Lockheed Martin Corporation (LMT) Presents at BofA Securities 29th Annual Transportation, Airlines and Industrials Conference (Transcript) – Seeking Alpha

Lockheed Martin Corporation (NYSE:LMT) BofA Securities 29th Annual Transportation, Airlines and Industrials Conference May 19, 2022 10:00 AM ET

Company Participants

Jay Malave – CFO

Conference Call Participants

Ron Epstein – BofA Global Research

Ron Epstein

Good morning, everyone. And thank you for joining us. It’s an honor to have with us today, Jay Malave. Jay is the Chief Financial Officer for Lockheed Martin. Jay, thanks for joining us.

I thought it’d be great if we could just have a conversation, just maybe walk through some broad topics and then, we can open up for questions.

Just to remind everybody, you can submit a question through the conference portal, and I’d be happy to ask the question.

So, maybe as a place to start, Jay, when we think about the DoD budget outlook, and starting with the FY23 request, it was increased by about $30 billion from the FY22 request. What do you think of the FY23 submission and where could it go and how high could it go?

Jay Malave

Yes. Excellent question. Great place to start, Ron. Let me just — let me first start with my safe harbor statement, then we’ll get right into it.

Just as a reminder, today’s discussion will include forward-looking statements that are subject to risks and uncertainties that could cause our actual results to differ material from our projections. All our risk factors are included in our 10-Ks and 10-Qs comprehensively, and you can review those in more detail.

Having said that, Ron, I’m pleased to be here. I’m honored to be here myself. It’s great to be here with Bank of America and with you. You and I go back quite some time. So, should be a great discussion today.

Starting with the budget. Interesting, as you mentioned, $30 billion increase, higher than where we were a year ago, interestingly. If you look at about, about two-thirds of that seems to be really earmarked for just labor and purchased inflation. And so, we’ll see. My personal view on that is that I’m not entirely sure that it fully covers the inflation risk that we’re seeing. So, my personal view is I think that there could be some upside bias to that.

From where we are today, in terms of what it means for Lockheed Martin, we saw a nice support for tactical missiles and integrated air defense. We see — if you look at those line item budget, it’s probably in the range of close to 10% for the President’s budget. And we think there could be upside there given some of the pressures and conflicts that we’re seeing. And so, we’re — I think we’re generally pleased with it. Although I do believe that, ultimately, once Congress has its say, both the authorizers and the appropriators that it probably can go up from here.

Question-and-Answer Session

Q – Ron Epstein

Got you. And then, maybe shifting gears to another big picture topic. How should we think about the Lockheed Martin growth story? And what exactly is 5G.MIL really? Because that’s a question I get a lot.

Jay Malave

Yes. Sure. Let’s start with the growth. And we have laid that out in the third quarter of last year, reaffirmed it in the first quarter of this year, and continue to talk about it. But four elements or pillars to our growth strategy. The first was a program, the record programs like CH-53, which are just really ramping up in early stage of production here, which is going to drive growth for a number of years. We’ve got a statement on the F-35. And we know that production is pretty much flattening out over the next few years, but sustainable, will be a source of growth. And we’ve estimated that to be about 6% growth.

When you look at — let me take a step back. When you look at all of our four pillars, so it’s programs of record, it’s classified programs, hypersonics and new program wins. That represents today about $18 billion of our $66 billion portfolio. We expect that $18 billion to grow in the range of high single digits, around 9%. So, solid growth platform amongst those four pillars. And that — again, it’s really will drive our growth. We talk, next year in 2023 about having 2% growth. And that was based on — really these growth projections for us were based on about 2% per year over the next three to five years. So, when you look at where we are today, there’s some upside bias. Yes, there’s an impact of inflation. But the reality is inflation should realize itself in revenues for the defense industry as well, in addition to plus-ups we’ll potentially see in particular programs.

