ロッキード・マーティン（LMT）2026年第3四半期決算説明会：受注残高が2,920億ドルに達し業績予想を引き上げ

主要なポイント

• 2026年第3四半期の売上高は前年同期比11%増の207億ドルとなり、セグメント営業利益は22億ドルに達し、EPSは15%増の7.97ドルとなりました。
• ロッキード・マーティンは当四半期に30億ドルのフリーキャッシュフローを創出し、受注残高は2025年第3四半期から1,130億ドル増加し、過去最高の2,920億ドルで期末を迎えました。BBレシオは4.0倍でした。
• ミサイル・火器管制（MFC）部門が成長を牽引し、弾薬の増産ペースが計画を前倒しで進展したことから、四半期売上高と利益はいずれも24%増加しました。
• 経営陣は2026年通期の業績予想を引き上げ、売上高を800億〜820億ドル、セグメント営業利益を85億7,500万〜86億7,500万ドル、フリーキャッシュフローを78億〜80億ドルとしました。
• 期間7年のPAC-3契約の潜在的総価値は最大586億ドルに達します。ロッキード・マーティンは、弾薬施設、サプライチェーン機能、労働力の拡大に向け、2030年までに80億ドル以上を投資する計画です。
• 経営陣は、正式な2027年の見通し発表は1月を予定しているものの、全4セグメントで成長が見込まれ、2027年に全社売上高が1桁台後半の成長を達成する明確な見通しを得ているとしています。

主要財務データ

事業・業績パフォーマンス

ミサイル・火器管制部門

MFC部門が最も力強い成長の原動力となりました。弾薬の増産がスケジュールを前倒しで進展したため、売上高と営業利益はいずれも前年同期比24%増加しました。経営陣は2026年通期の売上高と利益が共に約20%成長すると見込んでいます。

7年間のPAC-3契約は、最大586億ドルの潜在的総価値を持ちます。ロッキード・マーティンは2026年はじめにも7年間のサード（THAAD）協定を締結しており、3年間で8か所の拠点にわたって200万平方フィートの施設を増設中です。これらの増設工程の半分以上がすでに着工されています。

同社は2026年にMFC拠点全体で3,000人以上の従業員を採用・訓練する計画です。サプライヤー調達としては、L3ハリスとの47億ドルのPAC-3推進システム契約、ボーイングとのPAC-3シーカー生産能力を3倍にするための147億ドルの契約、およびノースロップ・グラマンとの推進システムやその他の部品に関する16億ドルの契約が含まれます。

航空機部門

航空機部門の売上高は、F-35の数量増加とC-130の契約前費用の回収により13%増加しました。営業利益は9%増加しましたが、数量増加による押し上げ効果はF-16およびC-130プログラムにおける不利な利益調整によって一部相殺されました。

F-35の多年数フレームワークは、10年間で米軍向け850機を導入する道筋を確立しています。同盟国の需要を含め、経営陣は10年間にわたって年間156機の生産水準が見込まれると説明しました。この合意は、サプライヤーネットワーク全体の生産安定性、維持管理、および将来の開発体制を改善することを目的としています。

また、ロッキード・マーティンは米国および海外の顧客向けに34機を対象とする44億ドル規模のC-130J関連契約を受注しました。

ロータリー・ミッションシステム部門

RMS部門の売上高は、レーダーおよび指揮統制プログラムが牽引し3%増加しました。営業利益は4%増加し、契約関連問題の良好な解決が寄与しました。

同部門は、オーストラリアの統合防空戦マネジメントシステム「AIR6500」の次期トランチに関する8億ドルの契約を獲得しました。また、ロッキード・マーティンは将来のバージニア級原子力潜水艦に向けたオーストラリアの戦闘システム統合能力を確立する企業としても選定されました。

宇宙部門

宇宙部門の売上高は、次世代迎撃機（NGI）および艦隊弾道ミサイル（FBM）プログラムにおける活動の活発化により4%増加しました。当四半期の営業利益は前年同期と同水準となりました。

経営陣は、戦略的ミサイル防衛と安全保障向け宇宙事業を重要な成長領域と位置付けています。同部門はまた、次世代迎撃機（NGI）の主要な固体ロケットモーター試験を完了しており、2030年までの配備開始目標を維持しています。

業績予想（ガイダンス）

セグメント別の見通しは以下の通りです：

• 航空機部門：売上高311億〜325億ドル、営業利益29億2,000万〜29億5,000万ドル。売上高の見通しは3%〜7%の成長を示唆しています。次期F-35ロットの想定発注時期が2027年にずれ込んだため、予想範囲が下方修正されました。
• ミサイル・火器管制部門：売上高172億5,000万〜174億5,000万ドル、営業利益23億9,500万〜24億2,500万ドル。
• ロータリー・ミッションシステム部門：売上高177億〜180億ドル、営業利益18億8,000万〜19億ドル。
• 宇宙部門：売上高139億5,000万〜140億5,000万ドル（7%〜8%の成長）、営業利益13億8,000万〜14億ドル。利益の見通しには2026年第4四半期におけるULAの持分法投資損益は含まれていません。

この見通しにはウルトラ・マリティム（Ultra Maritime）は含まれていません。ロッキード・マーティンは買収が2026年第4四半期に完了すると見込んでおり、手元現金で資金を調達する計画です。また、第4四半期は前年同期と比べて1週間多くなっています。

リスクと注目点

• 2027会計年度はつなぎ予算（継続決議）の下で開始されたため、新規プログラムの開始や追加資金の獲得時期を巡る不確実性が生じています。
• 次期F-35生産ロットの想定獲得時期は2026年から2027年に移行しました。先行調達資金を使用した生産活動は進行中ですが、ロット20は現在のガイダンスに含まれていません。
• 長期弾薬協定に関する最終的な利益条件および生産スケジュールは、現在も交渉中です。経営陣は、期待される財務成果が少なくとも従来の契約モデルと同等以上である場合にのみ合意を追求する意向であると述べています。
• ロッキード・マーティンは、2027年に10億ドルを超える年金拠出を見込んでいます。経営陣は、2026年にその債務の事前拠出を行うかどうかについてまだ決定していません。
• 航空機部門の業績には、F-16およびC-130プログラムにおける不利な利益調整が含まれていました。

