Ladies and gentlemen, thank you for standing by. Welcome to the Lockheed Martin First Quarter 2018 Earnings Results Conference Call. At this time, all the participant lines are in a listen only mode. There will be an opportunity for your questions. Instructions will be given at that time. If you need any assistance during the call, please press star then zero, an operator will assist you offline. As a reminder, today's call is being recorded. I'll turn the conference over to Mr. Greg Gardner, Vice President of Investor Relations. Please go ahead, sir.
Thank you, John. Good morning. I'd like to welcome everyone to our first quarter 2018 earnings conference call. Joining me today on the call are Marillyn Hewson, our Chairman, President, and Chief Executive Officer, and Bruce Tanner, our Executive Vice President and Chief Financial Officer. Statements made in today's call that are not historical fact are considered forward-looking statements and are made pursuant to the safe harbor provisions of federal securities law. Actual results may differ materially from those projected in the forward-looking statements. Please see today's press release and our 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 have posted our charts on our website today that we plan to address during the call to supplement our comments.
Please access our website at www.lockheedmartin.com. Click on the index to view and follow the charts. With that, I'd like to turn the call over to Marillyn.
Thanks, Greg. Good morning, everyone. Welcome to our call today. We're pleased to have you join us as we review our first quarter results and some key operational accomplishments from across our company. I'd like to take this opportunity to thank our team for their high level of performance as we continue to focus the organization on long-term growth and value creation. The corporation continues to deliver critical solutions and products to our customers while also returning value to our stockholders. I am extraordinarily proud of our Lockheed Martin team. As today's release detailed, we had a very strong quarter, operationally and financially. We will review the results in depth a little later on the call.
I am very pleased that our strong year-to-date financial performance across all business areas and our expectations for the remainder of 2018 have enabled us to increase our full year outlook for sales, operating profit, and earnings per share. Our financial results and increased outlook reflect the outstanding execution across our four business segments and the strength provided by our broad portfolio of products and services. I will cover some performance highlights from our business areas in just a moment, but first, I want to recognize one significant operational milestone that was attained this month. Our F-35 team celebrated the conclusion of the System Design and Development phase, or SDD, flight test program, fulfilling the final requirements at Naval Air Station Patuxent River.
Since the inception of this test program over 11 years ago, F-35 aircraft have successfully completed over 9,200 test sorties totaling over 17,000 flight hours and satisfied over 65,000 test points, marking the conclusion of the most comprehensive, complex, and rigorous developmental flight test program in aviation history. I'd like to thank the entire F-35 enterprise, including industry and government teams, for their dedication and diligence as this unrivaled stealth fighter jet progresses on to its next chapter. Turning to the Department of Defense budgets, we were very pleased to see Congress enact the Consolidated Appropriations Act, 2018, providing much needed funding for our nation's military and national security. Notably, the 2018 Appropriations Act raised DoD base budget funding to $600 billion, over 14% above 2017 levels, representing the largest year-to-year increase in base budget funding for the Department of Defense in 15 years.
When coupled with the overseas contingency operations funding, the total amount appropriated for defense activities rose to $665 billion. Included in this increase was a recognition of the need to significantly recapitalize our nation's forces with the investment accounts appropriated at levels over 20% greater than the previous fiscal year. Lockheed Martin's programs were especially well supported in the budget markup, with the legislation including increased funding for 20 additional F-35 fighter jets, 17 additional C-130J transport aircraft, 16 additional Black Hawk and Seahawk helicopters, two CH-53K helicopters, and increases in multiple missile production programs, as well as our Orion contract. All told, key Lockheed Martin programs, representing all four of our business areas, received over $7 billion of appropriations above the fiscal year 2018 budget request, a clear sign of the strong support our broad portfolio has garnered from the customer community.
I'll close on my budget discussion with a look ahead to fiscal year 2019. In February, Congress passed the Bipartisan Budget Act of 2018 and raised the defense budget caps in both 2018 and 2019. We were very pleased to see appropriations enacted to support the 2018 increase in base budget funding. We are encouraged by these legislative actions that provide our military with the resources needed to enable them to fulfill their crucial missions. We are hopeful that the fiscal year 2019 funding process will follow the same positive path in the coming months. Before addressing our business area highlights for this quarter, I'd like to provide you a brief update on activities relating to our opportunities in the Kingdom of Saudi Arabia.
Just this month, I had the honor of hosting His Royal Highness, Mohammed bin Salman, the Crown Prince of Kingdom of Saudi Arabia, at our Sunnyvale, California, location. During his visit, His Royal Highness was able to see firsthand the innovative satellite technology being incorporated into two new satellites, which Lockheed Martin is building to provide enhanced telecommunications capabilities in Saudi Arabia. As part of this historic tour, the Crown Prince also saw some of our air and missile defense product line, including key elements of our THAAD system, an important component of the joint global security announcement the U.S. and Saudi Arabia made last May.