So, besides programs of record, classified activity has been one. And we’ve seen classified really in our Aeronautics business, in our space business, and in our Missiles and Fire Control business most predominantly. Obviously, we can’t talk about the specifics of those programs. We can’t talk about what their missions are. But it’s really a nice growth vector for us and really interesting type stuff that is really going to be a source of growth.

Hypersonics is another one that we talked about. And we expect that — right today, it’s about $1.5 billion business. That’s going to grow over the next five years to about $3 billion. So, it will double. And we’re on six programs. Two programs that are managed out of our space business, which is a long-range hypersonic weapon, as well as conventional prop strike. Those are pretty much the same weapon, one for the Navy and one for the Army. We have some air launch systems that are in our Aeronautics business. And then, we have other systems in our Missiles and Fire Control business. So, each of our businesses — or three of our businesses are really driving hypersonics and really front and center driving technology. We just had a successful test in our Air Rapid Response Weapon. That is out of our Aeronautics business. We have seen maybe in the past year or so some test learnings. We just actually last week had a very successful test there. So, we’re very excited about this franchise and where it can go for us in the future.

And the last one here is new business awards that we’re dependent upon to drive growth. The most specific and probably the most material one is a Future Vertical Lift of FLRAA program. I’m sure we’ll talk about that later in our discussion, Ron. But, we expect a decision there in September. The Chief Acquisition Official for the Army talked about really maybe pushing that out for a decision and award in September of this year. So, we’re hopeful there. We’re really confident in our offering, and we can talk about that more. But four key pillars.

5G.MIL, it is going to be a growth pillar, not in the short or medium term. It’s really a little bit longer out. But what’s intended to do is really make our platforms more capable and more relevant in the future. And really not only keep them sold, but really drive future sustainment in retrofit, in upgrades for our platform. So, just maybe talk specifically about what it does. I’ll talk about the .MIL and then I’ll talk about 5G.

.MIL is about really increasing connectivity and increasing interoperability amongst different platforms in really the defense in all the domains. And there’s networks that are out there. There are things like on the F-22, like FDL, F-35, MADL. And these are all different types of data links and communication systems. You got Link-16 out there. And what we’re aspiring to do on .MIL is really connect these networks all together. And so, it’s really intended to have a network of networks effect. We’re not intending to replace the existing networks. But it’s really to make them more connected and interoperable as we think about 21st century security warfare in the future.

The 5G, really 5G, what that represents is really having these communication enablers, increasing the bandwidth, things that 5G do today, reducing latency, but doing it in a way that maintains security and resiliency. And so, 5G does have a place. It’s probably backhaul. Not maybe necessarily today, we’d be at a tactical edge. But our intention and our aspirations are really to enable the next-generation technologies to be able to work at a tactical edge and provide mission capability to the war fighter, more fast, obviously, faster, but making it more capable so they can connect sensors more easily, really in the context of this joint all-domain operations, JADC2, things that we’re hearing a lot about over the last few years. And so, that’s what 5G.MIL is. It’s really increased connectivity and really at faster speed while maintaining security. And it’s not intended to replace the networks that are out there today, it’s just to make them interoperable.

Ron Epstein

Got it. And maybe just one little follow-on there. You mentioned it, and I think maybe this would be good for some folks to get a little clarity. JADC2, Joint All Domain Command and Control, I mean, this 5G.MIL is really just a strategy to really plug into that. Correct? And that’s been a real push by the department, right?