アナリスト質疑応答のハイライト

• 弾薬以外の成長：経営陣は、MFC部門が今後5年間で10%台半ばの売上高年平均成長率（CAGR）を達成すると予想しています。また、RMS部門におけるレーダーやシコルスキーの事業活動、宇宙部門における戦略的ミサイル防衛や安全保障プログラム、航空機部門におけるF-35の維持管理やスカンクワークスプログラムも挙げられました。
• 2027年の見通し：経営陣は全4セグメントで成長が見込まれ、連結売上高が1桁台後半の成長を記録する明確な見通しがあるとしています。具体的な見通しは1月に発表されます。
• 長期契約の経済性：弾薬枠組み契約には、複数年にわたる数量の可視性、インフレに基づく毎年の価格調整（引き上げ）、投資拡大期におけるキャッシュフローの中立性、ならびに予想期間や数量が削減された場合の損失回収条項が含まれます。
• F-35の利益率：経営陣は、現在F-35の生産が航空機部門および連結全体の利益率の双方にプラスに寄与していると述べました。2026年にロット20を受注すれば現在の業績予想に対する上振れ要因となりますが、現在の見通しには織り込まれていません。
• Vectusと自律型航空機：ロッキード・マーティンは自己資金で5機のVectus機を製造する計画です。経営陣は、米軍および同盟国の潜在的需要を含む将来の協調型戦闘機（CCA）要件に向けて、このプラットフォームを位置付けています。

決算説明会文字起こし全文

決算説明会の完全なトランスクリプト

経営陣による説明

Operator

Good day, and welcome, everyone, to the Lockheed Martin Third Quarter 2026 Earnings Results Conference Call. Today's call is being recorded. [Operator Instructions]

At this time, for opening remarks and introductions, I would like to turn the call over to Mark Kvasnak, Vice President, Investor Relations. Please go ahead.

Mark Kvasnak

Thank you, Sarah, and good morning. I'd like to welcome everyone to our third quarter 2026 earnings conference call. Joining me today on the call are Jim Taiclet, our Chairman, President and Chief Executive Officer; and Evan Scott, our Chief Financial Officer.

Statements made today that are not historical facts are considered forward-looking statements and are made pursuant to the safe harbor provisions of federal securities laws. Actual results may differ materially from those projected in the forward-looking statements. Please see Lockheed Martin's SEC filings for a description of some of the factors that may cause actual results to differ materially from those in the forward-looking statements.

We posted slides on our website today that we plan to address during the call to supplement our comments. These slides also include information regarding non-GAAP measures that may be used in today's call. Please access our website at www.lockheedmartin.com, and click on the Investor Relations link to view and follow the slides and see definitions and reconciliations for non-GAAP measures.

With that, I'll turn the call over to Jim.

James Taiclet

Thank you, Mark. Good morning, everyone. Lockheed Martin delivered another quarter of strong program performance, growing both sales and profit by double digits, reflecting execution to the plan that we previously laid out for you. We generated $3 billion of free cash flow in the quarter and grew our backlog to another record $292 billion. The momentum in our business is accelerating. -- giving us confidence to raise our full year expectations for sales, earnings and cash again this quarter. Evan will cover the specifics shortly.

These results are a product of the investments we made in recent years that are now delivering across our entire portfolio from autonomous aircraft and next-generation air dominance to homeland missile defense, hypersonics and the command and control that connects at all. We are innovating faster with the best technologies available, providing integrated capabilities across every domain to answer a defense sector demand that appears permanent, resulting in a business that is resilient through any budget cycle.

Munitions are a major part of that story, but they're far from the only engine of our growth. I also want to start by acknowledging the recent F-35 multiyear announcement which cements its role as the Free World's key frontline fighter for years ahead and again, a continuing growth engine for Lockheed Martin. This agreement solidifies the path to 850 U.S. aircraft over a 10-year span, which will be further augmented by sales to our allies, achieving a total production at 156 aircraft per year for 10 years.

This landmark agreement also enables sustainment and future development to be more effective and efficient for our customers. Staying ahead of the threat has always been our mission. And today, we're doing it faster than ever. Over the last couple of quarters, I've explained how we are transforming Lockheed Martin. And this quarter proved it again as our increased speed of innovation showed up in every part of our business.

At Scunforks, the Vectus team went from first drawing to wind tunnel testing in under 2 months, released the first production part in 8 months and have flight demonstrations scheduled for next year. This progress gave me confidence to greenlight an increase, and now we will build 5 Vectus aircraft with our own investment. That puts us in a position to offer a proven production-ready autonomous aircraft as our customers define their future requirements.

At MSC, our Precision Strike Missile increment 2 went from flight test in March and August to a $1.2 billion production contract within the same year. That compresses what has traditionally been a multiyear path from testing to production getting a new maritime strike capability to the Army sooner and allowing the value of our development work to be realized years earlier than normal. This production award further builds on the Department of Wars broader investment in quadrupling Prism production.

Our space team recently completed a key solid rocket motor test for the next-generation interceptor program, keeping that program on track for fielding by 2030, strengthening the homeland missile defense and advancing a program essential to the Nature's future. And at impact, an exercise in the Pacific, our RMS team and Saildrone went from concept to a live-fire missile launch from an unmanned surface vessel in less than 6 months.

Putting proven weapons on a commercial autonomous platform and extending Lockheed Martin's capability onto an entirely new class of systems. This commercial mindset throughout our company is changing how we build as well. Partnerships are becoming a key part of how we move faster, and we are extending them all through our supply chain and beyond. GM Defense, for example, delivered its first PAC-3 components to us in under 1 month from the initial contract.

