James Taiclet
Chairman, President and Chief Executive Officer at Lockheed Martin
Thanks, Maria, and good morning, everyone. Thank you all for joining us on our third quarter 2023 earnings call.
All of us on the line today are well aware that since our last call, the world is now seeing yet another terrible conflict. Everyone in our company remains dedicated to fully supporting the United States government's policy and efforts to deter aggression, restore security and achieve peace.
Today, I will first highlight our third quarter results as we pursue our vision of 21st Century Security, designed to support the U.S. Department of Defense Strategy of Integrated deterrents and then I'll turn it over to Jay to provide additional detail before taking your questions.
Starting on Page 3 of the slides. Sales increased 2% year-over-year to $16.9 billion and backlog remains at historically high levels at $156 million. EPS of $6.73 exceeded prior year and free cash flow was a strong $2.5 billion. We returned approximately 100% of free cash flow to shareholders through dividends and share repurchases during the quarter.
Earlier in October, we announced a $0.15 increase in our dividend which reflects 5% growth and is the 21st consecutive year of dividend increases for Lockheed Martin. At the same time, our Board also approved a $6 billion increase in our share repurchase authorization, bringing our total authorization to $13 billion, reconfirming our continued commitment to returning capital to shareholders.
We are also reaffirming our full year 2023 financial outlook for sales, profit, EPS and free cash flow. Given the current status of the 2024 U.S. defense budget, global geopolitical tensions and the macroeconomic environment, we will provide our expectations for our 2024 financial outlook during our full year 2023 earnings call in January.
On the U.S. budget, though the specific trajectory of the future U.S. defense budget is still in process between the administration and Congress, the global threat landscape is increasingly elevated. Our robust backlog reflects the relevance and importance of the Lockheed Martin portfolio and elevating deterrence to great power conflict involving the United States and its allies and the solid positioning of our business to serve our domestic and international customers.
From a process standpoint and government, the current continuing resolution or CR is in place through November 17. At that point, one of the following could occur. FY '24 appropriations bills will be enacted, Congress will enact another partial or whole CR or there could be a partial or full government shutdown. In any of these scenarios, there continues to be the option also for supplemental requests related to support Ukraine, Israel and potentially Taiwan.
As Congress continues to work through the FY '24 appropriations bills, we are optimistic that there will be consistent support for the National Defense strategy and funding for its priorities. In the meantime, we will continue to work with our customers and suppliers to minimize any potential disruptions due to the process. And we will press on with executing our 21st Century security strategy of building capacity, efficiency and resilience into our production operations, driving advanced digital technologies to enhance integrated deterrents and expanding our international business and operations.
Turning to the F-35 program. We delivered 30 F-35 aircraft in the third quarter, bringing the year-to-date total to 80 jets. Consistent with our announcement in September, we continue to expect to deliver a total of 97 aircraft this year, all in the Technology Refresh 2 or TR2 configuration.
We are producing F-35s at a rate of 156 per year, and expect to continue at that pace while simultaneously working to finalize TR3 software development testing. And we recently began flight test evaluations of the next software release that encompasses major systems upgrades such as improved RADAR, next-gen distributed aperture system and weapons capability.
As previously announced, we continue to expect to deliver the first TR3 configured aircraft between April and June of 2024. The superior technological capabilities of the F-35 continue to generate strong interest both domestically and internationally. In September, Denmark's first four locally based F-35 aircraft arrived on their home soil. Denmark's program of record calls for 27 F-35A aircraft. Also in September, the Czech Republic chose to become part of the global F-35 Lightning II program, and the U.S. State Department approved a possible $5 billion foreign military sale to South Korea for up to 25 F-35 Joint Strike Fighters.
Earlier in the quarter, Israel announced that we'll buy an additional 25 F-35, which will add a third squadron and increased its F-35 fleet to 75 aircraft. Additionally, in August, Lockheed Martin was selected by the Australian Department of Defense, as their strategic partner for their Air 6500 program Phase 1. This transformational Pathfinder program will deliver the broadest scope of Joint All Domain Operations, JADO in the free world, and will completely revolutionize the way the Australian defense force operates.