We remain in discussions on several opportunities with the Kingdom. In March, we were awarded a contract for nearly $500 million to fund long lead activities for construction of four multi-mission service combatant ships, a key element in the Kingdom of Saudi Arabia's defensive strategy. We look forward to continuing our more than 50-year partnership with the Kingdom to help them provide for the security of their citizens and support to His Royal Highness's Saudi Vision 2030, his blueprint for transformation of their country. Moving on, I would like to highlight several operational milestones we achieved across the corporation during the recent few months, beginning with an update on our F-35 program. During the first quarter, I was proud to represent our corporation at the Korea rollout ceremony at our manufacturing facility in Fort Worth, Texas.
The Republic of Korea and the U.S. government leaders celebrated the public debut of the first F-35 produced for the Republic of Korea Air Force. The ceremony was attended by over 450 guests and represented a major program milestone as the Korean Air Force took delivery of the first aircraft in its 40-jet plan of record. Five more will follow this year as our production line continues to ramp up and we progress on our 2018 goal of delivering more than 90 aircraft to our U.S. and international customers. Keeping with our aeronautics business area, this quarter, our Aero team celebrated the delivery of the 400th C-130J Super Hercules as the Air Force Special Operations Command received its latest Commando 2 special ops model of the venerable C-130J platform.
The hallmark of the C-130J is its versatility. This aircraft supports 17 different mission configurations, including this special forces version. The performance of this remarkable plane has drawn global demand with operators in 17 countries, and C-130Js have amassed over 1.7 million flight hours supporting these varied missions. The C-130J has proven to be the tactical airlift platform of choice. We look forward to continuing our global leadership in air mobility for decades to come. NASA awarded our aeronautics organization a new contract to design, build, and flight test a low-boom flight demonstrator, a new supersonic X-plane that, despite flying in excess of the speed of sound, will produce a sonic boom that will not be disruptive to the general public. Because of noise restrictions over land, air travel above Mach 1, which creates these sonic booms, is currently not allowed.
This program will build on the preliminary design we started several years ago under NASA's Quiet SuperSonic Technology effort. The new demonstrator aircraft will be built in our Skunk Works facility, and we look forward to its first flight in just a few years, with the goal of making quiet, supersonic passenger air travel a reality. Moving to our Missiles and Fire Control business area, we saw continued demand for our air and missile defense products. Our THAAD team received an award of approximately $460 million for the production and delivery of additional interceptors and engineering support, bringing the contract value of our Lot 10 Program to over $1.2 billion. We also received an award of over $500 million as the U.S. and international customers look to upgrade their missile defense capabilities using our PAC-3 and PAC-3 Missile Segment Enhancement, or MSE, interceptors, launch kits, spares, and support equipment.
U.S. and Polish officials signed an agreement for Poland to become the fifth international PAC-3 MSE customer. The advanced capabilities provided by our PAC-3 MSE interceptors will support the Wisła Air and Missile Defense System, intended to protect Poland's armed forces, citizens, and infrastructure. We are honored to have this opportunity. Before I leave Missiles and Fire Control, I'd like to commend their tactical missile team for the successful operational debut of the Joint Air-to-Surface Standoff Missile, JASSM, during the recent allied strikes against Syrian chemical weapons research and storage facilities. A total of 19 JASSM stealthy cruise missiles were launched, marking their first use in combat. These weapons performed their missions with precision, contributing to the success of this multinational operation.
In the Rotary and Mission Systems business area, the U.S. Navy awarded us a unique contract to develop, manufacture, and deliver two high-powered laser weapon systems to eventually be fielded aboard surface ships. This program, the HELIOS contract, is initially worth $150 million. However, with options, it could increase to nearly $950 million. This weapon system is the first of its kind and combines laser technology to traditional ISR sensors and systems and counter-unmanned aerial system capabilities designed to help provide layered defense support. This award is the result of our commitment to advancing technology with more than 40 years' experience in this domain, including longstanding internal research and development projects as well as customer-funded contracts. We are honored to be working with the Navy on this program, and we are excited by the opportunity this leading-edge system brings.
I'll close with our Space business area, which celebrated the successful launch of two upgraded Trident II D5 missiles, certifying the readiness of the crew and the operational performance of the strategic weapon system. The two missiles were launched from the Ohio-class ballistic missile submarine, USS Nebraska, and marked the 166th and 167th successful test launches since design completion in 1989, the most reliable test record for any ballistic missile of its kind. This modernized Trident missile will be in service with both the U.S. Navy and the United Kingdom Royal Navy for the next two decades, adding to our over 60-year heritage of support to the sea leg of the nuclear triad. I'd like to congratulate our Space organization on this significant milestone and for their long history of mission success.
I'll now turn the call over to Bruce to review our first quarter financial performance and to discuss our expectations for the remainder of 2018. We will then open up the line for your questions.
Thanks, Marillyn. Good morning, everyone. As I highlight our key financial accomplishments, please follow along with the web charts that we included with our earnings release today. Let's begin with Chart 3 and an overview of our results for the quarter. We had a very strong start to the year. Sales and segment operating profit were both higher than our expectations for the quarter, while cash was in line with our expectations given the planned pension contributions we made this quarter. We returned almost $900 million to our stockholders in the quarter, nearly $600 million through dividends and about $300 million in share repurchases. Based on these results, we've increased our outlook for sales, operating profit and earnings per share for the year. On Chart 4, we compare our sales and segment operating profit in the first quarter of this year with last year's results.