That adds capacity at a terrific supplier at a pace our traditional supply base couldn't match on its own and then helping us deliver more interceptors sooner without an increase in our own capital investment. And just last week, we announced the expansion of our Grand Prairie, Texas manufacturing footprint to more than 735,000 square feet. The expansion includes additional capability and capacity for automation and digital manufacturing and will also bring on board a Hager and highly automated production machine cell to supply components across our missile programs in a manufacturing as a service contract.

The discipline that gives capability to our customers faster also strengthens our business. When we shorten the path from development to production, we accelerate the economic return on that work. When we invest ahead of requirements, we enter competitions for the next generation of programs already well positioned. When we partner with commercial manufacturers and tech companies, we scale in a way that keeps our investment efficient as demand grows.

Delivering programs faster is only part of the equation. The greater value comes from how these capabilities work together. Our platforms are central to Lockheed Martin, but they also form a foundation for the broader role we play. 1, that may be unmatched in the world. And that is driving interoperability and integration across platforms and domains, give our customers an advantage no single platform can provide on its own.

This role builds on decades of mission integration experience, connecting aircraft, missiles, earth and space-based sensors and command and control into theater-level deterrents across land, sea, air, space and cyber. It is a very deliberate plan and the mission technology road maps we established several years ago and continue to evolve, guide our development ahead of formal request for proposals. We just don't wait for them anymore.

We're not just building product before customers ask for it. We work alongside them to understand where their missions are headed, so that we are ready with complete proven solutions when they need them. Part of that is recognizing that our customers don't need to choose between exquisite platforms and affordable mass, they need both integrated. So each makes the other 1 more effective. We can bring them together in a way a few others can.

Some examples that Valeant Shield, our RMS team used our software-driven command and control system powered by CommandIQ and connecting long-range missiles, integrated air and missile defense and remote targeting, drawing on commercial sector data and using AI to recommend specific target engagements. The RMS team is building our network in Guam, where we developed an AI-enabled battle management prototype for the Guam defense system. And we were selected by the Missile Defense Agency to move its missile defense modeling and simulation to the cloud.

In Australia, we were awarded an $800 million contract for the next tranche of AR 6500 and which is its joint air battle management system, demonstrating that our integration expertise is in demand from our allies as well. This is what it means to be the premier defense technology company delivering proven platforms that work alongside autonomous systems enabled by AI and the best commercial technologies available. Lockheed Martin's depth of experience innovating and integrating these capabilities sets us apart. -- this capability into the field sooner and integration makes it much more effective.

But the turns from conflict also depends on having it at scale. Nowhere do these demands converge more than in munitions and that is where our operating model is actually moving the fastest. Our munitions business is transforming to deliver at war time speed and scale. That shift now extends beyond interceptors into air dominance.

This quarter, we signed a framework agreement with the Department of War to accelerate production of the joint advanced tactical missile, our next-generation air dominance missile known as Jade, this is the product of years of collaboration with the Air Force and the Navy and the kind of long-term commitment that takes time to show its full value and enables us to further accelerate production ahead of a multiyear contract. So there's no delay when the contract is signed.

Australia has already committed to become this program's first international customer, an early sign of demand that broadens the program's long-term opportunity and strengthens the case for the capacity we are building today. Our Interceptor franchises are scaling just as quickly. This quarter, we signed a 7-year contract for PAC-3 building on the 7-year THAAD contract signed earlier this year. Together, these awards give us and our suppliers the kind of long-term visibility that makes bold investment possible, and we are putting it to work.

Adding 2 million square feet, again, 2 million square feet of facilities to support production growth across 8 sites over the next 3 years, and these are in places like our munition center in Troy, Alabama. More than half of those additions are already underway and under construction. Just as important is the workforce to match. This year alone, we are hiring and training over 3,000 new team members across MSC sites. That's not happening by chance.

Well, before this ramp-up began, we started building partnerships with local communities, technical schools and colleges to develop a skilled talent pipeline we knew we would need. Those relationships are now helping us bring people on faster and preparing them to contribute from day 1. These are skilled roles and good jobs, and they reflect the confidence that we have and the demand ahead.

Scaling production also means our suppliers need to move at the same pace. This quarter, we placed new supplier contracts for both PAC-3 and THAAD, including a $4.7 billion supply contract with L3 Harris for PAC-3 propulsion. Since the quarter closed, we also awarded Boeing a contract for $14.7 billion the triple PAC-3 seeker production and a $1.6 billion contract to Northrop Grumman for propulsion and other missile components.

Beyond our largest partners, we are working with a much broader base. Nearly 750 suppliers across 42 states support that alone, and we meet with our key suppliers regularly to keep the focus on their performance. That collaboration produces real results. Together with our suppliers, we were resolving long-standing production bottlenecks that will enable substantially higher deliveries going forward. All of this is part of more than the $8 billion investment we are making through 2030 and to modernize more than 20 facilities, expand our supply chain and grow our workforce.

It is 1 of the largest commitments to munitions production in our history, and it is designed to sustain this production pace for years to come and we are ahead of schedule in this expansion as our MSC segment results demonstrate. The awards we win today do more than fill our production lines. They give us stability and resources to keep investing in what follows and the next generation of capabilities that are already taking shape.

So across every domain, we are turning years of research and development investment into products that are ready for the field. In Air and Missile Defense, we are extending the PAC-3 franchise to meet both the most common and the most advanced threats. So our new PAC-3 ACE will bring a high-performance, lower cross interceptor for cruise missiles and short-range ballistic missiles. And on the other end of the spectrum, just last week, we unveiled PAC-3 Edge, our offering for the Army's future Interceptor program. which we have now been advanced to the next stage of development for.

Build on the combat proven PAC-3 MSE, the Edge pairs a new seeker from RT Component Center of Excellence at RMS, Main Lockheed Martin with a multi pulse motor to defeat hypersonic and other advanced threats at a greater range and higher altitude. Together, PAC-3 MSE, ACE and Edge form a family of interceptors matched to every tier of the threat and a better cost to affect performance.

And counter drone and affordable mass, our Morpheus X rotor can defeat more than 50 drones in a single flight and then be recovered, recharged and reused. And our Kodiak containerized launcher completed its first live fire test less than 6 months after development started, and that device packs up to 12 gamers rockets into a single container that can be deployed from air, land or sea and is highly mobile.