Jay Malave

Right. Absolutely. And there’s been a lot of, I’ll call it, skeptics in that related to JADC2. You’ve got the Army that has project convergence. You’ve got the Air Force that has its own JADC2 ABMS. And you have the Navy with Project Overmatched. So, the services are all taking a look at how they can incorporate different levels of these connectivity. And we’re really trying to intend to really make sure that we can do it across all domains, not have it limited to any one type of service. Joint All Domain operations, again, it’s something that I think what’s distinguished in the past because there’s been a lot of claims that the services have tried this in the past, and they were unable to get there. A couple of things. The technology is much farther along than it was in the past. Secondly, the threat, the near-peer threats are much more farther advanced than they were. And so, really, being able to have this connectivity and work in this joint all-domain operations type of environment, being able to connect the sensors, being able to bring capability at the edge, at the tactical edge. So, you talk about cloud computing, edge computing, really advancing our capability today and doing it in a way that you can use your assets most efficiently and deliver an effect quicker than your adversary can’t. Ultimately, that’s what it’s intended to do. And ultimately, what we want that to be is a deterrent. If we can rather equip our war fighter with better connectivity and better use of these assets more efficiently and most effectively, if and when they’re needed.

Ron Epstein

Yes. That really makes a ton of sense. It makes a ton of sense. And if we continue to focus on new business, you brought it up before Future Vertical Lift. Let’s talk about that. Is there anything you can share with us about it, your views on the competition? And I’ll just maybe throw this out there. I mean, I think there’s a view on the street that Textron has already won it, right? So, how — what’s your response to that? And anything you could share with us on the program and how it’s going and what you’re expecting?

Jay Malave

Yes. I think that’s right. I think many people on the street view us as the dark horse. But we’re actually more than optimistic. We’re pretty confident in our offering for FLRAA, for a number of reasons. Speed and maneuverability, and particularly maneuverability. If you look at our offering for this program, it fits in the same footprint as a Black Hawk today. And so, we think being able to meet — reach landing zones, we can reach more landing zones, which are part of the mission requirements, than the competing aircraft. We also believe that our aircraft is just more maneuverable. From a survivability standpoint, that’s critical. And you look at today what’s happening in the Ukraine, you see that this hovering and they’re basically easy pickings. Well, our aircraft, we believe, is more maneuverable, enables you to get in and get out with speed and faster than the competing aircraft.

And so, when you bring all these things together, the footprint, the maneuverability, the survivability of the platform, its ability to meet the entire mission requirement in a shorter period of time, makes our aircraft pretty compelling. And we believe that it’s the winner. And so, we’re pretty excited about it. We did a flight demo recently where we did 700 miles from West Palm Beach to Nashville to provide — to show the aircraft at a conference, and again, showing the capability of the technology, the readiness of the technology. And I know there have been a lot of questions about our ability to maturity of the technology. But we’ve been able to demonstrate to the customer, and again, we’re pretty excited about this. The decision has been pushed to September. But again, we remain confident that we’ll be the prime contractor on the FLRAA award.

Ron Epstein

And maybe one other quick point on that. Be it that Sikorsky is the incumbent producer for the program, right? I mean, what does that mean do you think?

Jay Malave

Well, the Black Hawk still has quite a few years left. We’re going to see aircraft production probably throughout 2030 and beyond. And so, while it will decline, it’s going to take some time to develop a new aircraft. It’s going to take some time just to get into low rate initial production. It really takes some time to get into full rate production on a new aircraft. And so, the Black Hawk franchise will still have some pretty significant legs to them. And we continue to modernize that aircraft. We believe that there is a role for the aircraft, even beyond the 2030s and even when FLRAA gets into full rate production. And so we continue to modernize the aircraft, and we see that being a continued solid revenue stream for us in the future. Certainly, it will not be at the same production rates it is today, but nonetheless, it’s still going to be a nice revenue generator for us.

Ron Epstein

Got it. And then, maybe switching gears to win [ph] here and the F-35 program. Could you bring us up to date on F-35 production program and maybe potentially help us understand how the FY23 budget request could get folded into the production plan?

