How Does Lockheed Martin Make its Money?
Lockheed Martin is the world’s largest defense contractor, generating nearly all of its revenue from the U.S. government and allied nations’ military budgets. The company designs, manufactures, and supports advanced technology systems for defense, intelligence, and civil applications. Its most famous product is the F-35 Lightning II — the most expensive weapons program in history — but Lockheed Martin also builds missile defense systems, military satellites, helicopters, and naval systems.
Approximately 73% of revenue comes from the U.S. Department of Defense, with the remainder from other U.S. government agencies (NASA, intelligence community) and international military customers. The company operates across four business segments, each focused on a different defense domain.
Revenue Breakdown
| Segment | 2024 | 2023 | YoY Growth |
|---|---|---|---|
| Aeronautics | $27.3B | $26.9B | +1.5% |
| Missiles and Fire Control | $12.5B | $11.5B | +8.7% |
| Rotary and Mission Systems | $16.8B | $16.0B | +5.0% |
| Space | $13.0B | $12.6B | +3.2% |
| Total Revenue | $71.0B | $67.6B | +5.0% |
Aeronautics — 38% of Revenue
Lockheed Martin’s largest segment, centered on the F-35 Lightning II, the world’s most advanced multi-role stealth fighter jet. The F-35 program alone accounts for roughly 25-30% of total company revenue across production, sustainment, and upgrades. This segment also includes the F-16 Fighting Falcon (still in production for international buyers), C-130J Super Hercules transport aircraft, and classified advanced development programs (Skunk Works). Lockheed Martin has delivered over 1,000 F-35s globally.
Missiles and Fire Control — 18% of Revenue
Missile defense systems (PAC-3, THAAD, Javelin anti-tank missiles), precision strike weapons, and fire control systems. This segment has seen accelerated growth driven by global military conflicts increasing demand for missiles and ammunition replenishment. The Javelin anti-tank missile and HIMARS rocket system gained prominence through their use in the Ukraine conflict.
Rotary and Mission Systems — 24% of Revenue
Military helicopters (Black Hawk, CH-53K King Stallion), naval combat systems (Aegis), radar systems, sensors, cybersecurity, and training solutions. The segment also includes Sikorsky helicopters and undersea systems (autonomous undersea vehicles).
Space — 18% of Revenue
Military/intelligence satellites, the Orion spacecraft (NASA’s deep-space crew capsule), missile defense sensors, and classified space programs. Lockheed Martin builds satellites for the U.S. Space Force, National Reconnaissance Office, and NASA. The segment is also involved in hypersonic weapons development.
Income Statement Overview
| Metric | 2024 | 2023 |
|---|---|---|
| Total Revenue | $71.0B | $67.6B |
| Cost of Sales | $62.8B | $60.0B |
| Gross Profit | $8.2B | $7.6B |
| Operating Expenses | $1.0B | $0.9B |
| Operating Income | $7.2B | $6.7B |
| Net Income | $5.3B | $6.9B |
Key Financial Metrics
- Operating Margin: 10.1% — Typical for a defense prime contractor. Government contracts generally operate on cost-plus or fixed-price margins that are lower than commercial businesses but highly predictable.
- Revenue Growth: +5.0% — Accelerating after several years of low single-digit growth. Rising global defense budgets and conflict-driven demand are tailwinds.
- Backlog: $165B+ — A record backlog representing over two years of revenue. Defense contracts are typically multi-year, providing exceptional revenue visibility.
- Free Cash Flow: ~$6.5B — Strong and consistent. Defense contractors generate steady cash flows that support dividends and buybacks.
- Dividend Yield: ~2.8% — Lockheed Martin has increased its dividend for 21 consecutive years. The company returns significant capital to shareholders through dividends and buybacks.
What to Watch
- F-35 sustainment costs — The F-35’s lifecycle sustainment costs have been criticized as too high. Reducing the cost per flight hour is critical for maintaining international customer support and Congressional funding.
- Global defense spending — NATO allies increasing defense spending to 2%+ of GDP, combined with rising tensions in the Indo-Pacific, drive demand for Lockheed Martin’s products. Geopolitical instability is unfortunately a business tailwind.
- Missile and ammunition replenishment — Global conflicts have depleted missile and ammunition stockpiles. Multi-year replenishment orders benefit the Missiles and Fire Control segment.
- Next-generation programs — NGAD (Next Generation Air Dominance) sixth-generation fighter and other classified programs could be the next multi-decade growth drivers, similar to how the F-35 has sustained Aeronautics.
- Budget risk — As a company dependent on government funding, fiscal austerity or budget sequestration could directly impact revenue. Political dynamics around defense spending are always relevant.