By connecting Australian systems and platforms that operate across air, space, land, sea and cyber domains, we expect that Air 6500 will set the blueprint for future military operations worldwide. This proven technology will provide greater situational awareness and defense against increasingly advanced air and missile threats and enables significantly greater interoperability between Australia and allied nations.
Lockheed Martin will lead this first phase which will provide the core architecture and multi-domain integration for the program. This is just one recent win that demonstrates the business success of our 21st Century security cornerstone, trusted and reliable battle management and command and control systems that integrate across multiple domains, military services and allied forces.
Late last year, Lockheed Martin also won the $500 million Defense of Guam award. And in late September, we were also awarded a potential seven-year, over $1 billion contract for systems engineering and software integration to the integrated combat system across the surface force portfolio of the U.S. Navy and Coast Guard. This will link together systems and software across the services and a JADO construct and it not only enables faster decision-making and better capabilities but also serves as a much more effective global deterrent strategy.
Beyond these awards, we continue to develop 21st Century security technologies to advance interoperability between Lockheed Martin product lines. The 5G.MIL hybrid base station that our engineers invented is the 1 LM initiative that includes teams at MFC and Aeronautics. We recently transferred data from a sniper targeting pod that was set up in Orlando, Florida to the Tactical Missile Simulation Lab in Grand Prairie, Texas to provide real-time updates to a simulated missile in-flight.
This event significantly advanced efforts towards upcoming live fire demonstrations across the main platforms operating in a joint environment that will use data from multiple sources across an open architecture. Also, Skunk Works partnered with the University of Iowa's Operator Performance Laboratory to demonstrate an AI commanded jamming capability.
In this, we successfully used artificial intelligence on two air systems to provide jamming support to a simulated strike against enemy air defenses. This demonstration showed how AI agents with high performance and reliable behavior can operate in close coordination with and be controlled by human crude aircraft.
We also conducted a successful test of the prototype radio for the PAC-3 MSC missile that will enable communications with the SPY-1 radar, the key sensor in the Aegis Weapon System. This test performed by a 1 LM team across MFC and RMS paves the way for the design of a multifrequency radio data link for PAC-3 MSC. In turn, that will enable the U.S. Navy for the first time to have the ability to integrate the state-of-the-art PAC-3 missile onto its warships and open up another opportunity for Lockheed Martin in the future.
International interest in PAC-3 also remains strong. As demonstrated by our deepening partnership with Poland, which signed a letter of offer and acceptance for 644 PAC-3 MSCs and related equipment in the quarter.
In our RMS business, Sikorsky CH-53K helicopter is expected to grow meaningfully also over the coming years. In August, we won a $2.7 billion contract to build and deliver 35 additional CH-53K helicopters and it's the largest procurement to date for this multi-mission aircraft.
Another longstanding major Lockheed Martin program, this one is space is also poised for significant growth ramp. In late September, the Fleet Ballistic Missile program won a $1.2 billion contract for the Navy's Trident II D5 life extension. For nearly seven decades, Lockheed Martin has supported the U.S. Navy as a critical partner for its mission to provide sea-based strategic deterrents.
The TRIDENT II D5 LE missile will be in service through the 2040s, maintaining the proven performance of the D5 system for significantly less cost to the government than of designing a new missile.
Also in our Space business, Lockheed Martin's Next Generation Interceptor or NGI program, executed its digital preliminary design review in partnership with the Missile Defense Agency customer. That happened on September 29. During this review, the MDA assessed the NGI program's readiness and maturity to continue into the detailed design phase, confirming that our solution continues to meet the requirements for this crucial and demanding mission.
Finally, the OSIRIS-REx Sample Return Capsule touched down in the Utah Desert on September 24, returning NASA's first ever sample from an asteroid. After a seven-year mission traveling approximately, I believe is 4 billion miles in space.
The capsule holds material from Bennu, a carbon-rich asteroid and scientists hope it will teach us more about the origins of organics that led to life on earth, plus the mechanics behind overall planet formation After release of the capsule, the spacecraft was set on a new course to investigate the asteroid Apophis under the mission name OSIRIS-REx. So with that interesting and exciting news, I'll turn it over the call to Jay and join you later for questions. Jay?
