Morning, everyone. Welcome back to the Aerospace Defense track at the J.P. Morgan Industrials Conference. I'm Seth Seifman, the U.S. Aerospace Defense analyst, we are very grateful to have Lockheed Martin with us now, the Company CFO, Jay Malave. Jay, welcome.
Thank you, Seth.
Yeah. Thanks for coming and for being here. I guess, I think we're gonna do kind of something, you know, informal, kind of, fireside chat here. We'll talk. We'll open it up to the audience if people have questions in a bit. I think there's also some housekeeping we'll do right here at the outset.
Okay, I'll do that. Seth, thank you again. Thank you for having Lockheed Martin. I'm excited to be here and represent our 116,000 employees around the world. There's a lot going on. I'm sure we'll get right into it. Before we do, just quickly on the safe harbor and the forward-looking statements. This discussion will include forward-looking statements that are subject to risks and uncertainties. We have information in our 10-K, 10-Qs. As you know, those risks and uncertainties could cause our actual results to vary materially from those that we speak about today. In our 10-K, 10-Qs, we have information on those risk factors that you can refer to at any point in time, and that information is included in our website.
From there, Seth, why don't we get started?
Cool. Excellent. Maybe I wanted to start off, I thought you gave some pretty helpful remarks, maybe it was about a month ago at another conference. You know, talking about a framework for thinking about the company in terms of it, you know, four growth pillars, and kinda laid out the contribution from each of those pillars over the next, five years or so. You know, when, you know, when you add it all up, it looks like it pencils out to something like 2.5% growth, 2.5% CAGR through 2028.
I guess, you know, I wonder sort of how you think about that and the degree to which there's upside and downside 'cause when I look at U.S. government's defense spending, I know we got a request for 3% budget growth this week. If you look in the DoD slides, it's kinda 2% thereafter. It's sort of in line with that. The spending from the last two years of very strong budget growth has not shown up yet. You'd think that overall defense spending, both for U.S. and allies, is gonna be growing at a faster pace than that 2.5%. Lockheed's the, you know, the biggest defense company in the West.
You know, how do we think about, you know, if Lockheed's growing 2.5%, how do we think about where all the money's going?
It's a good question, Seth. Let me maybe baseline us here. When we've talked about growth, we've talked about, really starting from a 2022 starting point. We delivered just slightly below $66 billion in 2022. When we talk about this, say, this 2.5% rate, it's in, it's in the ballpark, it's close enough. That's five years from that starting point to 2027. We've talked about four pillars of growth that are gonna drive us. First being, programs of record, second being classified programs, third being hypersonics, and then fourth being, new program awards. The biggest drivers will be the programs of record because some of those programs have slid to the right with supply chain issues and the like.
That'll be followed by growth in our classified programs. We'll get some contribution also from new program starts, but it's smaller contribution as well as hypersonics. When you take a look at where we are, if you look at 2023, we're down about 1% in the ballpark at the midpoint of our guide range at $65.5. When you go and go off of 2022, we'll be down a little bit here in 2023. The growth rate necessarily has to be higher in 2024 through 2027 to achieve that type of CAGR. When you just do some quick math, you're gonna have years that are anywhere between 3%-4% as I think as a starting point and a framework.
We'll give a lot more color about that probably in the third quarter call in October, and we'll go through a recycle of our five-year projections during the mid and late summer. I think that's the best place to way to think about what our growth rate is, which I think encapsulates some of the upside that you've seen. As I mentioned, or as we really reported in the fourth quarter call in January, our backlog had increased 11% to $150 billion. Yes, we did have two F-35 lots in there, but even if you take the F-35 growth in orders in 2022, we still had backlog growth of 5% in the rest of the portfolio. I think that we'll catch up.
We will see a growth that probably slightly above these rates that you saw just released recently.
Right. Okay. Okay. Yeah. I thought the, you know, the backlog growth in 2022 was definitely notable, and there's awards coming out of the fiscal 2023 budget, which didn't get passed until the very end of December. How do you think about order activity this year and, you know, where the backlog might end up, at the end of 2023?
Sure. We again, we began the year at $150 billion at the end of 2022. When you look at this year with the activity that we see, we see it about flat or right around $150 billion. We've got one Lot 17 on F-35 that's an option that the Joint Program Office can exercise. We expect them to do that. There is potentially some upside from there. We've got a key program for an integrated air and missile defense program at MFC. If we're successful there, then we could see incremental backlog growth this year.
