Summary
Northrop Grumman Corporation reported a decrease in sales for the second quarter and first half of 2006 compared to the prior year, primarily driven by lower volumes in the Ships and Electronics segments. Despite the revenue decline, the company saw an improvement in its operating margin rate, reaching 9.0% for the quarter and 8.8% for the year-to-date, up from 8.0% in both periods of 2005. This improvement was boosted by strong performance in the Mission Systems and Integrated Systems segments. The company also experienced a significant drop in net cash provided by operating activities for the first half of 2006 compared to 2005, largely due to the timing of customer payments. Financially, Northrop Grumman continued its substantial share repurchase program, utilizing significant cash outflows. The company announced a 15% increase in its quarterly common stock dividend, signaling confidence in its financial position.
Key Highlights
- 1Sales decreased by 3% for both the three and six months ended June 30, 2006, compared to the prior year, mainly due to lower volumes in the Ships and Electronics segments.
- 2Operating margin improved to 9.0% for Q2 2006 and 8.8% for the first six months of 2006, up from 8.0% in the same periods of 2005, driven by performance improvements in Mission Systems and Integrated Systems.
- 3Net cash provided by operating activities decreased significantly to $523 million for the first six months of 2006, compared to $1.076 billion in the prior year, primarily due to the timing of cash collections.
- 4The company announced a 15% increase in its quarterly common stock dividend to $0.30 per share, effective with the second quarter 2006 dividend.
- 5Share repurchases remained a significant use of cash, with approximately $825 million spent in the first six months of 2006 under an ongoing $1.5 billion authorization.
- 6The company is managing the impact of Hurricane Katrina, with an estimated total repair cost of $850 million, largely expected to be covered by insurance, and has received $233 million in insurance proceeds to date.
- 7A significant positive event for tax rates was the final approval from the U.S. Congress Joint Committee on Taxation for an agreement with the IRS regarding the B-2 program audits, resulting in a $48 million tax benefit in Q2 2006.