Sales were about 4% higher this quarter compared with last year, with three of our four business areas showing growth in the quarter. Aeronautics and Missiles and Fire Control both experienced high single-digit growth in the quarter. Aeronautics was driven primarily by F-35 production volume, while Missiles and Fire Control was driven by tactical missile and classified programs volume. Rotary and Mission Systems had double-digit growth in three of its lines of business that was partially offset by lower volume at Sikorsky due to lower quantities on our government helicopter programs. As expected, Space was slightly lower than last year as a result of our continuing cost reduction efforts on follow-on buys of our large government satellite programs. Segment operating profit was up considerably in the quarter compared with last year's results.
RMS had the highest operating profit improvement, driven by the absence of the charge taken last year for the HT program, as well as strong performance across the entire portfolio, led by improved performance at Sikorsky. Aeronautics and Missiles and Fire Control increased due to higher sales volume and improved performance, while Space was lower due to the lower sales volume and risk retirements in the quarter. Turning to Chart 5, we'll discuss our earnings per share in the quarter. Our EPS of $4.02 was 50% higher than our results last year, driven by the higher segment operating profit results that I just discussed, as well as a lower tax rate in the quarter as a result of the Tax Cuts and Jobs Act, which was enacted in December.
On Chart 6, we show the impact of our planned pension contributions will have on our cash from operations profile in 2018. Cash in the first quarter was significantly lower than last year as a result of contributing $1.5 billion to our pension trust this year versus none last year. With an additional $3.5 billion of contributions planned before the end of the third quarter, we expect cash from operations in the next two quarters to be much lower than our historical results. In fact, we could see negative cash from operations in the second quarter given the planned level of contributions in that quarter. Because of these contributions, we expect our cash generation to be heavily weighted to the fourth quarter. All in all, though, we remain comfortable with our outlook of greater than or equal to $3 billion in cash from operations for the year.
Chart seven provides our updated guidance for the year. We're increasing our sales outlook by $350 million based on higher expectations for Aeronautics, MFC, and Space for the rest of this year. We're increasing our segment operating profit outlook by $115 million due to higher sales volume and improved performance in Aeronautics, MFC, and RMS. There's no change to our other unallocated expense or our net FAS/CAS adjustment. We are increasing our earnings per share by $0.60. I'll provide more detail into this increase on the next chart. We're leaving our cash from operations outlook unchanged at greater than or equal to $3 billion. Chart eight provides a reconciliation of our current and prior earnings per share outlook for the year. Our segment operating profit improvement drives a $0.32 increase in our EPS.
Updates to our revised estimated effective tax rate for the year and some other miscellaneous changes drives a $0.28 increase in EPS, resulting in a total increase of $0.60 and a new EPS range of $15.80-$16.10. On Chart nine, we show our revised sales outlook by business area. We increased our sales outlook in three of our business areas, an increase of $150 million in Space, $125 million in Aeronautics, and $75 million in Missiles and Fire Control for a total increase of $350 million above the guidance we provided last quarter. Chart 10 provides the updated segment operating profit outlook by business area. We increased our outlook for RMS by $80 million, Missiles and Fire Control by $20 million, and Aeronautics by $15 million for a total increase of, excuse me, $115 million above last quarter's guidance.
Finally, on Chart 11, we have our summary. We're off to a very good start to 2018 with strong financial and operating performance across our portfolio. We continue to see strength in the current level of our backlog as well as our future growth prospects. Based on the results of the quarter, we increased our outlook for sales, operating profit, and earnings per share. With that, we're ready for your questions. John?
Thank you. Ladies and gentlemen, if you would like to ask a question, please press star then one. You'll hear a tone indicating you've been placed in the queue. If your question gets answered and you wish to remove yourself from the queue, please press the pound key. Once again, star one, and we do ask that you please limit yourself to one question. If you have additional questions, please place yourself back in the queue. First we go to the line of Ron Epstein with Bank of America Merrill Lynch. Please go ahead.
Yeah. Hey, good morning.
Good morning.
Marillyn, there's been some press about Japan and the U.K. collaborating on an advanced stealth fighter, if you will. I don't know, some kind of, you call it sixth-gen. Where does Lockheed stand on that, and how does Lockheed view the market for sixth-gen fighters, and if you could elaborate on that?
Sure. Thanks, Ron. Thanks for the question. First of all, we are excited about Japan looking forward on their next aircraft and their replacement of the F-2. We are exploring options that we could bring forward to them in cooperation with both the Japanese and the U.S. government. At that time, we'll share our relevant details around the appropriate time, certainly. We do think that our leadership and experience building a fifth-generation aircraft are critical to provide cost-effective capabilities that will help support Japan's future security threats as they go forward.
Conceptually, is this sort of like a continuation of F-22? How should we think about the requirements that Japan wants vis-à-vis an F-35?
