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Just For You Defense Sector Q2 Recap: Lockheed, RTX, Northrop GrummanWritten by Thomas Hughes 
Key Points - Defense stocks are well-positioned for growth and sustained capital returns, but their Q2 results stand out.
- Macro-economic and company-specific issues cut into earnings and guidance for Lockheed Martin and RTX.
- Outperformance and improved guidance provided lift to Northrop Grumman's stock price in July.
The defense industry is generally well-positioned for expected spending and budget increases, which will compound what was already a steady and strong global business. The caveat is that macroeconomic and company-specific factors set them apart in Q2, leaving their stocks on track for different results in Q3 and the back half of 2025. This examination delves into the good, the middling, and the less-than-ideal Q2 results and what they may mean for shareholders moving forward. Ultimately, it will come down to the earnings, cash flow, and capital return outlook and whether these companies can sustain their payment and share buyback trajectories. Lockheed Sinks as Legacy Issues Cut Deeply in Earnings Outlook Lockheed Martin Corporation (NYSE: LMT) is the ugly duckling among defense stocks this quarter. The company’s Q2 results included a surprise write-off tied to legacy programs in the Aerospace and Helicopter units. The write-downs impacted GAAP earnings by more than $5 per share, leaving them well below analysts' forecasts, and are expected to impact the full year significantly. The company also reduced its guidance for fiscal year GAAP earnings, and additional write-offs may be coming. The upshot is that revenue and free cash flow guidance were reaffirmed. The write-offs are non-cash, leaving the cash flow outlook and capital return unimpaired. The capital return includes a dividend yielding more than 3% following the late-July price plunge and share buybacks that reduce the count significantly each year. The highlight at the end of Q2 is that the share count is down by 2.2% year over year and 2.4% year to date and is expected to continue falling. Regarding the stock price, investors should expect LMT to remain under pressure in 2025, potentially rebounding later in the year or in early 2026. 
RTX Beats But Reduces Guidance as Costs Rise RTX (NYSE: RTX) had a strong Q2 with revenue growing by 9%, outpacing Lockheed by nearly 900 basis points, and outperforming the consensus estimate by a comparable amount. The revenue strength is compounded by solid margins and a 900 bps outperformance in adjusted EPS, but there is a catch. The revenue outlook improved due to the growing backlog, but the earnings estimate was reduced. While revenue is now expected to be above the consensus estimate, earnings are forecasted to be below the consensus reported by MarketBeat. The guidance reduction is a headwind for the market this quarter, but sets up an opportunity and potential catalyst for later in the year. Until then, RTX’s capital return is safe and expected to grow. Although the earnings forecast falls short of the consensus, it is a forecast for growth sufficient to sustain the mid-to-high single-digit dividend distribution CAGR it has achieved over the last three to five years. RTX share prices pulled back following the release and may enter a prolonged consolidation or price correction due to the reduction in the earnings outlook. 
Northrop Grumman Corporation Wins in Q2 Northrop Grumman Corporation (NYSE: NOC) is the shining star among defense stocks in Q3. Its Q2 results include top and bottom-line outperformance, a nearly 10% increase in the backlog, and improved guidance, with the revenue midpoint well above MarketBeat’s reported consensus, and margins widened. Regarding the dividend and share repurchases, the yield was 1.75% in late July, and the distribution is growing. The payment is reliable, accounting for only 30% of the earnings forecast, and share buybacks are substantial. Buybacks reduced the count by 3% YOY and YTD in Q2. NOC share prices jumped more than 3% on the news, rising to a multi-week high that puts it on track to hit new highs soon. The move aligns with a bullish market; a move to new highs would be significant because it would be a new all-time high, breaking this market out of a significant, long-term triangle pattern. It could rise to $675 within one to two years in that scenario. 
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