01—Abstract
Summary
Summary of the 10-K filed February 2, 2015. Cited figures are marked; the original filing is the authoritative source.
Northrop Grumman Corporation (NOC) reported its 2014 fiscal year results, characterized by a slight year-over-year decrease in total sales to $23.98 billiona, down from $24.66 billion in 2013.
This decline was primarily driven by lower sales in the Information Systems segment, though partially offset by stability in Aerospace Systems and growth in Electronic Systems international programs. The company's operating income saw a modest increase to $3.20 billionb from $3.12 billion in the prior year, leading to an improved operating margin of 13.3%. Diluted earnings per share (EPS) also increased to $9.75 from $8.35 in 2013, benefiting from share repurchases and a lower effective tax rate due to a partial resolution of an IRS examination.
The company's strategic focus remains on high-priority defense and government programs, with the U.S. Government constituting approximately 85% of its total sales. While sales have declined, the company's backlog remained strong at $38.2 billionc at the end of 2014, with a significant portion expected to convert to sales in 2015. Financially, Northrop Grumman demonstrated solid cash flow generation, with net cash provided by operating activities of $2.59 billion and free cash flow of $2.03 billion.
The company also actively returned capital to shareholders through dividends and a robust share repurchase program. Management highlighted continued investment in key areas and expressed optimism regarding future international growth opportunities, aiming to offset potential domestic budget pressures.
02—Key points
Key Highlights
- Total sales decreased slightly by 3% to $23.98 billion in 2014, primarily due to a decline in the Information Systems segment.
- Operating income increased by 2.3% to $3.20 billion, resulting in an improved operating margin of 13.3%.
- Diluted Earnings Per Share (EPS) rose by 17% to $9.75, supported by share repurchases and a lower effective tax rate.
- Backlog remained substantial at $38.2 billion as of December 31, 2014, indicating strong future revenue potential.
- Net cash provided by operating activities was $2.59 billion, and free cash flow was $2.03 billion, demonstrating healthy cash generation.
- The company continued its capital return strategy, increasing quarterly dividends and actively repurchasing shares under its authorized programs.
- U.S. Government sales accounted for approximately 85% of total sales, highlighting the company's reliance on government contracts.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2014, Northrop Grumman Corp kept $0.09.
- Revenue$23.98B100.0%
- Cost of revenue−$10.43B43.5%
- Gross profit$13.55B56.5%
- Operating costs−$10.35B43.2%
- Operating income$3.20B13.3%
- Interest, other & tax−$1.13B4.7%
- Net income$2.07B8.6%
Where FY2014 revenue went
$23.98B- Cost of revenue: $10.43B, 44% of revenue
- Other operating costs: $9.78B, 41% of revenue
- Net income: $2.07B, 8.6% of revenue
- R&D: $569.0M, 2.4% of revenue
- Interest, other & tax: $1.13B, 4.7% of revenue
Kept 8.6% as net incomeNet income $2.07B · 8.6%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2014filed February 2, 2015Financial Statements
FY2014 against FY2013
| Line item | FY2014FY2013 | Change |
|---|---|---|
| Revenue | $23.98B$24.66B | −2.8% |
| Cost of Revenue | $10.43B$10.62B | −1.8% |
| Gross Profit | $13.55B$14.04B | −3.5% |
| R&D Expenses | $569.00M$507.00M | +12.2% |
| Operating Income | $3.20B$3.12B | +2.3% |
| Net Income | $2.07B$1.95B | +6.0% |
| EPS (Basic) | $9.91$8.50 | +16.6% |
| EPS (Diluted) | $9.75$8.35 | +16.8% |
| Shares Outstanding (Basic) | 208.80M229.60M | −9.1% |
| Shares Outstanding (Diluted) | 212.10M233.90M | −9.3% |
05—Questions
Frequently Asked Questions
What were the key drivers of Northrop Grumman's sales performance in 2014?
Northrop Grumman's total sales decreased by 3% to $23.98 billion in 2014. The primary driver for this decrease was a 6% decline in the Information Systems segment, attributed to reduced funding levels, sequestration impacts, and program wind-downs. This was partially offset by relatively stable sales in Aerospace Systems and an increase in international sales within the Electronic Systems segment.
How did the company's profitability change in 2014 compared to 2013?
Profitability improved in 2014. Operating income increased by 2.3% to $3.20 billion, leading to an expansion of the operating margin rate from 12.7% to 13.3%. Diluted Earnings Per Share (EPS) saw a significant increase of 17%, reaching $9.75. This improvement was driven by better cost management, favorable net FAS/CAS pension adjustments, and a lower effective tax rate, partly due to a resolution with the IRS.
What is the significance of the company's backlog?
The company's total backlog stood at $38.2 billion at the end of 2014. This substantial backlog indicates a strong pipeline of future contracted work, providing a degree of revenue visibility. Approximately $19.3 billion of this backlog was expected to be converted into sales during 2015, underscoring its importance for near-term financial performance.
How is Northrop Grumman managing its financial resources and returning capital to shareholders?
Northrop Grumman generated robust cash flows, with net cash provided by operating activities at $2.59 billion and free cash flow at $2.03 billion in 2014. The company continued to prioritize shareholder returns through dividend payments, increasing its quarterly dividend, and by actively repurchasing its common stock under its authorized programs, demonstrating a commitment to enhancing shareholder value.
06—Continue