At this point, Ron, we are waiting. It's really a government-to-government matter. They will outline what their requirements are, we have great experience on the F-22 and on the F-35. As they look at the capabilities they need, I think we'll have a very good competitive offering for them.
Our next question from Cai von Rumohr with Cowen and Company. Please go ahead.
Yes, thanks so much. Just looking at your change in your EPS guide, how much of the $80 million increase at RMS is from Sikorsky and why, how much of the benefit is from a lower tax rate, and what is that tax rate?
Yeah, Cai, I'll take both those. $80 million at RMS. I'll say the lion's share of that actually is at Sikorsky. I think we were up, if memory serves me right, we're up about $50 million in the first quarter, that trend is expected to continue through the next three quarters or so. That's the bulk of why we're seeing the increase at RMS is because of Sikorsky. I think there, we're actually finally seeing, hopefully getting a little bit of traction with some of the initiatives we put in place and some of the systems, I think, that we put in place here recently, that I think are giving a greater insight, hopefully, into managing some cost controls than the business has had previously. We're hoping that trend continues, obviously, as we go out through the rest of the year.
I think your second question was relative to tax rates and so forth, I think what I had said at the start of this year was we were looking somewhere between 17%-18%, probably on the higher side of that. Fortunately, we've actually had some, with the benefit of a little more time looking at the act, some of our planned reductions relative to what we assumed in the act initially, we think we've got some better opportunities than we assumed in January. As well as we've been really working some of the R&D tax credit items that we always work really hard, we see some benefit coming there as well. Rather than the 17%-18%, I think for the year, we're looking right around 16% as the effective tax rate, at least in the guidance we're providing today.
Our next question is from Peter Skibitski with Drexel Hamilton. Please go ahead.
Yeah, good morning, guys.
Hi, Pete.
Just maybe you guys can talk more about the F-35. The head of the program office, I think, has made some comments about your strategy in LRIP 11 negotiations. I'm just wondering if you guys are satisfied getting LRIP 11 definitized, and when you think that might complete, and what does the delay kind of mean for the 2012-2014 timeline?
Well, Pete, I would just take that to say that we are in in-depth negotiations, and we know that the timeline is just how those negotiations go. In terms of the date to complete, I think that's just how the negotiations go forward. It's probably better to ask the PEO from his perspective, Mat Winter, what his timeline is. I think the negotiations are progressing as they should, and we feel pretty good about getting to closure in the near term.
The other thing I might add, Pete, is I think we've seen some progress here recently in concert with the Joint Program Office, closing on some open items that I think will hopefully foretell some good signs relative to getting the whole program closed in the not-too-distant future. I think the other part of your question was relative to the block buy LRIP 12 through 14. I don't see that being an issue, at least at this point, Pete. The LRIP 12 to 14 is more of a funding issue at this point in time than a negotiation issue. We'd clearly like to get LRIP 11 behind us so we can focus on that. Hopefully, we're on the right path to get that done in the not-too-distant future.
Okay, are you past this issue with the recent delivery halt?
We are not. We are still progressing along with the Joint Program Office on that. It's not affecting production at all because we continue to produce the F-35. That continues. We're confident we're going to meet our deliveries this year of over 90 aircraft for 2018. It's just a temporary suspension that they have on accepting some aircraft until we reach agreement on a contractual issue. We're working through that contractual issue with them. As you know, the way we recognize revenue is based on cost incurred. We're full steam ahead on the production and sustainment of the aircraft. We'll get resolution to this soon, I'm expecting.
Next, we'll go to Noah Poponak with Goldman Sachs. Please go ahead.
Hey, good morning, everyone.
Good morning.
Marillyn, I wanted to ask on the defense budget, bigger picture. Clearly, there have been a few reasonably sizable step-ups in investment spending here over the last few years. When you're speaking to those that have been a part of that seemingly bipartisan decision, is that discussion at this point, now that we have 2018 spending where it is that discussion closer to, "Hey, we've now had these big step-ups. We're relatively close to where we need to be, relative to the capabilities we need and the recapitalization we need, and we're likely to just sort of grow in line with inflation off of this reset level"? Or is that conversation closer to, "Hey, this is great, but we're actually still far short of where we need to be for all of the capabilities and recapitalization we need"?
Well, in my discussions, I think, first off, this increase in defense spending was tremendously welcomed by our customers. As you know, we've been in a situation with the budget caps and others where the spending on recapitalization as well as on readiness was not at the level it needed to be. I see that as welcomed, and certainly for industry, it's welcomed in terms of the planning and stability that we can see at least for fiscal years 2018 and 2019. We still have looming out there this whole issue of sequestration, which everybody would like to see go away. I won't ignore the fact that that's sitting out there. What I would say is that the dialogue I have is about the very difficult situation in global security around the world. It's just unpredictable.
There's a need to move with speed and agility to address the threats that are there. Is it enough? We don't talk specific numbers of is it enough, but I haven't heard anybody say it's enough. There's not much there in new starts. There's not much there in recapitalization, and we know that we've really got to focus on that. It solves some of the near-term issues on readiness to address that. The need for what's happening with what I think Secretary Mattis has called the great power competitions with Russia and China and other geopolitical rivals out there, that we've got to stay on our game and continue to invest. We're doing that at Lockheed Martin. We're investing in a lot of technologies that we think will be important to our customers in the near term and in the long term.