Is that domestic or foreign?
It's international.
International.
It is.
Okay.
Yeah.
Okay.
Yeah.
Okay.
I think the starting point, flattish in that ballpark, slightly up, slightly down, with the variable being if we're successful in this new award, that would drive us to a higher backlog again in 2023 versus 2022.
I guess putting that award aside. Would you still expect 2023 to be a strong year in terms of MFC awards? I guess if we think about, you know, why backlog would be flat this year, I guess there were two F-35 lots that went into.
Mm-hmm.
that went in last year, whereas this year there's only gonna be one.
Right.
It makes it a little bit tougher. You know, MFC, we think about all the award... You know, everything that's been in budgets for tactical missiles, everything that's been in, you know, drawdown and Ukraine supplementals. You know, at what point I assume that MFC backlog is gonna get to a record level at some point.
Yeah. You know, this year. If you look at last year when we talk about kind of replenishment, Ukraine events type of demand, we had, or I'm sorry, $1.5 billion of orders last year. Coming into this year, we thought that that would slow down a little bit, just in the contracting cycle to about $500 million. Now we see that it'll be. Right now we're expecting to be pretty similar, about $1.5 billion again. You know, in the January call, we talked about a total opportunity set of $6 billion. So we'll see at least $1.5 billion of that this year.
Right.
It's possible it could be higher. We've got other international demand. You know, what you saw released with the budget documents yesterday was really U.S. demand. It doesn't really include foreign military sales in there, and we see a lot of demand there. It's possible we can see some upside in MFC this year. Over the next few years, we see it's a $6 billion opportunity set that we're pretty comfortable with, the line of visibility. What year they actually fall in, we'll see. You know, that's a key driver that's included in that growth rate. Let me just maybe explain that a little bit. I talked about in the January call, $6 billion of opportunity at MFC.
That helps us offset, should we receive an unfavorable ruling of FLRAA.
Right.
It's actually will be more than offsetting. We just have to keep that in mind when we talk about our growth rate over the next five years. We added some upside from MFC. We lost a new award expectation, which was FLRAA at that point in time. Net, net, it's positive.
Right.
It's not $6 billion. All of it incremental.
Right. It sounds like of that $6 billion, but potentially by the end of this year, $3 billion will be in hand in backlog. I imagine it's a fairly even slower process in terms of converting that into revenue and earnings.
That's right. It's going to take. You know, it takes anywhere between 30-36 months to get ourselves facilitized at these higher rates. In certain of these programs, we're already increasing our rates. You take an example like PAC-3, which is missile defense. We were already going to a rate of 550 units per year at 2020-2025. The incremental demand, the $6 billion, will include us PAC-3 going up to 650, but that won't happen until 2027. Use a number of programs. You know, HIMARS is another example. You hear about that in the news. We'll deliver this year and next year between 50-60 units in each year, and that'll ramp up to 96 units in 2026.
There's just a number of programs that just take us a little while to get up to these new rates that we're trying to get to.
Yep. Okay. Maybe to stay on the topic of missiles and fire control. I think, you know, you talked recently about some profitability headwinds there. You know, potentially over the next two years or so, you know, reaching maybe into the 50-100 basis point range. I think, it, you know, there was a little bit of confusion in terms of how to read that because you'd think that that much margin pressure suggests potential for, you know, maybe there's a zero margin program that's actually sizable enough to drive the whole segment margin down that much. Is that, was that kind of the right takeaway for people to have about that?
Yeah, let me be clear on it. It's actually negative margin.
Okay.
It's a program that's in development today. We're about 70% complete in the development cycle. It will start shifting to production. Those production lots, the initial production lots are priced at a negative margin. We have to deal with that for the next, say, five years. What I would say, let me take a step back on that program. This is a very large program potential to be in the range of tens of billions of dollars over the next 30 to 40 years. We're dealing with a situation where it's a little bit of short-term pain for long-term gain. The development part of it is cost plus. We've got protection there.
We're pretty aggressive on the pricing on these initial lots. We'll get through that, and then we'll see, you know, over the next five years. After that's done, we'll be able to reprice at positive margin, and we'll see a bump back up in margins there.
Okay.