Jay Malave

Sure. So, on the production, as you know, we’re still sticking to 156 aircraft per year. If you saw the ‘23 budget request, that was fewer aircraft, about 61 aircraft. And we were expecting probably in the mid-80s to around 90 aircraft originally. And we’ve heard some of the reasons for that, in terms of affordability for the nuclear triad and trying to make sure that they can afford that. But at the same time, we saw the forces add aircraft in their unfunded priority list, about 19 aircraft back. And so, we’ve heard some quotes from the defense official saying, look, would I love to have more F-35s right now? Absolutely. And so, we believe that there is support for that in Congress as we go through the authorization and appropriation process that ultimately, we believe it will be a higher number than what the President’s budget requested.

Even so, given the international demand, we believe that there’s opportunity to continue to drive around this 156 number. Now, we have to continue to — we have to just take a look at that production schedule. We believe that it will vary from year-to-year just based on supplier requirements and supplier abilities to meet the schedule. We’re not completely out of the woods from a COVID perspective. We’ve seen some of those impacts. Our suppliers have seen some of those impacts. And it’s going to take some time, in certain cases, multiple years to really get themselves back on schedule from a production standpoint. And so, we probably will see some variability. But from a baseline perspective, in terms of 156 on average in general, that expectation, we still believe that it’s the right one to pursue. It’s right for the program. As you take — you put yourself in a situation where you take volumes down, there’s going to be an impact to unit cost. And we believe that some of the capabilities that are being introduced to the aircraft on Block 4, those will happen over retrofits. And we think the cost of retrofits is lower than the cost of lower volume. So ultimately, we think that this will work its way out. And we’ll be around this 156, with some variability from year-to-year just based on really supplier capabilities and production.

Ron Epstein

When you think about — I think you talked about maybe more of the near term. But when you think about longer term demand for the aircraft and what like a full rate production level could be, demand seems to be popping up all over the place for the airplane, right? I mean, we’re seeing countries pop up. And just to frame it, I think if I got my numbers right, if you look at the F-16, the original program of record was 650 airplanes. And then, in the end, over 4,500 have been delivered. And that was structured as an international cooperation sort of program, a lot like the F-35. I mean, where could it go, realistically?

Jay Malave

Well, that’s a great question, Ron. When you think about it, you think about the armed forces, the DoD, you’re talking in the range of 2,300 aircraft, with the majority of those close to 1,800 going to the Air Force, and then, with the balance going to the Navy and the Marines. And there’s another 700, 800, 900 aircraft right now earmarked for international. We’ll start — as you mentioned, there’s a lot of international demand that goes beyond this 3,300 type of benchmark that — I agree with you. I think that there certainly could be upside, for a number of reasons. And we talked a little bit about JADC2. We talked about 5G.MIL. The F-35 is a stealth aircraft. It’s also been designed for continuous upgrades. And we believe that there’s just a lot of runway and capability that can still be put into the aircraft that will remain — will maintain its — not only its relevance, but its leading-edge capability.

And all of those things taken together, you can definitely see a sign that can drive you well above 3,300 aircraft that we’ve envisioned today. It’s hard for me to predict whether that number is 4,000, 5,000. It’s hard to tell, Ron. But to your point, particularly given the circumstances that we’re living in today, our international customers and potential customers are saying this aircraft and its capability, it’s sticker price as well as a statement price. And we hear a lot about making sure we keep the unit cost down. We hear a lot about sustainment cost. But when you look at that on a relative basis and you look at it relative to its capability set, there’s no — the aircraft is unmatched. And so I agree with you in terms of upside to the aircraft. I’m not sure we’re going to put a number on it right now today. But a bias to the upside is definitely something that we’re thinking about, absolutely.

Ron Epstein

Yes. I mean it just seems like with the F-16 back in the day, no one ever thought that you end up with a production run that was almost tenfold greater than the original program of record…

Jay Malave


Ron Epstein

Have to move this program, but you can see it — similarities there, right?

Jay Malave


Ron Epstein

How about the Lot 15 negotiations? Is there anything you can give us to give us an update on how that’s going and just some color there?

