Defense Sector Q1 Earnings Land This Week With Record Backlogs

Defense earnings season starts Tuesday with Lockheed Martin and runs through Friday with General Dynamics, and the sector is heading into the print with the highest order backlog in modern history. Combined backlog across the four primes hit $560 billion at the end of Q4 2025, up from $487 billion a year earlier. The Iran tensions of the last two months and the formal Pacific posture review released by the Pentagon on April 15 have already pushed estimates for the next quarter higher, and the question this week is whether Q1 results were strong enough to support the run that has lifted the iShares U.S. Aerospace and Defense ETF, ITA, by 22 percent year to date.

Lockheed Martin reports Tuesday before the bell. Consensus is for $7.12 in earnings per share on revenue of $17.9 billion, up from $6.39 and $17.2 billion in the year ago quarter. The watch items are F-35 deliveries, which slowed in the second half of 2024 due to the Tech Refresh 3 software issue and have been recovering, and the Aegis ballistic missile defense order book. Lockheed has been guiding 16 to 18 percent free cash flow growth for the full year, and any surprise on cash flow will be the print that moves the stock.

RTX, formerly Raytheon, reports Wednesday morning. Consensus is for $1.42 in EPS on revenue of $20.4 billion. The story for RTX is the resolution of the Pratt and Whitney engine recall that hit margins in 2023 and 2024. Management said in February that the recall is now 73 percent complete and should be fully behind the company by Q3 2026. The missile and air defense segment, which sells the Patriot system that Israel and Saudi Arabia have been ordering, is expected to grow 14 percent year over year. RTX guidance for full year 2026 is what fund managers will be watching most closely.

Northrop Grumman reports Wednesday after the bell. Consensus is $6.28 in EPS on revenue of $10.6 billion. Northrop's B-21 Raider program is the unique asset in the sector. The Air Force has now confirmed the production run is being expanded from the original 100 aircraft to a planned 145, and Northrop has said the unit cost is coming down with each lot. The Sentinel ICBM program is the other piece. The program took a Nunn-McCurdy breach in early 2024 due to cost overruns, but the restructured program approved in late 2024 is now on track per the company's most recent communications.

General Dynamics reports Friday morning, and the print is more split than the others. The company runs four very different businesses. Aerospace, which makes Gulfstream business jets, has been weak as corporate jet demand cooled in 2025. The Combat Systems segment, which makes the Abrams tank and Stryker vehicle, has surged on European and U.S. Army orders. The Marine Systems segment is dominated by Columbia class submarine work and Virginia class capacity expansion. Mission Systems is the smallest and steadiest. Consensus is $3.51 in EPS on $11.8 billion in revenue.

The Iran factor is real but more nuanced than headlines suggest. None of the four primes has signaled that the current tensions will produce a Q1 revenue impact, because defense contracts run on multi-year procurement cycles. What investors should watch is the language management uses about pipeline and bookings. Increased pipeline in air defense, missile interceptors, and standoff strike weapons would suggest that Iran tensions are translating into supplemental procurement requests from the Pentagon and from allies. Watch the Q&A on the calls for any reference to FMS, foreign military sales, which is where the international demand shows up.

The Pacific posture is the longer term story. The Pentagon's April 15 review formalized a shift in resourcing toward Indo-Pacific Command, and the implication for the primes is significant. Long range strike, autonomous systems, and submarine production capacity are the three areas with the most pipeline build through 2030. Lockheed's missile and fire control segment, RTX's missile defense, Northrop's B-21 and autonomous platforms, and General Dynamics' Marine Systems are all positioned for that demand.

Valuation across the group is full but not extreme. ITA trades at roughly 21 times forward earnings, which is a five percent premium to the S&P 500. Lockheed trades at 18 times, RTX at 22, Northrop at 20, and General Dynamics at 17. Free cash flow yields range from 5.4 percent for Northrop to 7.1 percent for General Dynamics. Investors looking at the sector for the first time tend to underestimate how cash generative these companies are at scale, and that is the part of the thesis that has been working over the last 18 months.

If Q1 prints come in line and the guides hold, the sector likely consolidates rather than breaks out from here. The bigger move would come on the August quarter, which will reflect any post April Pentagon orders. The earnings calls this week are the first read on whether that order flow is real.