You know, the only, the only thing that we have there is for the timing. We'll see that over the next five years. It's possible, based on facts and circumstances, that we may have to do a pull forward loss.
That's what I'm asking.
Based on the situation. Because we're still in development, we don't have all the facts laid out yet.
Okay.
Once we do, then we'll have to make a call on whether or not it's a per year type of negative margin or there's a big reach forward on that.
Right. Not to get too geek out on the accounting too much.
Yeah.
it would be unusual to be booking at a rate below zero, right?
Yeah. I mean, there's just a number of factors that have to go into it. It becomes, once you know that you have a, say, a negative margin, it becomes. These are options. So you have to make an analysis of what is the probability of those options being exercised.
Right.
You do it at the point in time at which you, it's more probable that they're going to be exercised. It could be, you know, you got a lot of different things, the performance of the program, go into it, funding levels. You have to make assessments of that really drives the judgment on the accounting.
Okay. I guess if we put that together, the thinking about it at a high level, if we've got a lot of demand for tactical missiles and some of the more mature missile defense programs, at the same time as, you know, some significant growth in this new program that's loss-making in the early stages. Is it, you know, as we think about your time horizon through 2027, is it possible to grow earnings in MFC?
Yes, it definitely is. We may see a year where it's basically maybe flattish or so.
Right.
Over that five-year period, we will see absolute growth. It may not grow at the same rate as revenue-
Right.
It will... absolute profit will grow.
Right. Okay. Maybe one other question on MFC while we're on the topic is, there was a lot of discussion, or it seems like there's been more discussion of multi-years.
Mm-hmm.
in, the budget release. You know, do you think about that having much impact on the business? Is it more about visibility? Is it gonna help on the cost side? Kind of what, you know, what should we take away from that move toward using more multi-years?
Yeah.
in tactical missiles?
I think it's all of the above. It helps us with the visibility, it helps us plan. It also helps from a cost perspective and trying to drive out costs. Underlying the visibility is there. You can facilitize because you know that demand's gonna be there, and then you can drive to the lowest cost position you can with the benefit of multi-year contract.
Right.
I think those are all benefits for the not just us, but the industry will benefit from. We saw that, you know, indications of that in this budget release that just came out.
Yeah.
In that, yeah, I think that, you know, the DoD's been pretty vocal about supporting multi-year contracting, and we saw that support, so we're pretty excited about that.
Excellent. Just to keep, you know, keep on beating the drum on missiles and fire control here. I guess, because it's topical, there was a second request yesterday, regarding L3Harris' acquisition of Aerojet. We all know the history of Lockheed's attempt to acquire Aerojet. You know, I think maybe more importantly for now is that Aerojet is a key supplier in missiles and fire control. You know, we know that's been an area that's kind of been struggling to keep up with demand. So for, you know, for Lockheed, kind of how do you guys view that?
You know, how important is it to kind of, get some closure on the Aerojet situation in terms of executing the way that you guys wanna execute at MFC?
Sure. I mean, you know, Aerojet Rocketdyne is an important supplier to us. They are on many of our programs. As you know, these programs are ramping up, so we need them just to keep pace with us. Our interest essentially is that we have surety of supply and that we get, you know, fair and reasonable pricing over this period of time. To your point, we'd like this to get resolved one way or the other as quickly as possible, so they can focus on performance and delivery to us. That's paramount to us.
Yep. Okay. I guess wanted to talk a little bit, you know, thinking about the other, I guess, you know, the other pillars. Can't ask too many questions on classified 'cause it's classified. Does that... That kind of what you talked about for the classified growth, over the next five years, does that encompass sort of all the classified opportunities that are out there? Or, is there, you know, is there anything that could potentially be incremental to that?
Well, it's, you know, we've got about an $8 billion portfolio in classified across the entire company. You know, I think I've said we've got an outlook about 5% mid-single digit growth in that portfolio over the next five years, and it's really centered around Aeronautics, MFC, as well as in Space. There are some, you know, we're expecting some competitive wins in that to drive that growth rate. Again, we've got pretty good visibility. We're comfortable with our positions on these programs. You know, I'm thinking of that I'm aware of any other types of other opportunities outside of the visibility that we have.
I'd say this $8 billion portfolio is set to grow pretty nicely over the next five years.
