Lockheed Martin Pricing Spineometer: 1 of 5 Vertebrae

Lockheed Martin, a U.S. defense and aerospace company, had a slightly positive Q1 2023. Revenue increased 1.1% to $15 billion while earnings before interest and taxes increased 5.4% to $2.0 billion over the same period last year.

Their 18 April earnings call did not indicate that pricing played an important role in their recent performance.  A close review of the call indicated that pricing decisions at Lockheed Martin are largely driven by costs and strategic decisions regarding technologies and platforms in which to invest based on the expected future demand with the United States and its allies.

Research into the quality of Lockheed Martin’s pricing team yielded a result within expectations.  Pricing and estimation professionals were identified with titles of analyst and manager. It appears pricing is largely related to proposals for specific projects and largely relies upon cost-plus.

Given the importance and capability of pricing at Lockheed Martin as indicated in financial reports, management comments, and our pricing team research, and given their performance, we have come to the following conclusion as of May ‘23.

Lockheed Martin Pricing Spineometer:  1 out of 5 Vertebrae.

As a defense and aerospace company, Lockheed Martin’s major customer is the U.S. government, and the U.S. government is explicitly a cost-plus buyer. Pricing is largely a function of project planning, cost estimating, and mark-up allowances.  Strategic value-based pricing has a minor role at Lockheed Martin.  As such, Lockheed Martin may be best served by not developing a strategic value-based pricing capability, and this may be the best score they should seek.

LMT (Lockheed Martin Corp.) was relatively flat at 490 on the day prior to their earnings call and 495 the day after. FY 2022 revenue of $66 B with a 13% operating margin and P/E ratio near 22. 

Currently, a 1% improvement in price would yield an 8% improvement in EBIT holding all else constant for Lockheed Martin.

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