In autonomy and AI, Skunkworks and the Air Force test pilot school blew the X62-Vista and F-16 modified through 27 AI controlled intercepts across 8 flights with an AI agent using live data from our Allegion sensor pod to intercept a real aircraft. The full integration took just 3 months to complete, and that moves AI from simulation into the real flight environment that pilots will face.

And it builds on the foundation for the autonomy that will power aircraft like Vectus and team with crew fighters like the F-35 and F-22. Within RMS, Sucorsi completed initial flight testing of the Nomad 100, its new uncrewed aircraft. And this is under a DARPA program where our MATRIX autonomy was selected to fly on all 5 competing aircraft in the DARPA fly off, including those built by other companies. That positions us as a common foundation across a growing range of platforms and not just our own.

Expanding our reach as uncrude systems become fundamental mission. In hypersonics with our space segment, we are investing to move from building individual weapons to building at scale. Our new modular payload delivery system uses technology that has already been flight tested and re-architect it into a modular family of systems to the same airframe can be configured for doing long-range strike for missions that need a larger payload over a shorter distance or for missile defense with minimal changes to the system.

That modular approach reduces the engineering time and cost to bring each new capability into the field. And our long-range hypersonic weapon was fielded during exercise illustrating our ability to deliver ready now hypersonic capabilities. The breadth of our portfolio is an important differentiator that makes all this possible. Our new key component product center develops modular sensors, data links and seekers that can scale across our full portfolio, helping us move faster and at a lower cost and more control of our supply chain.

And it's built to serve the whole company, not just a single business. So RMS is already developing technology for the missiles or MSC production producers, for example. And increasingly, we are looking beyond our borders for the next breakthroughs. We're partnering with IBM to establish a quantum innovation hub in Switzerland, and we have dedicated $100 million of our expanded venture fund to promising companies in the U.K. and Europe, giving us early access to world-class talent and emerging technology.

Disciplined investment in research development and ventures are building our position in the fastest-growing parts of the defense budget, including counter drone, autonomy, hypersonics, and the missile defense capabilities at the core of Golden Done. All of this is happening against the dynamic budget backdrop. Uncertainty -- certainty around U.S. federal funding is nothing new for our industry. and our business is built to perform through it.

Fiscal 2027 opened under a continuing resolution and the outcome of additional funding to reconciliation is still taking shape. The demand for our capabilities, though, is driven by the threat. It has -- support and is not tied to any 1 bill or election. The multiyear contract structure is built for this environment and undefinitized contract action led production start even when appropriations will take more time.

Continuing resolutions affect timing of new starts, but they don't change the direction of demand and our largest franchises address the Department's most urgent priorities from air and missile defense to air dominance and remain essential to their mission. This quarter showed how those pieces fit together. Speed that puts capability in our customers' hands sooner, integration that connects it across every domain, munitions production scaling to meet urgent demand and innovation that builds the franchises of the future are all coming together.

The result is capability built from the best technology that we and our partners can bring, delivered at a pace that the current geopolitical environment demands and so our business is already performing at this level today. for the track record of execution and the visibility, growth and cash generation to carry that momentum well into the future.

Now I'll turn the call over to Evan to go through the financials.

Evan Scott

Thanks, Jim, and good morning, everyone. As you have seen, the momentum Jim just described is clearly visible in our financial results this quarter, with a record demand converting into backlog and double-digit growth in both sales and profit. I'll take you through the numbers, including our revised raised full year outlook, I'll cover our consolidated performance, cash and capital deployment as well as backlog and key awards. Mark will brief the segments in more detail before we open the call for questions.

Third quarter sales rose 11% year-over-year to $20.7 billion, driven by higher volume across every segment, including F-35 production and sustainment at Aeronautics, MFC munitions production ramps, new radar awards at RMS and growth on fleet balistic missile and next-generation interceptor at space. Segment operating profit was $2.2 billion, with operating margin of 10.8% driven by volume at MFC and Aeronautics and a favorable profit adjustment in RMS upon resolution of a contracting matter.

Earnings per share were $7.97 compared to $6.95 in the prior year period. The 15% year-over-year increase was primarily related to higher segment operating profit. Turning to cash. Cash from operations was $3.4 billion in the quarter and $6.9 billion year-to-date. Free cash flow was $3 billion in the quarter and $5.6 billion year-to-date. The primary drivers this quarter were improved working capital related to customer receipts in Aeronautics on F-35, MSC and in space.

Year-to-date, we have invested $1.3 billion in capital expenditures and $1.6 billion in independent research and development. The largest share of this investment is going towards munitions capacity and it is backed by contracted demand. 7-year agreements on PAC-3 and THAAD give us long-term volume visibility, which underpins our confidence in the return on that capital. Beyond our own investment in capital and independent research and development, we are also working closely with suppliers and commercial partners to accelerate production across misses and Fire Control.

Our focus is on the speed at which we deliver capability to our customers. Our capital deployment priorities remain consistent. First, we invest in the business and in the capacity and innovation that supports long-term growth. Second, we returned cash to shareholders. Consistent with this, our Board recently increased the quarterly dividend by $0.15 to $3.60 per share, our 24th consecutive year of dividend increases.

Our balance sheet remains strong, and that gives us flexibility to invest strategically. The Ultra maritime acquisition remains on track to close here in the fourth quarter and we have recently cleared all regulatory approvals required to close, and we expect to fund the acquisition with cash on hand. And our cash position allows us the capacity to consider other opportunistic investments that strengthen our portfolio and provide our shareholders with long-term growth.

Our ability to invest and return cash with confidence rests on the demand we are seeing and that dynamic manifests most clearly in our backlog. We ended the quarter with a record backlog of $292 billion up $113 billion when compared to the third quarter of 2025 and a book-to-bill of 4 times. The largest contributor in the quarter was the PAC-3 7-year contract, which brings that multiyear contract to a total value of up to $58.6 billion. Beyond PAC-3, demand was broad-based across all 4 segments. Among the highlights was $4.4 billion in C-130J contracts for 34 new production aircraft serving both U.S. and international partners.