Right. Okay. Okay. Excellent. Maybe, just so I don't monopolize the questions too much, go out to the audience and see if there are any questions in the audience, but can also happy to keep firing away here. Cool. Okay. Oh, we got a question in the back there. Oh, we got the microphone.
There we go. Thanks very much. I wanted to ask, I know that you all have kind of loosely guided to, I think it was $4 billion in share repos this year. Can you just maybe talk a little bit about capital allocation in the context of leverage? Leverage is kind of at multi-year lows. You re-leveraged balance sheet some in 2022. Just kinda how far you could push that leverage.
I know some of your peers have mid BB B or BB B ratings. You're at A ratings. You know, what's the kinda trade-off that you think about if you all were to take on more leverage? Is that something that you could handle, is a BB B rating?
You know, yes, we did, you know, we did issue debt last year, about $4 billion. We've still got $2 billion left that we're planning in 2024 that supports the $14 billion share repurchase program that we had announced at the end of last year. You know, even with that, when you look at where we are, just a very simple, very simple kind of leveraged EBITDA ratio would be in the range of, say, 1.6. You know, that would tell you there's still quite a bit of room there. We'd like to just really look at it year- by- year and really take a look at what our growth profile is, where we think capital deployment needs may be over time.
The beauty of it is, I think you're pointing out, is that there's a lot of optionality there. When you look at our currently, I don't look at just shareholder returns. We've got a $3 billion a year dividend, give or take, in that ballpark, that'll continue to grow over the next few years. We've got $10 billion remaining in our share authorization, $4 billion this year, probably $4 billion in 2024, and then the remaining $2 billion in 2025. As we go through our strategic planning process and outlook updates, we'll take another look at what our financial forecast is, what our organic growth is, and determine whether or not there needs to be any type of supplement to what we have.
We'd like to keep our options open. you know, while the Aerojet Rocketdyne transaction did not pan out for us, that doesn't mean that we're not still active out there from an M&A perspective. you know, I think it's gonna be a year-to-year. Beyond what we've announced per share repurchase, we'll evaluate it again this summer. We'll give a little bit more clarity in October when we do our third quarter calls. We've given an out-year outlook. you know, I think that we do acknowledge that there's room there and, we just wanna keep our options open for the moment. We have not. I mean, I think that... The question was, do we have any type of leverage target, that we're shooting towards? We really have not.
It's really gonna be, I think, more, as we see the needs. You know, it's clear the opportunity set is there. If we find that, we should be using it, whether it's M&A or incremental share repurchase, that's something that we'll evaluate. We haven't really set out any type of leverage target. We're just keeping our flexibility.
Okay. Sean.
Good morning. Thank you. Transitioning to the Lockheed venture side of your business, Chris Moran and his team have built up a $400 million portfolio. They have some great deals there. How do you see the investments that they have made on behalf of the company factoring into current and future business opportunities, especially as it relates to margin expansion and some of the things that you're doing or seek to do?
Yes. Well, great question. Thank you for it. Chris Moran's doing a great job with that portfolio. As you mentioned, we've got about a $400 million portfolio. They're out there looking. The way that we approach it is we've got 14 technology roadmaps. Where we see defense spending trends, where we see the requirements are gonna be. Chris, what he does is focus on early technology companies that are aligned to those 14 technology roadmaps that we have. When you look at it, things like AI, things like autonomy, 5G.MIL. It's those types of early-stage technologies that will help us accelerate our capability, and that's the lens by which we do it. It's more focused on those requirements versus a financial return.
By the way, he's got excellent financial returns. There's no question about it. It's really focused on accelerating our technology capability in the context of 21st-century security as we see it. That's his approach. You know, that's we're gonna continue with that approach. We allocate plenty of monies available for him to continue to invest. As I mentioned, he's doing an excellent job. He's got a great portfolio, and they're helping our businesses. I'll give you an example. One of the companies that we invested was Terran Orbital. They provide the buses on our satellite buses on our SDA Transport Layer program. It's that type of company that we're looking for that will add to our capability and help us win new programs.
Great. I'm gonna use the prior question about capital deployment to, you know, pivot back to the topic of cash flow. You know, when we think about the cash flow drivers through this kind of five-year window, you know, we've got top-line growth. It sounds like maybe stable-ish margins. There's some segments where there's pressure. I don't know if it's net-net, if there's opportunity for margin expansion or if it's more likely that we'll see earnings grow...
Well-
A little bit less than sales.
