Jesus Malave
Chief Financial Officer at Lockheed Martin
Thanks, Jim, and good morning, everyone. Today, I will walk you through our consolidated results, business area detail, provide an update to our 2022 outlook as well as offer some thoughts on 2023 and beyond. As I highlight our results, please follow along with the web charts we have posted with our earnings release today.
Let's begin with Chart 3 and an overview of our consolidated third quarter financials. Lockheed Martin delivered solid results for the quarter. To start, we generated sequential sales growth of 7% to $16.6 billion as anticipated. Segment operating profit was $1.9 billion at an 11.2% margin with earnings per share of $6.71, reflecting solid underlying performance that absorbed $0.16 of mark-to-market headwinds.
We also increased backlog with a 1.3 book-to-bill ratio, driven by the F-35 production Lot 15 contract action. Free cash flow was strong in the quarter at $2.7 billion, further enabling the execution of our disciplined and dynamic cash deployment strategy and returning over $2 billion through share repurchases and dividends.
Turning to consolidated sales and segment operating profit results on Chart 4. Total sales increased 3% from the third quarter of 2021 with growth in three of our four business areas. Segment operating profit was up slightly as the benefits from higher volume and equity earnings more than offset lower step-ups than last year.
Moving to earnings per share on Chart 5. On a reported basis, earnings per share were higher by $4.50. Adjusting for last year's pension transfer transaction and mark-to-market accounting, EPS grew 4%, primarily reflecting the benefits of higher operating profit and lower share count. All in all, solid results that position us well to meet our full year commitments.
Moving to cash flow on Chart 6. We delivered our strongest quarter of cash flow year-to-date with strong collections driving $2.7 billion in free cash flow this quarter, while maintaining accelerated payments of $1.1 billion to suppliers. Shareholder cash deployment continues to exceed free cash flow year-to-date with 121% of free cash flow deployed through dividends and share repurchases. We have substantially completed our $4 billion -- our original $4 billion 2022 buyback target. As we announced this quarter, we also increased our dividend 7%, now paying an annualized dividend of $12 per share.
Moving to segment results and starting with Aeronautics on Chart 7. Third quarter sales increased 8% year-over-year, driven by higher F-35 production volume, including the recognition of $325 million of sales that were deferred from the second quarter associated with the Lot 15 contract action. Increased volume in our classified programs at Skunk Works also contributed to the growth. Operating profit increased 6%, primarily following the sales volume increases on F-35, partially offset by lower margins on classified programs.
Moving to Missiles and Fire Control on Page 8. Sales increased 2%, driven primarily by increased volume on PAC-3 interceptors. Segment operating profit was down 8% as lower favorable profit adjustments this quarter more than offset the benefit from higher volume.
At Rotary and Mission Systems on Page 9, sales decreased year-over-year by 5%, driven primarily by lower Black Hawk production volume at Sikorsky. Operating profit decreased 10% following Sikorsky production volume and lower favorable profit adjustments this quarter on the Black Hawk program.
Turning to Chart 10 in our Space business area. Sales were up 7%, driven primarily by the continued ramp of the next-generation interceptor program. Operating profit increased 14% following the volume increase, along with higher equity earnings from the United Launch Alliance.
Okay. Moving to our updated outlook for 2022 on Page 11. We are maintaining our guidance from last quarter for sales, earnings per share and free cash flow. With the announcement this morning of the $14 billion repurchase authorization approved by our Board of Directors, we've increased our forecast for share buybacks to approximately $8 billion for the year, an increase of $4 billion from our prior expectation, reflecting our confidence in the long-term growth outlook and amplifying per share value creation.
We expect the EPS benefit from our incremental planned buybacks this year to be offset by the third quarter mark-to-market headwinds and therefore are holding our current EPS guide of $21.55 for the year. Also, while our consolidated outlook did not change, we did have some puts and takes between the business areas, and you could find that detail in our backlog charts.
On Chart 12, we've laid out our preliminary framework of expectations for 2023. As we've discussed before, we remain confident and sustained growth, driven by four pillars: those are programs of record, classified programs, hypersonics and new awards. This is supported by the higher backlog through the third quarter and further growth expected by year-end. We do anticipate flattish sales in 2023, however, primarily due to delayed sales conversion in our programs of record backlog as the expected recovery from COVID and supply chain shortages will be more gradual than previously expected.
In our classified businesses, we expect another year of growth in 2023. This growth, along with our contract mix headwinds, will be accompanied by pressure of approximately 20 to 30 basis points in overall company segment operating margin, all compared to our 2022 outlook. We are confident that through cost reduction and business area synergy actions, we can work to limit this downward pressure. Importantly, through management focus and aggressive working capital actions, our expectations for 2023 free cash flow remain unchanged in spite of the top line and margin pressure.
Looking forward, we are confident in the company's prospects for growth and value creation. With our aggressive share buyback plan, we anticipate repurchasing approximately 10% of our shares outstanding over the next several years. And coupled with the sustained free cash flow, we expect to deliver outstanding long-term value to shareholders.
Okay. So let's wrap up on Chart 13. Our business area operational and financial performance in the third quarter was solid and we are increasing our outlook for cash return to shareholders. We continue to invest in innovative solutions, including commercial technologies, in support of our customers' important missions and 21st Century Security. Our focus remains on strong cash generation and combined with our robust balance sheet and discipline and dynamic capital deployment strategy allow us to deliver long-term value to shareholders.
Before we open up to Q&A, I would also like to thank Greg Gardner for his 37 years of dedicated service and contributions to the company. He has been an outstanding partner and resource to all that he has supported. We wish him well in the next phase of his life. Greg will remain with us through the end of the year to transition Maria Ricciardone Lee. Maria brings Investor Relations experience from multiple companies, including UTX where we both worked together. She is an excellent financial executive and thought partner, and I'm excited that she is joining the team.
With that, John, let's open up the call for Q&A.