Chief Financial Officer, Lockheed Martin Corp
Lockheed Martin CFO discusses efforts to meet increased demand for weapons in Ukraine
Jay Malave, Lockheed Martin CFO, joins 'Power Lunch' to discuss Q3 results, factors driving the defense market outlook, how the firm is navigating foreign military sales and the demand for the F-35 fighter jet. For access to live and exclusive video from CNBC subscribe to CNBC PRO: https://cnb.cx/2NGeIvi
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About Jay Malave
In an October 2022 interview with CNBC, Lockheed Martin CFO Jay Malave discussed the company's financial outlook and the impact of supply chain issues. Malave stated that supply chain problems had caused declines on the F-35 and F-16 programs, leading the company to lower its sales forecast by about $750 million in the second quarter of 2022. He said the company expects these pressures to continue through 2023 but anticipates a rebound in 2024, with orders and backlog expected to grow in 2023 and continued growth in 2025 and beyond. Regarding foreign military sales, Malave said Lockheed Martin takes its lead from the U.S. government on policy decisions about where and when to make sales. He noted that the company has not seen a significant impact from electronic component shortages and has a good line of sight for the next 12 to 24 months. Malave also said Lockheed Martin spends north of $1.5 billion on independent research and development across 14 technology roadmaps, with about 80% of that spending directed toward countering major global powers.
Transcript (11 segments)
I
Interviewer0:10
You have discussed and came up on the call today the fact you are forecasting for sales to be flattish in 2023, but that you expect a return to top line growth in 2024. Supply chain continuing to be the culprit here. Where is that pain most acute, and what is it going to take to see some of those pressures ease?
J
Jay Malave0:28
Yeah, great question. You know, it's part of what we saw here in 2022. You may recall back in the second quarter, we lowered our sales forecast by about $750 million. That was due to declines we saw, supply chain created declines on the F-35 program, the F-16 program, and a few other programs we have in our backlog. We expect that pressure to really continue through 2023, but we do expect to rebound in 2024.
I
Interviewer1:11
Missiles sent to Ukraine right now, the HIMARS launcher that is actually being used with great success on the battlefield as well. Also the fact allies are raising defense budgets. How does that factor into the outlook over the next couple years?
J
Jay Malave1:26
It's certainly gotten better. When you think of where the defense outlook was a few years ago, it's better. Our backlog drew in the third quarter. We expect orders and backlog in 2023 to grow as well. We'll start converting on the backlog in 2024 and then in '25, '26 and beyond, we expect continued growth. That's where we are today, and that's what the outlook looks like.
I
Interviewer1:51
International sales, about a third of overall revenue. A lot of focus in the media and certainly on the Hill right now. As I mentioned, you do have rising defense budgets among allies. How is Lockheed navigating those potential foreign military sales right now?
J
Jay Malave2:19
Well, for foreign military sales, we take our lead from the U.S. government. Those policy decisions are really outside of our hands. And we just follow the government's lead on where and when to make those sales. And in many cases we also sell defensive products. So there's an opportunity to continue to sell those types of products, but again, that's a decision that ultimately is a policy decision that the U.S. government will make and we'll follow that lead.
I
Interviewer2:44
If I heard you right, sir, I gather demand is strong and you expect it to continue that way. But you cited earlier the supply chain bottlenecks that cause you to revise downward your sales. It takes time to continue to work with our supply chain. We have anywhere between up to 500 people at our supply chain today to help them with their operations and improve to the level of production levels we need. Between now, that will give us 15 months before we get to 2024, and we're investing ahead of need as well. So whether it's test equipment, assembly equipment, all of the elements that are required to start delivering at these incremental ramp rates, we have sufficient time for.
C
Contessa3:43
Jay, it's Contessa. I'm curious about the problem of chips and given the switch from the Biden administration on chips in China, how that might affect your process moving forward.
J
Jay Malave3:54
Well, certainly, it's a watch item for us. The electronic components that have really driven the delays for us. So far right now, electronic components have held in pretty well and we have a good line of sight for the next 12 to 24 months.
I
Interviewer4:19
Speaking of China, it's the so-called threat, as the Department of Defense would put it. We had a national security strategy that was unveiled, too, which focused heavily on China. Looking at Lockheed Martin's R&D and CapEx spending, $4 billion expected to be spent in 2023. How much of that is going towards countering another major power on the global stage? What does that mean in terms of new technologies that are being developed?
J
Jay Malave4:47
Well, a significant amount of our R&D is spent in those areas. We have 14 technology road maps that we're spending most of our independent research and development on.