Yeah, let me frame it. I mean, I think the 2023 guide that we provide is a good example. You know, when we came into when we started to give an initial look in October, we talked about 20 to 30 basis points of margin headwind. Part of that was because we're starting to see some of that this year at MFC. Where we ultimately landed was 10. We were effective in being able to beat that back and almost keep it flat. You know, what I can tell you here is that there's continued downward pressure on it, but our job as a management team is to continue to try to mitigate that.
What I, you know, at this moment, my obligation is to tell you what I see. I, as a member of management, got to work it to a better answer.
Right.
Right now, there's downward pressure, and our job as a management team is to drive it to a flattish type of outlook for the next five years.
Right. Okay. Okay. The other big muscle mover in terms of operating cash flow to see over the next few years is pension, thinking about it on a net basis. You know, right now it's all inflows. I forget if this year is $1.7-ish.
Yep
Of inflows and no contribution. I think the inflows, I think you told us that even out to 2025, that's still about $1.5 billion on the inflow side. It's the, you know, in terms of driving cash from ops, it's the net number that's gonna be important. As we think about out to 2025 and then maybe even further in this period, the net pension cash that's $1.7 this year, you know, how do we think about where that goes?
If you look at CAS recovery. You're right, $0.017 in 2023. That declines to about $0.015 in 2025. In addition, given the returns that we saw in 2022, that's forced a contribution in 2025 right now, anywhere between $500 million-$2 billion is what we've got for a placeholder. Once you get outside of that, we'll see, we'll see CAS come down a little bit from there. You know, once you get to 2027, maybe it's in a kind of the $0.013 range. But these things, they bounce around, as you know. You know, we were expecting that to come down significantly quicker by 2025 just a year ago.
It's very sensitive to what we see for asset returns. Based on our visibility today, by the time we get to 2025, it'll come down to 1.5 from a recovery standpoint, and then it'll probably come down a little bit further, another couple hundred million dollars, but to 2027.
Right.
The big one I think would be in 2025, not only do we see it coming down by $200 million, but then we've got a contribution as well. By that time, we see opportunity with income growth as well as working capital opportunity. If you look at in 2022, when you look at, say, our inventory, our contract assets, which is unbilled receivables or inventory, net of advances, our days went up by eight. Our management challenge was to bring that back down, and so we can offset this pension headwind and still deliver. Our goal is still to deliver absolute free cash flow growth, maybe not at the same rate as sales growth, but still some growth in absolute free cash flow.
At the same time, when you couple that with our share repurchase program, drive something like a mid-single-digit free cash flow per share growth over this midterm.
Are the contributions likely to be recurring, or is it likely to be, you know, 2025 and done?
I, you know, I think right now my visibility is to 2025 and done. Again, it's, it's pretty volatile.
Yeah.
So-
I would imagine they'll be every year.
Right.
It depends on interest rates, and it's not like there's not a lot going on in interest rates these days, so.
Right.
I'm sure things will change. Okay. The, you know, the other ingredient, I guess, moving from cash from ops down to free cash flow is CapEx. I think it's up close to 3%-ish now. If we look back, I guess the transformation of the business with the Sikorsky acquisition, it's usually been in the low twos, maybe mid twos. You know, the business is growing, but it, you know, it's not growing a ton. So are we in a period where things have become more capital intensive?
Let me just kind of maybe reconcile a little bit.
Yeah.
You look at this year in 2023, our CapEx plan is $2.95 billion. We see that holding steady in 2024 and 2025 as well. Those will be elevated. A major reason for that is our investment in 1LMX, so our systems modernization. Just to be clear, it's more than just, you know, digital engineering. It's digital engineering, it's our ERPs, it's our manufacturing execution system, it's our HR systems, and it's our business development system. Everything is being modernized over the next seven years. That is about over $400 million a year over the next three years of investment. When you adjust for that, you know, you take the core business, it's about $1.5. You're into that $2.3 range or so there.
We do have requirements on new programs, in many of these new programs, because of the difference in technology, you can't use existing facilities for, particularly for test capability.
Right.
You have either special test equipment or test facilities that require their new dedicated type of investments. That's another reason it's driving us up over this period of time. As we get to 2027 or so, that'll start to moderate.
Right.
It'll come down to at least around the depreciation. It'll come back down to kind of some of the levels that we would expect it to be.