We also booked awards for GMLRS, JASSM, and LRASM, F-35, Blackhawk and fleet Blistic missile program. Internationally, demand continues to grow. In MFC, we were awarded a $439 million contract for production of the Army Tactical Missile System for Taiwan's high Mars launches. In RMS, we were selected to establish Australia's compound systems integration capability for its future Virginia class submarines, a program that will span decades.

A backlog of this size and duration gives us substantial visibility into our future performance with much of next year's work already under contract and in progress. That provides a strong foundation for the years ahead regardless of how the near-term budgets unfold.

Turning to our 2026 outlook. Based on performance through the third quarter, we are raising our full year 2026 guidance again this quarter. We now expect sales of between $80 million to $82 billion up from our previous range, representing full year growth of approximately 8% at the midpoint. This increase reflects higher volume in MSC for the munition ramps and continued strength across our portfolio as a whole. We expect segment operating profit of between $8.575 billion and $8.675 billion, also up from the prior outlook.

This reflects stronger term performance and improved execution and we now anticipate cash from operations between $10 billion and $10.2 billion and free cash flow of between $7.8 billion and $8 billion. This is the result of solid collections, improved working capital and a benefit from continued favorability related to the IRS tax guidance we received earlier this year. Two items to keep in mind for the fourth quarter. First, our fiscal fourth quarter includes an extra week compared to the prior period last year.

Second, our outlook does not yet include Ultra maritime, which we will incorporate once the transaction closes. This was a quarter of strong execution, record backlog and double-digit year-over-year expansion in both sales and profit. Our robust free cash flow supports investment and growth and simultaneously returning value to shareholders reflected in a 24th consecutive annual dividend increase, while the multiyear backlog provides clear visibility into the years ahead.

Our business is built to perform through budget cycles and changes in Washington as it has many times before, and we are investing with discipline and we have confidence in the strength of our trajectory. Now Mark will provide additional detail on the segment level performance and outlooks.

Mark Kvasnak

Thanks, Evan. Starting with Aeronautics on Slide 5. Third quarter sales at Aero increased 13% year-over-year, driven by higher F-35 volume and recovery of C-130 pre-contract costs that were liquidated upon the awards Evan mentioned. Segment operating profit increased 9% compared to the prior year as the higher sales volume was partially offset by unfavorable profit adjustments on F-16 and C-130 programs.

We now project Ara to deliver full year 2026 sales of $31.1 billion to $32.5 billion and profits between $2.92 billion and $2.95 billion, slightly lower than our July guidance, driven by revised contract award timing expectations for the next lots of F-35. As we discussed in our second quarter call, the top end of our prior guidance included a bump in sales dependent on award timing for the next lot of F-35. With this revised outlook, we shift that assumption to 2027.

We see Arrow's full year 2026 sales growth rate in the mid-single digits, between 3% and 7% year-over-year. Moving to Missiles and Fire Control on Slide 6. The MFC had another very strong quarter as the production ramps on munitions programs progress ahead of schedule. Sales and profit were both up 24% year-over-year in the quarter supporting another raise to our full year outlook. MFC's sales range has increased to between $17.25 billion and $17.45 billion and the profit range is moved up to between $2.395 billion and $2.425 billion. MFC is on track to grow both sales and profit about 20% year-over-year in 2026.

Next is rotary Mission Systems on Slide 7. Volumes also continue to ramp in RMS. Third quarter sales in this broad portfolio were up 3% year-over-year, driven by radars and command and control programs. Segment operating profit finished up 4% year-over-year, benefiting from the favorable resolution of a contracting matter. On a full year basis, we've made slight revisions to the outlook tightening our range for sales and raising profit.

We expect RMS 2026 sales to finish between $17.7 billion and $18 billion, growing in the low single digits year-over-year. The RMS segment operating profit outlook is increased to between $1.88 billion and $1.9 billion.

Our Space segment is summarized on Slide 8. In the third quarter, space grew sales 4% year-over-year, driven by next-generation interceptor and fleet ballistic missile. Profits were comparable to third quarter 2025. Our full year outlook for space has improved from our prior guidance. We increased the lower end of the sales range and raised the outlook for operating profit. We anticipate 2026 sales in our Space segment will grow between 7% and 8% year-over-year to between $13.95 billion and $14.05 billion.

Full year profit expectations are increased to between $1.38 billion and $1.4 billion. To be clear, the profit outlook does not include any ULA equity earnings for the fourth quarter of 2026. So the takeaway is this. The growth acceleration we signaled last quarter came through. All 4 segments grew again in Q3, and it's this performance across the entire portfolio that fuels another raise to our full year 2026 outlook.

Sales are guided higher. As the strength at MFC is more than enough to overcome the shift in the assumed timing of award for the next lot of F-35. And this higher top line outlook is converting to bottom line returns. Our outlook for segment operating profit is also raised again as our solid Q3 execution drives increases at 3 of our 4 segments. Sarah, let's open the call for questions.

Operator

[Operator Instructions] Your first question comes from Gavin Parsons of UBS.

質疑応答

Gavin Parsons

I could sneak in too on your prepared remarks. I mean in the first one, you mentioned multiple growth drivers outside of MSC. And obviously, there's a lot of opportunity and excitement there, but I was hoping you could expand on that a little bit to frame the multiyear growth opportunity in the other segments.

And then second in the prepared remarks on going from concept to capability in a very short time frame we saw a lot of those examples at USA. And just given Lockheed is such a big organization, would love to get any more color on how you're evolving the engineering culture internally?

Evan Scott

You bet. Yes. Thanks, Gavin. So if you look across the portfolio, I mean, very critically MFC now, we have laid that long-term growth framework and have stated we expect mid-teens sales CAGR over the next 5 years. And so that backlog is very firm as we continue to work, turning additional HOAs into long-term contracts.

