Lockheed Cuts F-35 Guidance. The Stock Fell.

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Shares of

Lockheed Martin

The aerospace company took it on the chin after management said it would not deliver as many F-35 fighter jets as it had hoped for by 2023. That means less free cash flow, but there is a silver lining for investors.

Wednesday, Lockheed (label: LMT) he said. It now expects to deliver 97 F-35s to customers by 2023, with management expecting to deliver 100 to 125 when it calls to discuss its second-quarter results. In the year Lockheed delivers just under 150 F-35s each year.

All the jets will be in the so-called Technology Refresh 2 or TR-2 configuration. Technology Renewal 3 or TR-3 is an updated version currently being tested. Deliveries of those planes will begin later than expected.

“Pentagon [in July] “It has suspended acceptance of F-35 aircraft equipped with the Technology Refresh 3 upgrade pending completion of TR-3 capability testing,” Morgan Stanley analyst Christine Lewag wrote in a research note before Lockheed proposed the upgrade. We estimate a supply shortfall of around 55 aircraft compared to Lockheed’s earlier target of 147 to 153. [roughly] $440 million in free cash flow to 2023.

Now that Lockheed expects to deliver 97 jets by 2023, Leewag’s call was highly predictive. The first jets with TR-3 upgrades are now slated to arrive between April and June 2024.

Lockheed shares fell 4.6% in Wednesday’s trading

S&P 500
And

Dow Jones Industrial Average
It fell to 0.8% and 0.6%, respectively. Stocks of other aerospace suppliers also fell because fewer shipments meant less demand for parts. Shares of

RTX

( RTX ) , which makes F-35 engines, fell about 1.6%.

“Delays are in the works for some time,” said Rob Stallard, an analyst at Vertical Research Partners. Estimated free cash flow hit to 2023 is $350 million.

Wall Street currently projects free cash flow of about $6.2 billion in 2023, so the F-35 delay is putting 6 percent at risk. The stock’s decline is roughly 5% or less relative, but investors should remember that Lockheed still makes and sells the jets it listed this year.

Sales volume and associated free cash flow should change only from 2023 to 2024 and beyond.

Write to Al Root at [email protected]