Right.
That we've seen in the history.
Okay. Excellent. We're getting close to 10 minutes left. We haven't talked about F-35 yet, which it seems unusual to go this long without some F-35 discussion. Maybe we'll ask now. There was, you know, I think a pretty nice request earlier this week, 83 for the U.S. budget. When we think about the recent lot sizes, it looks like I think lot 16 was in the 125-130 range. I think lot 17 to get to a 399 or 398 in the whole EOQ is probably in that similar range. Now starting off with 83 for the U.S., if that's where we end up.
You add in 50+ on the foreign side, it seems like maybe those lot sizes are going to move up a little bit.
Well, you know what I would say is that, with the demand that we've gotten internationally, that this kind of within starting with an eight handle is where we think where we need U.S. DoD to be to enable 156 per year.
Right.
The 83 is right exactly where we need it to be to get us to 2026, lot 18, around one of the 156, including Foreign Military Sales. That's what we see for the foreseeable future.
Yep.
you know, we're appreciative and grateful for, frankly, the DoD putting us at that 83. That gives the certainty, to production.
Mm-hmm.
keeps stability in the production, the continuity. That'll help us to, you know, perform and deliver to the requirements that the services need.
Right. And when we think about reconciling those numbers and, you know, lot sizes that are below 156 versus the goal of continuing to deliver 156. I mean, I think there were 200 aircraft still in the backlog.
That's right.
There's aircraft still in backlog that can fill the gap. If the lot size is, you know, 130 or 135.
That's right.
There's 20 aircraft in the backlog, and you could do that for several years.
That's exactly right. When you take the backlog, the backlog fully supports, you know, our expectations that we've laid out last year was $147-$153 in 2023, $147-$153 in 2024, and then $156 forward, starting in 2025. The backlog fully supports the deliveries of that delivery profile. You know, again, the $83 was right in the wheelhouse of what we were expecting it to be and what we needed it to be to hold that production level.
Right. Well, while we're on the topic of the budget release, is there anything else you'd highlight in terms of something that was surprising to you guys?
You know, not surprising. It was more aligned with what we were expecting. You know, when we talked in the context of the MFC upside, what we saw here was very consistent with that upside. We saw not only the volume of demand for on the domestic side for replenishment, but also the language around multi-year contracting and so that is, I think, very helpful as well, as we talked about before. Also capability, continued RDT&E expenditure on capability development, things like hypersonics, is important. Also just further development capability on platforms like the F-35. As you know, we talked a little bit about Block 4. There's still development activities that are going on with upgrading these platforms that we deliver to them.
Those were, I think, well-funded as well. You look around, and you look at our space businesses were, I think, well-funded. In RMS, CH-53K, well-funded. At BLACK HAWK, pretty much where we thought it would be. Really no surprises from what we've been saying, and pretty aligned with the, with the framework that we've laid out from a growth perspective.
Right. Do you see opportunity, maybe for the Congress to add some C-130s? If not, that's accounted for in sort of the, you know, the framework that you have, kind of the pressure on C-130 production.
Yeah. I mean, I'd say yes to both. I mean, we pretty much have a pretty decent backlog out to 2027. I mean, there's probably some opportunity for some incremental U.S. as well as some international demand that we've seen. Overall, for the next five years, I think we're pretty well positioned on the C-130.
Okay. look out into the audience and see if we have any questions. We can also, you can keep asking here. I think you mentioned CH-53K. Wanted to ask about Sikorsky because I think there's, you know, I think some concern out there about, you know, without FLRAA, and with the BLACK HAWK, kind of declining, what the outlook is for Sikorsky. I guess when I look at it, I kind of see growth on CH-53K. I see some decline on BLACK HAWK, but it's not going away, and there's a pretty big install base out there. There are some other smaller programs, whether it's Presidential or search and rescue that, you know, it puts some pressure.
I mean, I would imagine that by the, by the end of your window here, that Sikorsky with CH-53K can still be bigger than it is now from a revenue perspective.
I agree. You know, when you look at where we are in CH-53K, between now and 2027, the revenues will double. That'll be the big driver of the programs. Sure, you know, as you mentioned, BLACK HAWK cycles down, Combat Rescue Helicopters cycles down, Presidential cycles down, all those programs cycle down. We, you know, the CH-53K will really offset that. We could see, we will see and expect to see some slight growth, but certainly some growth. I think the upside from there would be if we're successful with FLRAA, then that can grow further.