Really, across the portfolio, we see similar strength at RMS while we continue to ramp at Sikorsky, we're seeing new strength on the radar business with key awards that are going to give us some clear line of sight to revenue growth space. We see a lot of strength in the national security space side. But the key driver there remains the strategic missile defense business driven by programs like feelistic missile and GI.

Over to Aeronautics, this multiyear procurement contract that we talked about gives us the long-term production stability while we continue to invest in growth and other key parts of the portfolio -- and you see that with some announcements in programs such as Vectus, while the Scope Works business continues to grow as well. And the key pacing item there for growth will continue to be F-35 sustainment where we've seen some really good budget support from our customer as we've also invested in that key capability.

James Taiclet

It's Jim. I think going on to the engineering culture, that's a really great question to explore. There's really 3 parts to it. One is our origination 5 years ago of mission technology road maps, which get integrated with product road maps or platform road maps. And the concept of mission technology road map is to look at whatever systems are available today, starting with Lockheed Martin systems like the Black Hawk or the F-35 or Aegis and then figure out for a given mission, like air superiority or surface warfare for the Navy, how do we take those existing systems, networks, protocols, data links, and create mission capability improvements every 3 to 6 months.

And now and then you'll have a step function increase because the new platform will emerge enter the mission set, but generally, it's going to be incremental improvements in data link capacity firmware, integration of different supplier products like the sale drone ship, so to speak, with our Marc 41 launcher is 1 example. So a mission technology road map is a whole different way of thinking about product development and engineering.

That basically sends a Z access through all of Lockheed Martin and saying, "Well, I can get a sensor from MFC that's better than the 1 I have for my supplier, let's introduce that in the F-22. It's something we are doing actually. So those kinds of opportunities across the entire company are now capable, where it used to be really 4 divisions doing their own product development and hoping that it could be stitched together.

The second part of this is significant investment in model-based engineering and production. So we're transforming our whole production system from design to sustainment with a digital twin and digital thread that we can use digital technology to model and test new options and opportunities and improvements without having to fiddle with hardware upfront and do as much testing and development as we can digitally before we actually start doing flight test and component testing. So that's the second one.

So you have mission technology road maps, a whole different way of looking at this. New Dimension mission, the model-based engineering and production system that we put in place. That's what we call 1 LMX actually internally. The third thing is increasing the R&D budget to build prototypes based on our expectations through the mission technology road maps before any RFI request for information or request for proposal comes from the government. And therefore, you have opportunities like Vectus, which we could talk more about later here.

But essentially, we know what the range payload and survivability requirements will be for CCAs or collaborative combat aircraft, drone wingmen, and we're designing to our expectation of what that's going to be based on our experience in man fighters and also our ability to seamlessly connect the manned fighter to the CCA given the F-22 and F-35 fleet. So those are 3 ways that we're changing the engineering culture at the company.

Operator

Your next question comes from Ron Epstein of Bank of America.

Ronald Epstein

Jim, thanks. Good morning, everybody. can we talk a bit more about Vectus and what that means for you guys, CCA and then I mean just part of a broader question of what is going on in this gunkworks, if you can give us a little bit of flavor for that as well.

James Taiclet

We'll try some flavor. I can't give you a lot of details, Ron. But glad you asked. So look, the way we came up with the Vectus initiative internally was basically this mission technology road map concept. And there's 2 missions that in fact, this is applicable to. One is air dominance or air-to-air combat, shooting down other airplanes while surviving yourself. And then the second mission is strike, meaning air-to-ground missions. So aircraft delivering weapons from the air to the ground to hit targets like integrated air missile defense batteries of the adversary.

So you have the air-to-air mission, air-to-air ground mission with aircraft. And with the advancements in autonomy and AI and the ability to tie manned and unmanned aircraft together digitally, we just have an expectation to our mission technology road map and our relationships with our customers on where this is all going and what those customers, the U.S. Marines, U.S. Navy, U.S. Air Force and our Allied Air Forces are going to need.

So that's the concept of how we came up with the idea to invest for us fairly heavily ahead of any RFI or RFP on Vectus because we think we know what the end game looks like. The first, I guess, real opportunity for this will be twofold. One is there's a CCA increment to program that's expected to come out of the U.S. Air Force in the next couple of years. They're doing Increment 1 at the moment and testing and doing some flights with those models, if you will.

Increment 2, we anticipate we'll have a, again, larger payload, larger range and larger survivability requirements that will go with that. So we -- that's our mission technology road map. But the other thing we've done is given our knowledge of those 2 missions, we've created internally and I've been personally in this a little bit, what's the optimization equation to solve for maximum air combat capability over time at the most efficient cost to the U.S. government. So that's our objective.

There are 3 parts to achieving that objective, Ron. In my mind, 1 is modernizing the F-22, especially with sensors distributed aperture system, data links, and beyond line of sight capabilities that the original F-22 didn't have. That will take the F-22 to fifth generation plus type of capability. Secondly, we want to make sure that the F-35, which is going to be the bulk of the air combat power, especially in air-to-ground missions that the F-35 be stabilized as a program for a long period of time to make it more efficient and also more effective that's the announcement that just came out from the Department of War this morning.

We have kind of locked in the F-35 as the most numerous, most important fighter aircraft at scale in the U.S. inventory for the next 10 years. So that's part of the F-35 solution. The second part of the F-35 solution is that will now enable us to add in sixth-generation key technologies and try to get to 80% of what a sixth-generation clean sheet aircraft would look like and 50% of that clean sheet aircraft cost. And that's something we actually think we can do at Skunkworks.

And we're in the process of doing F-22, it's upgrade through at Skunkworks as well in conjunction with the military -- U.S. military. The third part of the optimization equation for maximum air combat power is the Vectus initiative on our part, meaning we think we know what that third piece has to look like. And we're going to build that. The Vectus will be -- we're going to try to make sure that it's releasable immediately to our allies. In other words, it will be designed in a way that the U.S. and/or the international allies that qualify can buy it.

