01—Abstract
Summary
Summary of the 10-K filed January 30, 2020. Cited figures are marked; the original filing is the authoritative source.
Northrop Grumman Corporation's (NOC) 2019 10-K filing highlights a year of significant sales growth, primarily driven by the full-year integration of the acquired Orbital ATK business, now known as Innovation Systems.
The company's revenue increased by 12% to $33.84 billiona, demonstrating its expanded capabilities across its four key segments: Aerospace Systems, Innovation Systems, Mission Systems, and Technology Services. Operating income saw a 5% increase, though the operating margin rate saw a slight decrease due to increased mark-to-market pension expenses and unallocated corporate costs, partially offset by improved segment performance. The company's heavy reliance on the U.S. government as its primary customer, accounting for 83% of sales, remains a significant factor.
However, Northrop Grumman maintains a robust backlog of $64.8 billionb, indicating strong future revenue potential. The company also highlighted its commitment to shareholder returns through share repurchases and dividend increases. Key strategic priorities include continued investment in research and development, particularly in advanced technologies like autonomous systems, cyber, space, and strike capabilities, to maintain its competitive edge in the global security market.
02—Key points
Key Highlights
- Total sales increased by 12% to $33.84 billion in 2019, largely due to the full-year inclusion of the acquired Orbital ATK (Innovation Systems) segment.
- The company ended 2019 with a strong backlog of remaining performance obligations totaling $64.8 billion, an increase of 21% from the prior year.
- Northrop Grumman's heavy dependence on the U.S. government as its primary customer persisted, representing 83% of total sales.
- Operating income rose 5% to $3.97 billion, though the operating margin rate decreased to 11.7% from 12.6% due to higher pension expenses and corporate costs.
- The company continued its return of capital to shareholders, with share repurchases and a 10% increase in its quarterly dividend.
- Significant investments were made in company-sponsored research and development, totaling $953 million, reflecting a focus on innovation in key areas like autonomous systems, cyber, and space.
- The company experienced a substantial increase in mark-to-market pension and other postretirement benefit expenses, which negatively impacted net earnings.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2019filed January 30, 2020Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $33.84B$30.09B | +12.4% |
| R&D Expenses | $953.00M$764.00M | +24.7% |
| Operating Expenses | $29.87B— | — |
| Operating Income | $3.97B$3.78B | +5.0% |
| Net Income | $2.25B$3.23B | −30.4% |
| EPS (Basic) | $13.28$18.59 | −28.6% |
| EPS (Diluted) | $13.22$18.49 | −28.5% |
| Shares Outstanding (Basic) | 169.30M173.70M | −2.5% |
| Shares Outstanding (Diluted) | 170.00M174.60M | −2.6% |
05—Questions
Frequently Asked Questions
What was the primary driver of Northrop Grumman's sales growth in 2019?
The primary driver of Northrop Grumman's sales growth in 2019 was the full-year inclusion of the acquired Orbital ATK business, which was integrated into the company's Innovation Systems segment. This acquisition significantly expanded the company's portfolio and revenue base.
What are the key risks associated with Northrop Grumman's customer concentration?
The most significant risk is Northrop Grumman's heavy reliance on the U.S. government, which accounted for 83% of its sales in 2019. Changes in U.S. defense spending levels, government priorities, program cancellations, or delays in appropriations could materially and adversely affect the company's financial performance.
How did the company manage its capital during 2019?
Northrop Grumman generated $4.3 billion in cash from operations and $3.0 billion in free cash flow in 2019. The company continued to return capital to shareholders through share repurchases and increased its quarterly dividend by 10%, reflecting confidence in its financial stability and future prospects.
What impact did pension expenses have on the company's financial results?
The company experienced a significant increase in mark-to-market pension and other postretirement benefit expenses, totaling $1.8 billion in 2019. This increase, primarily driven by a decrease in discount rates and changes in mortality assumptions, negatively impacted net earnings and diluted earnings per share.
06—Continue