WRAPUP 1-Lockheed lands Pentagon deal for 850 F-35 jets, lifts annual forecast

Recasts to focus on jet deal, adds shares, paragraphs 1-6

By Mike Stone and Aatreyee Dasgupta

Oct 22 (Reuters) - Lockheed Martin LMT.N reached an agreement on Thursday to sell the Pentagon at least 850 of its stealthy F-35 Lightning II fighter jets over the next 10 years, a deal potentially worth at least $78 billion.

Lockheed shares surged as much as 10%, on track for their biggest percentage gain in three months. The US defense contractor raised its annual sales and profit forecasts to beat Wall Street estimates, as geopolitical conflicts drove demand for its systems.

The fighter jet, which the company considers the world's most advanced, uses stealth technology to evade enemy detection. It is at the core of Lockheed's aeronautics division which generates nearly 40% of the company's quarterly revenue.

Under the agreement, Lockheed will aim to maintain annual production at 156 aircraft for US and international customers, and the company will self-fund at least $7 billion in initiatives that support the F-35 program.

The agreement does not constitute a sales order, but Lockheed counts it as a prearranged long-term contract.

$78-BILLION DEAL

The least expensive version of the jet costs $92 million, so the 10-year framework agreement is expected to be worth at least $78.2 billion. The Marines' F-35B short takeoff and landing version of the jet costs $121 million and the Navy's F-35C costs $110 million. The contract's mix of jets is unknown, and prices are expected to rise with inflation and labor costs.

Lockheed, a supplier of missile-defense systems such as Patriot Advanced Capability-3 (PAC-3) and Terminal High Altitude Area Defense (THAAD) interceptors, joined RTX RTX.N and Northrop Grumman NOC.N in raising forecasts this week on strong demand for munitions, air-defense systems and military aircraft.

Lockheed expects 2026 sales of about $80 billion to $82 billion, up from its prior forecast of $79.75 billion to $81.75 billion.

The company also lifted its annual earnings-per-share forecast to range between $30.35 and $30.75 from its previous view of $29.95 to $30.65.

The company's backlog rose 27% sequentially to a record $292 billion, boosted by a $52.5 billion multiyear award for PAC-3 Missile Segment Enhancement interceptors, stockpiles of which were heavily used by US and allied forces in the Iran war.

Lockheed raised its 2026 free cash flow forecast to about $7.8 billion to $8 billion, from $7 billion to $7.2 billion earlier.

Sales for the quarter ended on September 27 rose 11% to $20.71 billion, driven by 24% growth in its missiles unit on higher PAC-3 and THAAD production and a 13% increase in aeronautics revenue from F-35 and C-130 programs.

Analysts estimated $20.51 billion, according to data compiled by LSEG.

Chief Financial Officer Evan Scott told Reuters a fourth-quarter increase in capital spending would be driven primarily by investments to expand munitions production capacity.

Third-quarter profit of $7.97 per share came in above analysts' estimate of $7.43 per share.

(Reporting by Aatreyee Dasgupta and Mike Stone; Editing by Leroy Leo and Rod Nickel)

((Aatreyee.Dasgupta@thomsonreuters.com))