Instead of having to do something for a U.S.-only releasability standard and then hope we can get clearance to sell it overseas later. And so those are the 3 elements of our air power strategy. That's just 1 of the -- 2 of the mission road maps. There's 13 of them. But that's how we're looking at everything we do and as long the lines of those mission road maps. And then we're trying to optimize the combat power delivered to the U.S. and its allies at the most efficient way of doing it.

Operator

Your next question comes from Noah Poponak with Goldman Sachs.

Noah Poponak

Evan and Jim, I guess, as the missile ramp contracting matures, it would be great to hear from you an update and a little bit more about what you're taking on. I know these have been complex negotiations. And on the 1 hand, when we hear more commercial, more outcomes-based that can raise your antenna for more risk and you're counting on a complex supply chain. On the other hand, these are fairly mature products. So maybe it's more upside opportunity than risk.

And Evan, when -- I think in the past, you've discussed cash flow neutrality, I just wanted to clarify, are you laying capital that is then covered by the customer? Or is it that there's an advance that's covered that's been paid back via the unit price down the road?

Evan Scott

Yes, you've got to know. I'll start with my part of this here. So starting with the cash flow, please. Think of it as we are working with the customer to show the total amount of investments we are making in the production line and the resilience of the production line as well as our suppliers. We share that with the customer and the customer ensures that we have the cash neutrality while we're in the investment rent phase. And then when we get to rent production, you've got the delivery of the products that generate the cash flow.

The customer, I think, recognizes the fact that as they have their budget assigned to them, they have flexibility in the cash terms. Flexibility has always been there. This customer has been willing to use it to help accelerate production ramps, and we're absolutely seeing that with what we've seen so far this year. So I see this as a very positive thing for the industry.

In terms of the actual terms, the HOAs lay out a lot of the key terms that we've talked about before, including cash neutrality most of the budget protections as we continue to ramp and gives us true insight to that long-term demand for us and our suppliers. What is left to work is the finalization on the profit terms and on the schedule itself, noting that the schedule is fluid because we're making -- both we and the department are making investments to scale the production and we're seeing that.

So that's where we are right now. The focus is on scaling and we all would like to get the final contract negotiated, but that's well underway. We're making great progress.

James Taiclet

Yes. Noah, it's Jim here. So -- we entered these initiatives and propose these long-term agreements in munitions with the expectation and the goal that margins and our financial performance will be at or better than the rates that we have demonstrated under the traditional cash accounting system. We're not going to enter into these agreements if we can't get at or better financial outcomes than in the past. And so that's what we're all working towards in collaboration with the government was to give them a fair deal, but 1 where we are also being treated fairly is the same goes.

And to get that outcome, there were 3 or 4 really key provisions that these framework agreements do elucidate. One is there is a long-term period for the agreement. So 7 years from munitions, 10 in the agreement for the F-35 that allows us to act more like a commercial company and more importantly, our suppliers to act like more commercial suppliers. So the performance of our supply chain which tends to be 60% of the input to our end products will now be unleashed, if you will, because they'll be able to make improvements in their factory and production methods.

They'll be able to hire people with confidence and not lay them off in a bad year of a down program. And we'll have a better more resilient supply chain, which actually adds cost to us if they don't perform well. So the flow through to the supply chain on these HOA agreements is actually, I think, more important to our end performance than our content within those programs. So that's 1 reason to pursue them.

The second provision that we agreed on with the government was to have an annual escalator from a year 0 price, which was agreed to. And the year 0 price was based on the old cash system, more or less. And so we have a good starting point that's fair to the company based on the traditional prices and margins that we've had. And then the escalator to account for inflation, that an escalator is based on an inflation index for the industry that we're in.

Underneath that, we will not be repriced every year if we make investments to improve our capability and our efficiency under the cash system that we used to deal with. So in the past, if we put $10 million into automation in the munitions factory, our price the next year and our profit would go down. It's a broken system in that respect. So we're making it a healthy system that says, if we invest in quality performance and speed as companies and our suppliers do, we will then be able to keep the increased profitability under that fixed price escalator. That's the second key provision of this that gives us confidence this will be good for the company.

The third was the cash flow neutrality provision that Evan described along the way. So the goal is year-to-year, if we just did this under the CAS system, we would have certain free cash flow or cash from operations that our investors expect. Because we entered into these agreements, we don't want to have the first 2 or 3 years of those where we have to invest or obligated to invest more, uncovered, if you will, and so that's where the cash flow neutrality comes and it protects the cash flow expectations that you've all had as we go through improving this entire system in the first few years.

And then the fourth key provision which is really important. Is it a future administration or Congress decides to change truncate the agreed upon HOA volumes or duration, then there will be a recovery mechanism for industry to get back the investments that they made expecting 2,000 Patriots a year if it goes to 1,000 or if it's a 4-year agreement instead of a 7-year agreement. So there are these sort of recovery provisions for investments that industry makes that are not actually needed down the road, and we'll get recovery for that.

So those are the 4 key provisions that give us a lot of confidence that if we can negotiate these fine points that Evan pointed out, we will go through these agreements, and we'll be super happy to have done it. but we will hold to the notion that the agreements have to be as good or better as the current way of doing business.

Operator

Your next question comes from Sheila Kahyaoglu with Jefferies.

Sheila Kahyaoglu

I wanted to maybe follow up on that but ask on F-35 specifically. Would just be interested to see how the F-35 agreement changes the margin profile across production, sustainment and development. And how you think about Arrow's ability to expand beyond the 10% margin marker? And just on lot 20, how do we think about the signing of the agreement and timing there and the margin profile on that specific lot?

James Taiclet

Yes. So I'll just give some of the conceptual provisions here. Evan can speak to some of the financial effects of those. So on production, same theory applies, right? So 60-ish percent of the content or more of the F-35 comes from our supply chain. Some of those suppliers are very large, as you heard. You've heard of Northrop Grumman doing the center body, BAE in the U.K. doing the as body. We want them to have production stability just as we would like to have it all the way down to the nuts and bolts suppliers, they put all together in our factory at Fort Worth.