Jay Malave

Yes. I’d say, since we had the first quarter call, and we talked about the status there, the negotiating gap has closed since that time period. So, we’re making really good progress. I think that both parties are really incentivized and motivated to really get to a deal and really in this quarter. It remains to be seen whether or not we can get it done and get over the goal line over this period of time. But I’m optimistic. Again, as I mentioned, we continue to converge on the negotiation, and both parties are very motivated to do it.

I’m not sure we’ll get our contract in particular — in this quarter. It will probably happen next quarter. And we’ll see. As I mentioned, we could have a revenue impact because we do run out of funding this quarter, if we’re unable to bring it over the goal line. But it’s really converging and trending in the right direction to get this thing done this quarter.

So, we’ve talked about what the factors have been, and look at over really over the past probably 18 months, we’ve had to deal with the impacts of COVID. What does that mean to schedule? What does that mean to cost on a unit basis? When do you expect to get back down to the hours, the input hours, direct labor hours that you had originally anticipated to get to? And then, the impact of material inflation with our supply chain, and really working through that. And so, we’ve had a lot of iterations around that. But at the end of the day, we just had to make sure we have the most accurate information, the most complete information we could present it. Because after all, this is fixed price production. And so, it’s important that we have the right cost base line factored in here. And like I said, I think we’re converging and we’re in the right place for it. And I’m hopeful that we can have it done over the next six weeks or so.

Ron Epstein

Great. And then, still sticking with F-35 a little bit. How about sustainment? Can you give us a bit of a status update on sustainment and logistics, the contracting process? Is Lockheed still a PBL contract and so on and so forth?

Jay Malave

Yes. And we would expect to put in an offer for a new PBL contract in the first quarter of 2023. And we think that there are benefits for both the industry as well as the customer. As you know, Ron, you cover both commercial and defense. And as you know, in my background, we did these things, these fixed price type of cost per hour type things in — all the time. And frankly, this is a good thing for the customer. It gives them cost certainty. It also puts some pressure on the supplier to make sure that they can meet within that cost box. And it incentivizes the supplier to increase the interval of maintenance visits, but also reduce cost through design changes, and really provide a better capability and ensure that the aircraft maintains a certain level of mission capability over a period of time. And so, we think it’s a really win-win solution.

And as I mentioned, we expect to have an offering sometime in the first quarter of 2023. And those are things that we’re really mapping out with the customer in terms of who does what, because it’s a very complex value chain, as you would expect. I mean, the aircraft is pretty sophisticated. A lot of suppliers in there. And making sure that it’s clear in terms of responsibilities, what the armed forces are going to do, what will we do in our scope and then what also happens in our supply chain. But we’re very excited about that. We’re motivated to make sure that we can make this a sustainment part of the aircraft program affordable and making sure that we maintain mission capability rates, and that’s front and center for us. We believe we can accomplish both through a PBL program.

Ron Epstein

Got it. And then for those folks who don’t know PBL, it’s performance-based logistics. You had another acronym amount there in the world of acronyms in defense. And maybe changing gears a bit, the question has come up a lot. I’m certain you’ve gotten it. I’ve gotten it. The impact of the Ukrainian conflict and what that means for Lockheed products? What products have you seen the most incremental demand or even hints at maybe some future demand on the back of the sad geopolitical events going on in Eastern Europe?

Jay Malave

Sure. You hear a lot about the Javelin program. And that’s something that we’ve got a joint venture with a partner on. And we saw President Biden visit our facility in Troy, Alabama a few weeks back. And certainly, that’s been — gotten a lot of press. And just a baseline there, our capacity there is about 2,100 units a year. Our current run rate — production run rate has been about 1,600. We just got on contract to take 2022 production up to 2,100, to the capacity level, we expect shortly that we’ll get also an award for 2023 to take that up to 2,100 also. And then we’re also having conversations with the customer to really double that production. And they’ve asked us, well, what is the cost to increase your capacity in tooling and equipment? And so, we’re going through that as we speak to really increase that production.

