Lockheed Martin reported third-quarter 2026 results on Thursday, October 22, before the open. Sales: $20,711 million, up 11%, and backlog reached a record $292.0 billion. Full-year guidance was raised for the second consecutive quarter - and the same release carries an explicit warning about F-35, which we will come to.
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What was reported
| (millions of dollars, except per share) | Q3 2026 | Q3 2025 | Change |
|---|---|---|---|
| Sales | 20,711 | 18,609 | +11% |
| Segment operating profit | 2,229 | 2,029 | +10% |
| Segment margin | 10.8% | 10.9% | -14 bps |
| Diluted earnings per share (dollars) | 7.97 | 6.95 | +15% |
| Cash from operations | about 3,400 | about 3,700 | |
| Free cash flow | 2,999 | 3,347 | -10% |
| Sales year to date | 58,795 | 54,727 | +7% |
| Free cash flow year to date | 5,625 | 4,152 | +35% |
Source: Lockheed Martin's third-quarter 2026 press release, October 22, 2026, filed with the SEC on Form 8-K as Exhibit 99.1. Business segment operating profit and free cash flow are non-GAAP measures, as the company defines them. Segment margin was calculated by dividing segment operating profit by sales.
The backlog, which is the main event
Backlog: $292.0 billion - a record, and up 27% from the second quarter.
27% in a single quarter is an unusual figure at a company this size, and the reason appears in the release: $52.5 billion from the multi-year award to produce PAC-3 MSE interceptors - the Missile Segment Enhancement version.
For context: full-year sales guidance is about $80 billion to $82 billion. So the backlog is worth roughly three and a half years of sales at the current rate, and that single award alone is worth about two-thirds of a year's sales.
The segments
Sales (millions of dollars):
| Segment | Q3 2026 | Q3 2025 | Change |
|---|---|---|---|
| Aeronautics | 8,214 | 7,256 | +13% |
| Missiles and Fire Control | 4,501 | 3,624 | +24% |
| Rotary and Mission Systems | 4,511 | 4,373 | +3% |
| Space | 3,485 | 3,356 | +4% |
| Total | 20,711 | 18,609 | +11% |
Operating profit (millions of dollars):
| Segment | Q3 2026 | Q3 2025 | Change |
|---|---|---|---|
| Aeronautics | 743 | 682 | +9% |
| Missiles and Fire Control | 631 | 510 | +24% |
| Rotary and Mission Systems | 524 | 506 | +4% |
| Space | 331 | 331 | 0% |
| Total | 2,229 | 2,029 | +10% |
Missiles and Fire Control is the engine: 24% in sales and 24% in profit, and the company attributes the $200 million increase in segment operating profit to munition ramps there and to higher volume at Aeronautics.
And Space is the line I am flagging: sales rose 4%, and profit stayed at exactly $331 million - the same figure in both quarters. And year to date, profit there actually fell, to $983 million from $1,072 million. It is the only one of the four segments where the annual picture is negative.
Note too a figure that is easy to miss: segment operating profit rose only 10% against sales up 11% - so segment margin eroded from 10.9% to 10.8%. At Aeronautics it fell from 9.4% to 9.0%, and at Space from 9.9% to 9.5%. The business grew; profitability did not improve with it.
‼ The F-35 warning, which cannot be skipped
This is the passage that deserves attention, and it appears in the same release in which guidance was raised. In the company's own terms:
It remains in negotiations with the U.S. Government on the production contracts for F-35 Lot 20 and higher. Its costs incurred began to exceed the current contractual authorization and funding on the Lot 20 advance acquisition contract during the third quarter of 2026. And without additional contractual authorization and funding from the Government, it writes, the company's results of operations, cash flows and financial condition will be negatively impacted in future periods.
In other words, the company is currently producing beyond what it is authorized to bill for, pending a government funding decision. This is not a theoretical scenario - the company reports that it has already happened this quarter, and it sets it explicitly against future results.
Cash flow and the outlook
Free cash flow in the quarter fell - $2,999 million against $3,347 million. But year to date it rose 35%, to $5,625 million from $4,152 million, and year-to-date cash from operations rose to $6,893 million from $5,338 million.
| (millions of dollars, except per share) | Current update | July 2026 guidance |
|---|---|---|
| Sales | ~$80,000 - $82,000 | $79,750 - $81,750 |
| Business segment operating profit | ~$8,575 - $8,675 | $8,500 - $8,700 |
| Total FAS/CAS pension adjustment | ~$1,365 | ~$1,365 |
| Diluted earnings per share (dollars) | ~$30.35 - $30.75 | $29.95 - $30.65 |
| Cash from operations | ~$10,000 - $10,200 | $9,200 - $9,400 |
| Free cash flow | ~$7,800 - $8,000 | $7,000 - $7,200 |
The free cash flow raise is the standout: $800 million at the midpoint. And setting it against the year-to-date figure - $5,625 million - implies the company expects free cash flow of roughly $2.2 billion to $2.4 billion in the fourth quarter alone.
The dividend was raised for the 24th consecutive year. Chairman, president and chief executive Jim Taiclet notes in the release that this is the second consecutive quarter in which the company has raised its financial guidance.
The stock
The report was published before the open, and the investor call was held at 8:30 a.m. Eastern. So the trading reaction is that same day, October 22.
The stock jumped 6.96% to $589.91 from $551.51. It opened at $579.51 - a positive gap of 5.08% before it had traded at all - and rose as high as $608.00, 10.24% above the prior close. The session low, $577.24, stayed above the pre-report close. Volume: 3.0 million shares, double the day before.
On Friday the stock added 2.42%, to $604.18.
הזווית שלי
דעה אישית של אילן אברמוב - לא ייעוץ ולא המלצה
This report is two different reports written on the same page, and both are worth reading.
The first is the report of a company operating at a scale that is not common: a backlog of $292 billion, which is about three and a half years of sales, and a 27% increase in it in a single quarter. In this industry the backlog is the real forecast - it is already signed, and it is governmental. One multi-year award of $52.5 billion is worth about two-thirds of a year's sales, and that is not a figure that evaporates.
The second is the report of a company whose profitability is not improving. Sales rose 11%, segment profit 10%, and margin eroded from 10.9% to 10.8%. The Space segment earned precisely the same amount on higher sales, and year to date it earned less. The business grew; it did not become more profitable.
And what I would hold in mind more than anything else in this report is the F-35 passage. A company reporting that its costs "began to exceed the current contractual authorization and funding" is saying that it is currently producing at its own expense, pending a government funding decision. It also says explicitly what will happen without that authorization. This appears in the same report in which guidance was raised, and the guidance - as the company notes - does not incorporate adjustments for items not yet consummated.
So what I take from the combination: the backlog says demand exists and is signed. The F-35 passage says a signature is not the same as funding, and that the gap between them currently falls on the company. Both are true at the same time, and that is exactly what makes this company hard to read.
What I will follow: the outcome of the negotiations on the F-35 lots and whether and how it is reported; and segment margins - whether they return to expanding as the backlog begins to convert into revenue, or whether this growth is simply less profitable than the last.
(To be clear: this is my personal opinion only. Nothing here is a recommendation to take any action, and there is no forecast here of the price of any security.)
Ilan Abramov, the author, or anyone on his behalf may hold some of the securities or funds mentioned in this article.