The threats are not going away. They're accelerating. In my view, if you just were to ask my opinion, we need to continue to spend more on defense.
Our next question from Seth Seifman with JPMorgan. Please go ahead.
Thanks very much, and good morning.
Good morning.
Marillyn, there was some language in the most recent proxy that suggests maybe you'll stay on longer as CEO than maybe the prior customs of the corporation would have indicated. Can you talk a little bit about the thinking behind that and about, are there one or two specific things that you're looking to accomplish in the remainder of your tenure?
Thanks for the question. Well, just speaking in terms of my tenure, I serve at the pleasure of the board, as does every CEO of a public company. They determine, with me on when's the right time for me to step down. I think it was important for us in our proxy to make that clear, just because people often look at ages and where people are in their long-term career. I'm happy to report that I celebrated 35 years with Lockheed Martin in January, I do have a long tenure with the corporation, but I intend to stay on longer. In terms of what I want to accomplish, I want to continue to sustain the success of this company with the 100,000 men and women that are working hard every day to support our customers.
My focus is on how we continue to drive innovation, how we continue to drive performance, the things that we're doing to align with the needs of our customers and make sure that we are performing on the work we're doing today, but we're looking beyond today. Also for our shareholders to have a disciplined approach to how we manage the company and make sure that we bring and create shareholder value and bring value to them in the long term. In a nutshell, I serve at the pleasure of the board. They elect me annually, and I would like to continue to work for some time.
Next we'll go to Rich Safran with Buckingham Research. Please go ahead.
Marillyn, Bruce, Greg, good morning. How are you?
Good morning.
Rich, good, thanks.
I would like to ask about your cash flow guidance. Bruce, you took up your numbers, operating profit, sales, but you left your 2018 cash from operations guide alone. The first part is, I'd like to know if you could just discuss what the thinking was there. Marillyn, in your opening remarks, you talked a bunch about the increases to the investment account. As a second part, planned defense spending in 2019, at least it seems to be, was a bit above expectations due to lifting of the spending caps. There wasn't any update on the long-term cash from operations guide. I thought maybe you could discuss those two items there and how you're thinking about that.
Hey, Rich. Let me take the first part of that on cash flow guidance. You're right, we did leave 2018 alone, the thought was a pretty simple thought. I mean, nothing more complicated than we basically did what we thought we were going to do in the first quarter and didn't see upside to what our expectations were in the first quarter. Therefore, we didn't increase our outlook for the year. We've got another three quarters to go for the year. We'll watch that very closely, we'll see how much of some of the profit improvement actually translates into higher cash improvement throughout the rest of the year, we'll update you as you go there. We typically had better performance on cash flow than we said at the start of the year. I'm not predicting that here in the first quarter yet.
We'll see as we progress throughout the year. We've said at least $3 billion, greater than or equal to that's still what we're seeing as we sit here today.
Just to answer the second part of your question, we remain hopeful for higher growth based on the plus-ups in the budget, for 2018, we hope to see that in 2019, that for Lockheed Martin, our programs will still be well supported, we'll see additional opportunities there. We don't know specifically how that'll play out because we're a long cycle business, we are going to wait on the final details and the timing of when these things are enacted and get put on contract. We'll see when the orders hit, therefore, that will drive the sales ultimately the timing of the cash from operations. I can't really give you a real specific answer to that other than to say, just as we always do, we look at the opportunities that come.
In addition to that, I might mention, there's some other discrete proposals that are in process that could also impact our projections if, as you know, we're pursuing the Advanced Pilot Training system, the TX is the terminology we typically use for it, but as well as MQ-25 and the Huey replacement and some others. Those also will have some play into our opportunities looking forward and then the timing of cash.
Hey, Rich, I might just add a little bit to what Marillyn said as well. She mentioned during her prepared remarks the fact that we got more than $7 billion worth of business in the omnibus bill that just closed. You should think of all of that as essentially over and above what we were assuming when we put our guidance out previously. When we talked in January about adding $17 billion over the next three years, roughly $3 billion in 2018 and roughly $7 billion each in 2019 and 2020, nothing has changed to that. As Marillyn said, there are a number of awards that we're waiting on, that if we win or lose, could have some slight impact on the near term of that. As we sit here today, we still feel really good about that $17 billion over three year.
Again, with the increase in the budget that Marillyn talked about, hopefully, there's some prospects that weren't in our plan when we came up with those numbers.
Our next question's from Peter Arment with Baird. Please go ahead.
Yeah, thanks. Good morning, Marillyn, Bruce.
Good morning.
Marillyn, thanks for the color on Saudi. Have you guys quantified in terms of the kind of the opportunity that you're looking at there, and if that's possible? Bruce, just quickly on the three deliveries of the C-130 in the first quarter, can you kind of give us expectations for the year or maybe the cadence for the year? Thanks.