That gets a lot of attention, as it should. From a dollars and cents standpoint, it’s not that material to our results. Where we are seeing some interest where it could be a lot more material to us is really PAC-3 and THAAD systems, missile defense type systems. And we don’t necessarily have any RFPs at the moment for that, but there’s a lot of dialogue about being able to increase production and provide those systems to Europe as well.

And so, again, I think those are things that are going to really drive favorability to the baseline — revenue growth per baseline that we provided last year and be sources of upside for us. For us, as you — we have to keep in mind that we are a long-cycle business. So, getting an award in say, 2022 really doesn’t convert to revenue probably for two years out. So, I think the indicator for us to really be looking at is really how our backlog grows over the next few years and then see how that converts to revenue beyond that. But again, I would expect that to generate some upside as we’re having more dialogue with our customers.

Ron Epstein

Got it. And then, maybe changing gears a little bit again to a point that you brought up earlier on F-35. How is the supply chain doing? What are you seeing on all fronts? And how is raw material pricing going? Is — the COVID recovery, the workforce? I mean, what are you seeing there? Because it’s — as you know, I mean, other industrial peer companies, it’s been pretty tough on there.

Jay Malave

Right. Just financially, as you know, the DoD back in — when we first got hit with COVID in ‘20 had increased progress payments from 80% to 90%. And they were expecting the primes to really push that through to the supply chain to make sure there were no liquidity concerns and things like that. We continue to do that. In the first quarter, we had accelerated payables to us by about $1 billion. And it’s something we continue to do to ensure that financial performance and things like solvency are not an issue for our supply chain. Really, what we’re seeing has really been interruptions in — with the spikes in COVID. And we saw that pretty acutely really in January, February time frame with Omicron. We really saw a slowdown, not only in our operations, but in our supply chain. And what we’re finding is that being able to recover some of that lost volume from a direct labor input is proving to be challenging.

And first things first, we’re just trying to get our supply chain up to the production levels they had originally anticipated. And then secondly, how do you figure out — how do you recover some of the lost volume from earlier in the year? We anticipated some of that when we gave our quarterly expectation for, say, a little bit below $16 billion of revenue in the second quarter and then coming up to about $17 billion in the third quarter and about $18 billion in the fourth quarter. But it is still a struggle. I had dinner with another CFO a few weeks back, and he described it — best way to describe it was kind of Whac-A-Mole. You’re seeing one supplier kind of get back on schedule and then another supplier falls off schedule. And something that we’ve got multiple hundreds of people, our supply chain people in our operations of our supply chain to help them really recover.

And so, I would expect this to be more of a gradual recovery. I just don’t see a snapback in any one type of quarter. It’s going to continue to be a watch item and something that is probably going to continue to impact results for industry for the time being. This year, we’ll see what happens into next year. But it is a watch item. For us, we’re watching it daily and managing it daily and weekly. And like I said, as you see, one supplier kind of get healthy, another supplier has some issues. And you just see these spikes in COVID and absenteeism. It’s really difficult to recover from that in a short period of time.

Ron Epstein

Got it. Yes. That makes sense. I’ve got a couple more questions. But I just want to remind folks, because I don’t want to hog up all the time here because we’re kind of rapidly getting towards the end of this. We’ve got about five minutes left.

If anybody has a question, feel free to submit it through the conference portal. And I’d be happy to ask it. So, just feel free to do that. But in the meantime, while if anybody does that, I’ve got more. So, maybe if you could walk us through the progression of the — when you think about cash flow generation and capital deployment, what’s the right level of debt for the Company? What are the most efficient uses for the balance sheet, when you think about share repurchase, dividend growth, that kind of thing? And then maybe one last one, the giant question also is, in the current environment, it seems like no M&A is going to happen. That seems to be the conclusion across the space from everybody. If you have any thoughts on that?

