01—Abstract
Summary
Summary of the 10-K filed January 30, 2017. Cited figures are marked; the original filing is the authoritative source.
Northrop Grumman Corporation's (NOC) 2016 10-K filing highlights a strong year characterized by a significant increase in sales and operating income, primarily driven by growth in the Aerospace Systems and Mission Systems segments.
The company reported robust backlog growth, reaching $45.3 billiona, indicating strong future revenue potential. A key focus for investors will be the company's substantial reliance on the U.S. Government, which accounted for 84% of sales, underscoring the importance of government spending and contract awards.
NOC also demonstrated a commitment to shareholder returns, increasing dividends per share and actively repurchasing shares. While the company navigates a dynamic global security environment and the complexities of U.S. government contracting, its diversified portfolio across autonomous systems, cyber, C4ISR, strike, and logistics and modernization positions it well for continued performance.
02—Key points
Key Highlights
- Total backlog significantly increased to $45.3 billion at year-end 2016, up from $35.9 billion in 2015, indicating strong future revenue visibility.
- Sales grew by 4% to $24.5 billion in 2016, with the Aerospace Systems segment showing a notable 9% increase.
- Operating income rose by 4% to $3.2 billion in 2016, driven by higher sales volume and reduced unallocated corporate expenses.
- The company repurchased $1.5 billion in common stock during 2016, demonstrating a commitment to returning capital to shareholders.
- Dividends per common share increased to $3.50 in 2016 from $3.10 in 2015, reflecting confidence in ongoing financial performance.
- The U.S. Government remained the dominant customer, representing 84% of total sales, highlighting the company's deep integration with national defense.
- The company's effective tax rate decreased to 24.7% in 2016 from 28.7% in 2015, partly due to favorable tax adjustments.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2016, Northrop Grumman Corp kept $0.08.
- Revenue$24.51B100.0%
- Cost of revenue−$11.00B44.9%
- Gross profit$13.51B55.1%
- Operating costs−$10.23B41.7%
- Operating income$3.28B13.4%
- Interest, other & tax−$1.23B5.0%
- Net income$2.04B8.3%
Where FY2016 revenue went
$24.51B- Cost of revenue: $11.00B, 45% of revenue
- Other operating costs: $9.52B, 39% of revenue
- Net income: $2.04B, 8.3% of revenue
- R&D: $705.0M, 2.9% of revenue
- Interest, other & tax: $1.23B, 5.0% of revenue
Kept 8.3% as net incomeNet income $2.04B · 8.3%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2016filed January 30, 2017Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $24.51B$23.53B | +4.2% |
| Cost of Revenue | $11.00B$10.33B | +6.5% |
| Gross Profit | $13.51B$13.19B | +2.4% |
| R&D Expenses | $705.00M$712.00M | −1.0% |
| Operating Income | $3.28B$3.08B | +6.5% |
| Net Income | $2.04B$1.99B | +2.7% |
| EPS (Basic) | $11.42$10.51 | +8.7% |
| EPS (Diluted) | $11.32$10.39 | +9.0% |
| Shares Outstanding (Basic) | 178.90M189.40M | −5.5% |
| Shares Outstanding (Diluted) | 180.50M191.60M | −5.8% |
05—Questions
Frequently Asked Questions
What was the primary driver of Northrop Grumman's sales growth in 2016?
Northrop Grumman's sales grew by 4% to $24.5 billion in 2016. This growth was primarily driven by higher sales in the Aerospace Systems segment, which increased by 9%, and the Mission Systems segment, which saw a 2% increase. This growth was largely attributable to increased volume on key programs within these segments.
How does Northrop Grumman manage its significant reliance on U.S. Government contracts?
While the U.S. Government accounted for 84% of Northrop Grumman's sales in 2016, the company operates across three diverse segments: Aerospace Systems, Mission Systems, and Technology Services. This diversification across different defense and government capabilities, including autonomous systems, cyber, C4ISR, strike, and logistics, helps mitigate risks associated with a single customer. The company's strategic focus on high-priority defense programs also aligns with government needs.
What is the outlook for Northrop Grumman's backlog, and what does it signify for investors?
Northrop Grumman experienced substantial growth in its total backlog, increasing by 26% to $45.3 billion at the end of 2016 from $35.9 billion in 2015. This significant increase in backlog is a positive indicator for investors, suggesting strong future revenue streams and ongoing demand for the company's products and services. Approximately $18.2 billion of this backlog is expected to convert to sales in 2017.
How did Northrop Grumman return value to its shareholders in 2016?
Northrop Grumman demonstrated its commitment to shareholder returns in 2016 through both share repurchases and dividend increases. The company repurchased approximately $1.5 billion of its common stock and increased its quarterly dividend per share to $0.90, up from $0.80 in the previous year. These actions reflect confidence in the company's financial health and its ability to generate consistent returns.
06—Continue