Sure. On the Kingdom of Saudi Arabia opportunities, the only quantification that we've done in rolling it up, as a potential, was what we did last May when the agreements were signed between the kingdom and the U.S. government about opportunities. If you recall, I think it was something like $100 billion worth of opportunities that were outlined in that rolled-up agreement. When we looked at where our opportunities were in that, from THAAD to the multi-mission surface combatants to radars to helicopters to aerostats, a range of things, we communicated that we saw a potential of $28 billion. Of course, that would roll out over whatever number of years when those orders were placed, contracts signed, and so forth. That's, in essence, what we have communicated in terms of the size of the opportunity.
Peter, the C-130 deliveries, we were a little light in the first quarter. I think that's just the sort of the contractual schedule that fell in place in the first quarter. Nothing unusual about that. As we look at the remaining quarters for C-130 delivery, I think they're going to average somewhere seven or eight. We might have one quarter or so where it bounces up to nine aircrafts in the particular quarter. Much higher than what we saw in the first quarter. Not a whole lot different than what we saw last year, though.
I will remind you, though, I appreciate the question on the deliveries, this is one of the programs, obviously, that with the new revenue recognition is also being recognized on a cost to cost of the timing of deliveries might not have as much impact, obviously, on the C-130 program as it did in years past. Just maybe to state the obvious.
Next, we'll go to Douglas Harned with Bernstein. Please go ahead.
Thank you. Good morning.
Good morning.
In looking at your Missiles and Fire Control results, which you've talked about higher volume on missiles for the quarter. We also saw a big backlog gain in missiles in Q4, and there's some significant budget increases in this area over the next 2 years. When you look at this space, do you see this surge in missile demand as a short-term trend or something that is likely to persist for a longer period, say, 5 or more years? What would drive that?
Yeah, I'll take a shot at that, Doug. Look, I think your observations are spot on. I know when I looked at the long-range plan, our 3-year plan, the thing that sort of jumped off the page to me is Missiles and Fire Control is amongst our highest growth business areas, over that 3-year plan period. That was sort of under the original president's budget without taking into consideration a number of things that fell out from the Omnibus, for instance. I think this is a trend that we see increasing at U.S. I think, is this short term or is it maybe out there for 5 years?
I think in every single missile opportunity that we have, and that's all the way from PAC-3s to THAADs to JASSMs to Hellfire, GMLRS, we are looking at increasing the capacity, increasing our build rate in every single one of those categories in the not-too-distant future. I think what you're seeing is not an aberration, and I would say it is going to, in my judgment, last longer than a short duration. 5 years or so, I think that's a possibility, definitely, Doug.
We'll go to Matt McConnell with RBC Capital Markets. Please go ahead.
Thank you. Good morning.
Good morning.
Your 10-K this year had some new language about the government taking increasingly aggressive positions around intellectual property rights. Could you elaborate on what's changed or what you were referring to there and how you're reacting to that change?
Sure, Matt. I'll just take that. We're seeing it's not across the board on opportunities that we're pursuing with the U.S. government, but there have been some cases where there's been sort of an unbounded request for all of the intellectual property rights for us to pursue an opportunity. While we may be able to commit to that from a Lockheed Martin standpoint, our challenge that we outlined is that it's very difficult for us to commit to that for our supply chain. We've had some recent RFPs where the intellectual property rights request is have seen, in fact, we did a pre-award protest for the UH-1N replacement, the Huey replacement, because we could not get to a position with the U.S.
government in the dialogue up to that point, to be comfortable that we could certify that we could provide all of the intellectual property that they requested because we couldn't certify that we could bring forth all of that for some of our subcontractors. That's just one example of that. I don't know if you want to add anything or not, Bruce.
The only thing I would put out, just to piggyback a little bit on what Marillyn said, I think the Huey replacement program is a good example where we've had the Black Hawk helicopter being supported through the Army depots for however long we've been flying or they've been flying Black Hawk helicopters, probably 30 years or so. Yet the request that came with the Huey replacement program, admittedly an Air Force program, was actually for far more data than I'll say the Army is using today to support those aircraft in the fleet. It's a little puzzling, as to why the same helicopter would have two different requirements for intellectual property when the government is already supporting that aircraft through the Army depots. That's what we're talking about.
It's just a little bit of a head scratcher sometimes where these are, oftentimes these are existing platforms with a new request for intellectual property that's a little puzzling. As Marillyn said, a lot of it has to do with, not so much Lockheed Martin IP, as that of our subcontractors, including more puzzling than most, a lot of software. In some cases, even some commercial software applications. That's the reason it's mentioned in the 10-K. That's the reason we filed the pre-award protest that Marillyn said on the Huey replacement program.
Our next question's from Joseph DeNardi with Stifel. Please go ahead.
Yeah. Thanks very much. Bruce, I'm wondering if you could just provide some sensitivity around the pension, relative to kind of performance of equity markets over the next few years. Just assume that we experience kind of a flat S&P for the next five years. What would that do to your cash funding requirements? Thank you.