Right. What's the opportunity? Because obviously, CH-53K is still a relatively young program. What's the opportunity for margin expansion there? Because I imagine, you know, replacing BLACK HAWK with CH-53K is somewhat dilutive, but there's probably also opportunities to expand the CH-53K margin.
Yeah. I mean, you know, you're working down the learning curve. Some of that has to be shared with the customer, of course. I think that there's a path there to drive it to double-digit margins, you know, over the long term. Again, it's good, great program, good long-term program, and it'll be source of revenue and cash flows for quite some time for us.
You know, the remainder of MFC. Sorry, the remainder of Rotary Mission Systems, I feel like is very diversified, and so there's not often a lot of focus on it. Do you think about that as being a, you know, a business that should be sort of in line with maybe overall budget growth or, you know, overall company growth rate because it's so diversified, or are there one or two drivers there that we should really take note of?
Yeah. I think it'll grow with. I think either. I mean, if you look at that, the balance of that portfolio, we have a very strong radar business. That's where also we have our Aegis Navy platform business. You know, air and missile defense for the Navy, for vessels, their Aegis platform is on just about every vessel that we have out there. That'll continue to be a source. We also have. That is where a lot of our Joint All Domain Command and Control type systems are in development, where we're doing defense of Guam.
We're the lead integrator for defense of Guam, which we mentioned on the fourth quarter call, the $500 million award there. They're also competing for the Australian program, which we call AIR 6500, which is a joint all domain type of program. They're well-positioned there to continue to grow. As I mentioned, the radar business is very good. Jim, in his prepared remarks on the fourth quarter call, talked about the TPY program win there, TPY-4 program win in Norway. They've developed a really nice modular approach to ground-based radar systems, both mobile and fixed, which is gonna be a source of growth for them as well. Between that and the JADC2, we've got cyber in there.
I'd say that the JADC2 type systems, the radar systems which will be the primary driver. We've got MK48, so you've got torpedoes running through there as well. A good undersea business and classified programs. To your point, it's a varied portfolio, but other elements that will drive growth for the segment as well.
Okay. I feel like I wouldn't be totally doing my job if I didn't ask about supply chain. Maybe, if you can give us the latest and greatest. It, it sounds like from across the industry, I think, you know, I think there was some hope that, obviously not everything was fixed in Q4 across the whole industry, but it seemed like maybe things had stabilized or started to show some improvement. It feels like challenges are kind of persisting into this year. That's something that you mentioned in particular with regard to Q1. Maybe if you could just give us the latest update on supply chain, what are the long poles in the tent there, and how you think about those headwinds abating.
When you look at Q4, you know, we overdrove our sales from our guide by $750. About half of that was related to supply chain performance, better than expected at the time. You know, we had poured through the information and data to determine whether or not did we turn a corner? Did we see a step change in performance? The on-time delivery didn't really improve. We also looked at earned value metrics. Did we make progress in schedule performance? We really didn't see any improvement there as well. You know, as I mentioned on the call, what we did see, though, was the ability to deliver at a higher level of requirement. At least we were encouraged by that.
Some of the upside that we saw, I think may have been just some timing. Run for the roses, end of the year, kind of, you know, unfortunately, aerospace and defense suffers from that. So we saw probably some first quarter sales that went into the fourth quarter, but it came out of the first quarter.
Right.
I think, you know, we're probably dealing with a little bit of, kind of whip replenishment here in first quarter, which is causing a little bit of slower start than, we otherwise would have expected, and we're seeing that.
Yeah.
You look at our sales linearly. If you look at linear, first of all, it's always lower.
Right.
The way we just have 12 weeks in the first quarter, 13 weeks in the second and the third, and 14 weeks in the fourth. It's always gonna be the lowest quarter of the year for sales. When you do the math, it will tell you should be around $15, $15.1. We're slightly below that because of what we've seen here. I wouldn't say that we've taken a significant step back. We just haven't seen marketed improvement either.
Right. Okay. Okay. Well, with that, I think we're just on time here. We'll wrap it up. Jay, thanks very much for being here. Really appreciate it.
Thank you, Seth. Appreciate being here and I appreciate representing the 116,000 employees of Lockheed Martin. Thank you.
Great. Thanks.