How LMT (Lockheed Martin) Makes Money in 2025: A Deep-Dive With Income Statement

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Understanding how a defense and aerospace leader like LMT (formerly Lockheed Martin) makes money is essential for investors and anyone interested in the business of advanced defense systems and government contracting. In this post, we break down LMT's quarterly income statement (Q3 2025) using a Sankey chart to visualize the financial flows — what comes in, where it goes, and what's left as profit.

Quick LMT Overview

LMT operates as a global leader in defense, aerospace, and security, designing and manufacturing advanced technology systems for governments and commercial customers. Revenue comes primarily from long-term contracts with the U.S. Department of Defense and allied governments, spanning aircraft, missile systems, space technologies, and integrated mission systems. The business is structured into four main segments: Aeronautics, Rotary & Mission Systems, Missiles & Fire Control, and Space.

Revenue Breakdown

• Total Revenue (Q3 2025): $18.6B (+8.8% YoY)
  • Aeronautics Revenue: $7.26B (39.0% of total, +11.9% YoY)
  • Rotary & Mission Systems Revenue: $4.37B (23.5% of total, +0.1% YoY)
  • Missiles & Fire Control Revenue: $3.62B (19.5% of total, +14.1% YoY)
  • Space Revenue: $3.36B (18.0% of total, +9.1% YoY)
  • Growth is powered by robust demand for next-generation fighter jets (F-35), missile defense systems, and classified space programs.

Gross Profit and Margins

• Gross Profit: $2.24B (12.0% gross margin)
  • Cost of Revenue: $16.4B (+9.2% YoY)
  • LMT maintains moderate margins due to the capital-intensive nature of defense manufacturing, but benefits from scale, high barriers to entry, and long-term government contracts.
• Most costs come from materials, labor, subcontracting, and program-specific development expenses.

Operating Income and Expenses

• Operating Income: $2.28B (+6.5% YoY, 12.3% margin)
• Operating Expenses: $40M (+73.9% YoY)
  • R&D: Not separately disclosed for Q3 2025, but historically focused on hypersonics, missile defense, and advanced avionics.
  • SG&A: Not separately disclosed for Q3 2025.
  • LMT continues to prioritize innovation in next-generation defense technologies while maintaining operational discipline and efficiency.

Net Income

• Pre-Tax Income: $1.94B (+1.0% YoY, 10.4% margin)
• Income Tax: $319M (16.5% effective tax rate)
• Net Income: $1.62B (-0.2% YoY, 8.7% net margin)
• LMT converts a moderate portion of sales into profit due to its scale, government-backed contracts, and operational efficiency, despite heavy investment in R&D and program execution.

What Drives LMT's Money Machine?

• Aeronautics: 39% of revenue, driven by the F-35 fighter jet program and military aircraft upgrades.
• Missiles & Fire Control: Fastest-growing segment (+14.1% YoY), reflecting global demand for missile defense and precision strike systems.
• Investment in Advanced Technologies: Ongoing R&D in hypersonics, space systems, and integrated defense platforms.
• Future Growth Areas: Classified space programs, hypersonic weapons, and next-gen missile defense, though some are not yet profitable.

Visualizing LMT's Financial Flows

The Sankey chart below visualizes how each dollar flows from gross revenue, through costs and expenses, down to net income. This helps investors spot where value is created, what areas weigh on profits, and how efficiently the company operates.

• Most revenue flows into gross profit, with cost of revenue (materials, labor, subcontracting) taking the largest chunk.
• Even after significant program costs and investments, 8.7% of revenue drops to the bottom line.

Key Takeaways

• LMT's money comes overwhelmingly from U.S. and allied government contracts for advanced defense and aerospace systems.
• High gross and net margins illustrate the power of LMT's long-term contract model and scale.
• Heavy investment in R&D and advanced manufacturing, balanced by efficiency in program execution.
• Ongoing growth is driven by demand for next-gen military aircraft, missile defense, and classified space programs.

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FAQ About LMT's Income Statement

1. What is the main source of LMT's revenue in 2025?

LMT generates over 39% of its revenue from Aeronautics, primarily the F-35 fighter jet program. Other significant sources include Missiles & Fire Control 19.5%, Rotary & Mission Systems 23.5%, and Space 18%.

2. How profitable is LMT in Q3 2025?

LMT reported net income of $1.62B in Q3 2025, with a net margin of approximately 8.7%, reflecting moderate profitability driven by scale, government contracts, and operational efficiency.

3. What are the largest expense categories for LMT?

The biggest expenses on LMT's income statement are cost of revenue (materials, labor, subcontracting, and program costs). Operating expenses are relatively low at $40M in Q3 2025, with R&D and SG&A not separately disclosed but historically significant as LMT prioritizes advanced technology development.

4. Why does [segment/division] operate at a loss?

[For example, Space], despite generating $3.36B in revenue, may post an operating loss in some quarters due to heavy investment in classified programs and advanced technologies, as LMT believes these will drive long-term growth—even if the division is unprofitable today.

5. How does LMT's effective tax rate compare to previous years?

LMT's effective tax rate in Q3 2025 was 16.5%, consistent with recent years. This moderate rate is primarily due to tax benefits from share-based compensation and international structuring.