Jay Malave

Sure. Let me take your last one and come back to baseline you on our cash flow and capital deployment. Just on M&A, obviously, we had to terminate the Aerojet Rocketdyne transaction earlier in the year. But we are — the pipeline is still — there’s still incoming in the pipeline that we continue to evaluate. Obviously, our filter and our lens by which we review these has to be a little bit more specific and tighter than would have been passed from an antitrust perspective and making sure that it’s something that could be actionable. But we haven’t just completely just said full stop, we’re not going to look at M&A. We’re going to continue to evaluate it. And if we think that something that makes sense for the Company, it’s going to add value to the Company, and we think that it could be actionable, then we will pursue it. And so, that’s the approach that that we’re looking at. We just have to be more cautious about it and be more analytical in terms of the analysis going upfront before we go pursue something.

Just going back to cash flow and capital deployment, and let me just baseline you on cash flow. This year, we’ll generate about $6 billion of free cash flow. We were expecting kind of similar numbers, maybe a little bit of an uptick in ‘22 and ‘23. This year, we’re deploying over 100% of our free cash flow and returning it to shareholders. It’s about $3 billion into dividend, about $4 billion in share repurchase. And we’re drawing down our cash balance. And we ended the year with a pretty high cash balance last year. And we said we’re going to draw that down a little bit here in 2022.

If you look beyond that, I think a good baseline assumption of 100% of our free cash flow going back to shareholders is a good assumption. And we’ll see probably. Of course, we have to present something for recommendation to our Board, and they would approve. But I see no reason why they wouldn’t approve a continued increase in our dividend. And so, we have leadership in the industry from a dividend payout ratio. We — I would expect that to continue. For the remainder, we still believe that our stock is priced — really undervalued, and we think that there’s runway there. And we see for the foreseeable future that we’ll be able to pretty much allocate — continue to allocate 100% of our free cash flow to shareholder returns.

Now, when you look at our debt levels, Ron, you know — I mean, if you look at our EBITDA leverage ratio, just a simple leverage ratio of net debt, we’re like slightly below one. So, there’s a lot of capacity there. I will say we’re around A minus today. It is important to have a strong debt rating for our customers. Our customers expect us to have a margin of safety given our prime position and making sure that we don’t put any of our programs and put them in any level of risk. And I think so the — the defense industry, particularly Lockheed Martin, has that level of posture.

Having said that, there’s still plenty of room on the balance sheet to maintain a level of margin of safety while at the same time being able to deploy. That’s something that we’re looking at. We’re evaluating it right now. I’m a little bit over three months in. But I’m looking at what will — what is an appropriate level to maintain, and it would be a higher ratio than where we are today? How much do we kind of set aside for the episodic M&A as those opportunities become available, and how much from there then can we potentially put into incremental returns to shareholders to the extent that we need to augment shareholder return? And that’s something that we’re evaluating right now. I want to look at it holistically, something that — as we see this budget upside, what does that mean to Lockheed Martin over the next 3 to 5 years? What does that mean to our organic returns? What does that mean to our margins? And what does that convert to on an EPS level? And what do we think that is on a relative basis? And if it means that we need to perhaps augment with other types of returns, then we will. We’re willing to do that, and we’re open-minded about it. And that’s the way I’m evaluating it, Ron. I just need a few more months to really work through that through the summer. And I think we’ll lay that out, I think — and I think in a fair level of details, so that our investors and analysts can see that probably in our third quarter call as we do our trending analysis.

Ron Epstein

Got it. Got it. Well, I think we’re just about out of time. So, Jay, I want to, A, thank you for taking the time with us. It’s always a pleasure. B, congratulations on the new role. And it’s great to work with you again in a different capacity. And I think we’ll wrap it up there.

Jay Malave

Well, thank you very much, Ron. It’s great being here. It’s great presenting at Bank of America. And it’s an honor for me to represent our 114,000 employees here at Lockheed Martin. And have a great day.


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