Lockheed Martin’s Q2 Stumbles: Profits Down but Geopolitics Up

On Tuesday, Lockheed Martin Corp. (NYSE: LMT) reported its Q2 2025 earnings. As one of the heavyweights of the military industrial complex, the company failed to impress. Against the expected operating profit of $2.15 billion, per Bloomberg survey, Lockheed reported only $748 million.

In addition to the 65% drop in operating profit, the company downgraded its full year guidance from $27.00 – $27.30 earnings per share (EPS) to a $21.70 – $22.00 range. This is the primary reason why LMT shares dropped in the last 5 days by over 11%. Year-to-date, Lockheed Martin stock is now down over 13%, presently priced at $417.80 against the 52-week average of $503.68 per share, and very close to its low point of $418 in the same period. The company’s price-to-earnings (P/E) ratio stands at 18.11, significantly below the sector’s average of 32.53 consisting of 52 companies.

The question is, does revisiting a near-bottom represent a buy opportunity for LMT stock?

Examining Lockheed Martin’s Profit Dip

From the year-ago quarter ending June, Lockheed effectively generated the same revenue, at $18.12 billion vs $18.15 billion in Q2 2025. However, the company’s operating costs increased by $1.4 billion, resulting in net earnings of $342 million vs $1.64 billion in Q2 2024. During this period, Lockheed increased its total current liabilities by $4.93 billion, having nearly halved its cash balance to $1.29 billion.

Lockheed Martin CEO Jim Taiclet attributed this to declining viability of several legacy programs, which account for $1.6 billion in losses.

“Our ongoing program review process identified new developments that caused us to re-evaluate the financial position on a set of major legacy programs.”

As we covered previously, the Trump admin gave Boeing (NYSE: BA) the contract to develop the 6th-gen NGAD fighter jet F-47, named after Trump as the 47th president. This was somewhat unexpected given that Lockheed Martin developed the current warplanes series such as F-35s and F-22s.

As a write-off for the U.S. Air Force’s Next Generation Air Dominance (NGAD) selection, Lockheed incurred a charge of $66 million.

In addition to this large contract for future gains, the company’s classified Aeronautics program delivered a loss of $950 million due to difficulties in “design, integration, and test challenges.” Likewise, the restructuring of the contractual terms for the Canadian Maritime Helicopter Program (CMHP) delivered a $570 million loss.

Lastly, through the company’s Sikorsky subsidiary and in co-production with Turkish Aerospace Industries (TAI), the Türkish Utility Helicopter Program (TUHP) incurred a $95 million loss. Combined with the $66 million NGAD charge, the company also accounted for $103 million loss related to income tax reporting.

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Lockheed Martin’s Geopolitical Pool

Last Monday, President Trump pledged to send more weapons to Ukraine via NATO, noting that they will be delivered “to the battlefield quickly.”

“We are going to be sending Patriots to NATO and then NATO will distribute that.”

After the bombing of the Nord Stream pipelines, which provided the EU with cheap Russian gas, this once again confirmed Europe’s vassal relationship with the U.S. Not only did the U.S. State Department laid the groundwork for the Ukraine conflict in 2014, but this greatly weakened Europe’s economic power via the deindustrialization of Germany.

The latest arming initiative is also predictable. Namely, U.S. Secretary of Defense Pete Hegseth noted in February that a “division of labor” is needed, related to EU’s funding of the proxy war with Russia as the U.S. focuses on the Indo-Pacific (China). Just a month later, the president of the European Commission Ursula von der Leyen announced the “ReArm Europe” initiative worth €800 billion.

In short, selling weapons to NATO will greatly benefit the military industrial complex and Lockheed Martin specifically. So far, the company mostly contributed with its Javelin anti-tank missiles, HIMARS (High Mobility Artillery Rocket Systems), Patriot Advanced Capability-3 (PAC-3) air defense missiles and even short-range (up to 300km) ballistic missiles ATACMS, capable of striking inside Russia’s territory.

From President Trump’s statement, it is clear that Lockheed’s Missiles and Fire Control backlog will increase further. Presently, the company has a backlog of $40.25 billion in this division, out of a total backlog of $166.53 billion. According to the Center for Strategic & International Studies (CSIS), this backlog for Ukraine extends to early 2028.

Moreover, many NATO nations have started expanding their airpower with F-35s, at 50 deliveries for this quarter alone. On the domestic front, Lockheed Martin is the key contributor to the Golden Dome missile defense system, ranging from satellite-based detection and PAC-3s to next-gen laser weapons.

Overall, the company can tap into a $2.26 trillion defense pool for fiscal year 2025.

The Bottom Line

The question for investors is simple when it comes to Lockheed Martin stock exposure. Is the trend heading toward more or less demand for the company’s products? As the U.S. reorients toward China, each new budget breaks the previous record in military spending. And owing to Europe’s subservient status, this doesn’t entail exit from the Russian conflict but even more spending through NATO.

Although Lockheed’s classified Aeronautics program loss worth $950 million is notable, it suggests a shift in needs based on different regional demands. For this purpose, the company invested $800 million in new infrastructure and R&D.

On top of positive macro conditions for Lockheed’s future growth, investors can also count on stock buybacks and generous dividend yield. In the quarter, the company returned $1.3 billion to shareholders via buybacks, while giving a quarterly dividend payout of $3.30 per share, equating to 3.14% annual dividend yield.

At the present price level of $417.80, most analysts recommend holding LMT stock, only one is bearish, and 7 are bullish according to WSJ’s forecasting data. The average LMT price target is significantly above, at $521.68, while the bottom forecast is close at $406 per share.

Disclaimer: The author does not hold or have a position in any securities discussed in the article. All stock prices were quoted at the time of writing.