So all those suppliers are now going to have the same concept available to them of investing in their operations to making sure they hire enough people to improving their software systems because those investments will be utilized and they will have a long enough ROI on those investments that they'll be confident in making those. Their performance improvements will flow through to us. And our biggest -- 1 of our biggest costs is supplier late or poor quality and all the inputs that come to us in the final assembly. So we will benefit from that.

Again, everybody is going to be under the fixed price escalation model and we'll all collectively, if we do well and perform well and those investments pay off that we make, we will get to retain those profits under the fixed price with escalator concept. Again, before we would have to give back with price and operating profit, any improvements we invested in internally. So that is going to apply to the production system. Even if it stays at 156, it will be a much healthier production system for industry and a more predictable production system for government.

And I'll go to quickly -- the other 2 big pieces of this are fleet readiness, which is really, really critical. The whole aftermarket side of this is going to enjoy the same kind of business model that we just talked about on production. And by the way, the parts will be pulled between sustainment or aftermarket and production for all of our suppliers and for us so we can get better pricing from everybody. That's another big piece of this.

And then on modernization, when we input new capabilities, we'll be able to have improved and enhanced test capabilities for us and our suppliers because we can invest in those now. Two, without risking price reductions later, and we'll have faster modernization as a collective because of being able to do that. So this agreement benefits the entire F-35 enterprise, we think, both for industry and for government.

And I'll turn it over to Evan, you can add more specifics there.

Evan Scott

Yes. And specific to in margins. I think a couple of key things are to note here. I mean, one, clearly, we're partnering with our customer to -- on development tasks that we need to accelerate and get done. On the production side, at this point, F-35 production is accretive to Aeronautics margin and Lockheed Martin margins. We've seen very strong performance in F-35 production, which gives us a great baseline from which to establish a 10-year multiyear.

When you look at lot 20, if we do sell a lot 20 this year, that would represent upside to effectively all our metrics this year. It's not counted in our guide. That said, we are well underway with Lot 20 with the advanced procurement funds that we have. So production line is looking very strongly. We've seen great investment in sustainment with rising sales growth there as well. So the F-35s in great shape here heading into a potential multiyear.

Operator

Your next question comes from Myles Walton with Wolfe Research.

Myles Walton

I was hoping you could touch on some of the 2027 potential moving target moving pieces, top line margin and free cash flow or at a minimum on the free cash flow Evan, if you can speak to, should we expect the $1 billion pension headwind contribution? And then how much of this raise related to cash tax is one-off?

James Taiclet

You bet, Myles. So for 2027, consistent with last year, we're not giving specific guidance for the following year. We'll do that in January. However, we're comfortable saying that we see all 4 segments growing next year on a top line basis with the strength of our backlog and the demand. And really, when you put it all together, we see clear line of sight to high single-digit revenue growth next year as a company.

From a cash perspective, I think you've got the right elements there. The tax benefit is more than a single year benefit. I don't think we'll get as much benefit next year as we got this year, but it will be a benefit overall. So year-over-year represents a slight tailwind. And then you hit the other key item there, which is pension, and we've talked about a pension contribution in excess of $1 billion to be required next year. We have not made a decision yet if we plan to pre-fund the pension this year.

Based on the strong operational cash we're seeing that opportunity certainly may present itself noting that we plan to close Ultra Maritime this year paid fully in cash. So that's the other element we need to work through, and then we'll make that decision before the end of the year.

Operator

Your next question comes from John Godyn with Citi.

John Godyn

There's a lot of program detail that's come out of the answers to the other questions. What I wanted to focus on, Jim, if we could, is the durability of revenue growth kind of in 2028 and beyond, more and more from some of the other primes in earnings season so far, I think there's a view that there's growth even beyond '27 even, of course, investors are still very focused and debating '27 itself.

I'm not asking for guidance or anything like that, but perhaps a conceptual framework for just building comfort that even if things get a little better in '27, there's sustainability and durability in that growth beyond.

James Taiclet

So given the geopolitical situation, I referenced in the prepared remarks, which is, frankly, unfortunate for all of us. There are potential adversaries competitors around the world to the United States. -- that don't seem to be backing off of their objectives and in using potentially military means to achieve those. And so you can go across the spectrum. Russia doesn't seem to be backing off of its designs on Europe. Iran is seemingly not going anywhere as far as its goals in the Middle East to have more dominance there.

And then in the South China Sea and China and the Pacific in general, you can look at their production numbers as far as aircraft missile, satellites it's a bit harrowing, right? So they're not going away either. As much as I would love to have peace break out all over the world. And again, our products is not necessarily platforms, ships, radars. Our product is deterrence. We want to create deterrents from conflict.

So given the backdrop -- the only way I think it's feasible to maintain an effective deterrent is to maintain a strong national defense and to maintain a strong national defense when you've got production rates and technology development by China, Iran and Russia at the pace that they're goal going, I think it's going to require a sustained investment in national defense and in the defense industrial base and in the products that we all produce together, including our new entrant friends and venture companies that we're partnering with, it's going to require that.

So it's an unfortunate geopolitical situation that I think will create the sustained demand for many, many years. With that, I think we'll go ahead and close the call. But before we do, I want to thank our employees and suppliers for everything they do each day as we continue to expand our production and deliver for our customers.

It's their efforts and expertise, which are critical to meeting these commitments that we talked about today, strengthening the defense industrial base, as I just said, and building the capacity our nation and allies need to deter arm conflict or prevail if there is one. Our focus remains on execution at Lockheed Martin delivering advanced reliable capabilities at the speed and scales needed. And we're making significant investments, as you heard, to support that work, and we're executing with discipline. And I do think we're getting real results already.

I also want to recognize the men and women in uniform who rely on our systems to accomplish their missions because their success is our success. We have a responsibility to deliver the most reliable effective capabilities they need to complete their missions and return home safely to their families and friends. So thank you to everybody joining us today. We look forward to sharing our progress with you next quarter. Bye, everyone.

Operator

This concludes today's conference call. Thank you for joining. You may now disconnect.