for PAC-3, THAAD and PrSM munitions

03—Questions

Frequently Asked Questions

Why did Lockheed Martin's free cash flow turn negative in the first quarter?
Cash from operations was $220 million, well below the $1.4 billion in Q1 2025. Management attributed the decline mainly to higher working capital, particularly contract assets rising to $15.9 billion from $13.0 billion at year-end and inventory build, partly offset by lower receivables. Capital expenditures of $511 million then pushed free cash flow to $(291) million. Timing of billing activities is cited as the primary driver.
What caused the drop in segment operating profit?
Business segment operating profit fell $262 million, or 13%, mainly because of lower favorable profit booking rate adjustments. Aeronautics absorbed $125 million of unfavorable adjustments on the F-35 program and an $80 million prior-year benefit did not recur. RMS took unfavorable adjustments on the CH-53K and Seahawk programs, and Space lost a $125 million benefit from prior-year commercial civil space program completions.
Is Lockheed Martin still on track to meet its 2026 guidance?
Management reaffirmed all 2026 outlook figures, including sales growth of about 5%, segment operating profit growth of about 25% year over year, and free cash flow of $6.5-6.8 billion. Reaching the free cash flow target would require a substantial cash recovery over the remaining three quarters after a negative first quarter, so the outlook carries execution risk.
What are the new framework agreements with the Department of War?
Lockheed Martin signed multiyear framework agreements to accelerate and scale production of advanced PAC-3 Patriot interceptors, THAAD interceptors and PrSM missiles. The company says multiyear demand commitments will fund investments in production infrastructure, the supply chain and workforce, with the goal of raising production rates by 3-4 times current levels. The agreements are described as commercially inspired arrangements that could serve as a template for future contracting.
Why did backlog decline, and what does it signal?
Total backlog fell about $7.2 billion to $186.4 billion from $193.6 billion at year-end, with Aeronautics down about $4.4 billion and RMS down about $1.9 billion. Backlog reflects sales recognized against existing contracts and the timing of new awards. Investors should watch whether the framework agreements and future awards replenish backlog in coming quarters.

04—Continue

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