Yeah, that's a good question. We've taken a look at that. We mentioned in the past that we actually get to a full freeze in the pension, come January 1st of 2020. It's sort of disproportionately impactful, if that's the right words to use, up until 2020 and then post-2020. We're more sensitive, as you just asked the question, to asset returns in the near term, believe it or not, than we are, which has historically not been the case. We've typically been more sensitive to discount rate changes. Because the sort of the length of time until the plan becomes fully frozen is getting shorter by the day, we're less sensitive to the discount rate changes between now and then.
Asset returns, we have greater sensitivity to. You shouldn't think of them as being I'll say we've taken scenarios where we've assumed instead of the 7.5%, we've assumed 0% return or zero return, in 2018, for instance, just sort of for sensitivity purposes. Then we've actually gone into some negative scenarios. It's not a huge change. You shouldn't think of it as being something that where we would have, I'll say, changes to the $17 billion that we talked about earlier as being a significant change to that in total outlook, is the way I would characterize it.
Our next question's from Rob Stallard with Vertical Research. Please go ahead.
Thanks so much. Good morning.
Hey, Rob.
I thought I'd ask you a quick question about GPS III and the follow-on contract there, or the competition there. It looks like some of your peers may not bid for this, and I was wondering how that changes the dynamic for you to obviously increase the chance of winning. Also, is there anything different in that follow-on contract that makes it less financially attractive than the current situation?
Well, I can't speak for our competitors, but I can just tell you that we feel very confident about our proposal for the GPS III follow-on. We've already submitted as we put out a release that we have a fully compliant proposal that we've submitted. For us, as we see it as a follow-on, it's an opportunity for another 22 next-generation satellites to be brought in. We've invested a lot in design with flexible modular architecture that allows us to bring down costs. Moreover, that it also is a low-risk approach to continuing the GPS IIIF solution. That's one thing that I would add, is that we think we're performing well on the ones that we're producing today, and this follow-on, I think we're well positioned to compete for the follow-on.
The only thing I might add, Rob, is I think the reason for the competition in the first place is we didn't perform as well as we otherwise could have on the first few satellites. We had some payload issues in particular there. I'll say those we think have been cleaned up. We feel really good about the performance of the satellites we're producing now. I think the government is also aware that we are performing satellites very well, as is most of the industry. Not to speak for any of our competitors, but I think the fact that the program is performing extremely well right now serves us well, going into this competition. Your second part of your question was sort of is there lower profitability or potential that would cause our peers or competitors not to want to do this.
We don't see it that way. We see it as essentially the same opportunity as what we've had in the past without a change there. That wouldn't be a driver from my perspective.
Next, we'll go to Rajeev Lalwani with Morgan Stanley. Please go ahead.
Hi. Thanks for the question. Marillyn, Bruce, just given some of the discussion out there around the top-line trajectory on the F-35 program, can you maybe just provide some thoughts on how you see revenue growth looking over the next several years for the program? Then if not, maybe just thoughts on how it compares to the overall growth rate of the company into the end of the decade and beyond.
Yeah. Rajeev, I'll take that one. Marillyn can add some top cover if she wants to. Look, I think, in terms of F-35, the F-35 program in general is going to grow at a faster rate than the corporation is all the way through the end of the decade. In fact, I would tell you it's going to do that beyond the end of the decade. We don't reach peak production volumes until, I think, the 2023 or 2024 timeframe, somewhere in that timeframe. You should think, obviously, we spend the dollar since F-35 is also on the cost to cost. We're recording the sales sooner than we're getting those deliveries, so it's a little bit pushed to the left, if you will. Even with that, you should think of that peak as sort of not occurring until past the end of this decade.
Then our expectation is that with sustainment for the sheer number of aircraft that are in the field growing significantly between now and then, that sustainment will help position that growth in the future, even when the production starts to slow down a tad. The last thing I would add is, even though, as Marillyn said in her prepared remarks, we completed the SDD program, there's already the idea, plans in place to do follow-on modernization of the F-35, not just for the U.S. government, but for international customers as well. There will be a sustaining level of development, just like there is a sustaining level of development and modification work that we're currently doing on F-22s and F-16s that are decades past their peak production period. We're going to see that going for a long time on the F-35 program.
The other thing I would add, Rajeev, is that we currently have, of course, the three U.S. services, the eight international partners, the three foreign military sales partners on the program. There's a lot of interest beyond that with many countries around the world that want to buy the F-35. While we have a program of record that we can talk about what we see as the production plan for that, we expect to be selling more F-35s around the world in coming years. That will be another indicator of continued revenue from the F-35 program and production sustainment, and as Bruce said, continued modernization and upgrade.
Our next question from George Shapiro with Shapiro Research. Please go ahead.
Yes, good morning. Bruce, it looks like you raised the margin rate on the F-35 again based on the numbers that you gave. I just wanted to validate that. Second, could you tell us how many deliveries the Air Force currently hasn't taken, and what kind of impact that might have had on cash flow in the quarter? Thanks.
Yeah. Good questions, George. There was a slight pickup on the total F-35 program. I think the biggest single driver, as I recall, is we had some increases, once again, I think as we did last year on some of our international FACO. This is the final assembly and checkout facilities. Those are going extremely well. This is another example of this quarter where we recognize some of the benefits of the performance we're seeing there taking place, actually greater than it was a year ago this quarter. That's the primary reason for the upper in the F-35 program. Let's see, the other question was relative to the number of aircraft that are on hold, and I've lost track in the quarter, George. I want to say it was five. I'll say it's mid-single digits to upper single digits. I've lost track of F-35s.
Not a huge impact on cash. Obviously, it didn't change sales or earnings because of the way we recognize revenue. Slight impact on cash, although not much because most of those withholds occur later in the quarter where they weren't going to get collected in any event. Our expectation would be come second quarter, hopefully, we've got this behind us, and there will be no impact to cash in the second quarter.
Next question is from David Strauss with Barclays. Please go ahead.
Thanks. Good morning.
David.
Wanted to try and put a finer point on the budget upside that you saw come through and what it means for growth going forward. You've obviously, in the past talked about growth accelerating from two to three, I'm talking top line growth, accelerating from two to three percent this year to like four to five in 2019. Given the extra $7 billion that you saw come through and normal kind of spend rates, what do you think that implies for that four to five percent number? And then as a follow-up, Bruce, if you could just update us on C-5 and potential resolution there. Thanks.
Yeah. David, you got a good memory there. I'll give you credit for that one. Hey, the first part of your question is a really good one. I'll say that it's at least a $64 million question. It's a question that's almost unanswerable at this point in time. We've got to see when that $7 billion starts manifesting itself in terms of contract modifications or contract awards to add those increases to our existing programs. My guess is they're all going to get phased in differently. In some cases, on some of the missiles and the like, we're actually sort of at capacity this year. I'd say just in general, I wouldn't expect to see much of any of this hit in 2018.
My guess is it will get spread over the 2019, 2020, and 2021 time frames and maybe even a little further out than that. Let's talk the F-35s, for instance. Those, I'd like to think we could get them somewhere in the 2012, 2013, 2014 block buy, but we're off right now going out to suppliers and sort of getting quantities of aircraft locked down with our suppliers. It depends on when that gets authorized. Again, modded to the contracts that we already have. If I were a betting person, I'd say you should think most of that's going to happen 2019, 2020, 2021. Obviously, David, I'll give you a better insight because we'll get better insight into it as the year goes along.
Definitely in the October time frame, when we give trend information for 2019, we'll try to talk about what it looks like beyond 2019 at that point in time. I think your last question was on the C-5 equitable adjustment. I literally don't think I have any news on that, David. This year, we finished delivering of the last modernized C-5 aircraft. I want to say that aircraft is in the third quarter of this year. My guess is we'll get a lot more action on that closure once the total program is closed, if that makes sense. Again, nothing planned from our perspective relative to if it doesn't happen this year, it's not like that's a downer or a hit to this year because we don't have that planned this year. We haven't talked about that, frankly, in the future years as well.
We still expect we have a very good case there. No new news to report is the short answer.
John, I think we have time for one more question.
That will be from Hunter Keay with Wolfe Research. Please go ahead.
Hey, good morning. Thanks for getting me in.
Sure.
On the Supersonic X- plane, is this your technology? I'm wondering if there's a remote scenario where Lockheed reenters the commercial aircraft market if this design proves out, and how your experience moving into the commercial market with the LM-100J might persuade you to do that. Thank you.
Well, to your point, Hunter, we do have the LM-100J, and we're happy to have that as a commercial offering. It's a follow-on to the L-100s that we sold to about 100 customers some years back, so having an opportunity to refresh that. We also, as you've probably seen, are supporting another company that is coming out with a supersonic business jet offering, Aerion, and we're supporting them on their project with some engineering support and other things. In terms of our foray into the commercial aircraft aviation side, don't read too much into this technology that we're working on in the low boom. What we're bringing is what we can bring out of the Skunk Works, which is the low boom technology and a lot of other technology that we can support. I apologize.
I'm fighting a cold here, my voice is getting a bit scratchy here. The point being that what companies come to us for, whether it's NASA or it's commercial companies, is our deep knowledge and experience and technology that we can bring to support new technology. As I mentioned earlier, we're engaged a lot in hypersonics and directed energy, and now this is a follow-on to some low boom technology work that we've done with NASA to take it to the next level. Our Skunk Works operation is working on it, as are a lot of our advanced technology labs across the corporation, working on a lot of fascinating and interesting advanced technology to help both on the commercial and the military side.
Thanks, John. This is Greg. I think we've come up to the top of the hour here, so I'll turn it back over to Marillyn for some final thoughts.
Sure. I'll make them brief since I'm losing my voice here. I want to just thank you all for and by highlighting that we had an outstanding quarter, and we continue to be well-positioned to deliver long-term value to our customers and to our stockholders. We look forward to you joining us on the next call. That concludes our call for today, John.
Thank you. Ladies and gentlemen, that does conclude your conference. Thank you for your participation and for using AT&T as Executive Teleconference Service. You may now disconnect.