10-QPeriod: Q2 FY2009

NORTHROP GRUMMAN CORP /DE/ Quarterly Report for Q2 Ended Jun 30, 2009

Filed July 23, 2009For Securities:NOC

Summary

Northrop Grumman Corporation (NOC) reported its second-quarter 2009 financial results, showing a mixed performance. While total sales and service revenues saw an increase year-over-year for both the quarter and the year-to-date, driven primarily by growth in the Aerospace Systems, Electronic Systems, and Information Systems segments, profitability faced some headwinds. Operating income for the quarter declined due to significant charges in the Shipbuilding segment related to cost growth on LPD-class ships and LHA 6. However, for the six-month period, operating income improved due to the reversal of prior-year charges in Shipbuilding. The company demonstrated a strong commitment to shareholder returns, increasing its quarterly common stock dividend and continuing its share repurchase program. Despite a decrease in cash provided by operating activities for the six months, likely due to discretionary pension contributions, the company maintained a healthy free cash flow, suggesting continued financial flexibility. Investors will likely monitor the impact of ongoing defense budget discussions and the company's ability to manage costs within its shipbuilding operations.

Financial Highlights

46 data points
Beta

Revenue

$8.54B

49.2% Gross Margin

Net Income

$394.00M

4.6% Net Margin

EPS (Diluted)

$1.21

Total Assets

$30.15B

Cash & Equivalents

$1.06B

Free Cash Flow

$695.00M

Financial Statements
Beta
Revenue$8.54B
Cost of Revenue$4.34B
Gross Profit$4.20B
Operating Income$614.00M
Net Income$394.00M
EPS (Basic)$1.22
EPS (Diluted)$1.21
Shares Outstanding (Basic)322.00M
Shares Outstanding (Diluted)325.80M

Key Highlights

  • 1Total sales and service revenues increased by approximately 3.8% for the quarter ($8.96 billion vs. $8.63 billion) and 5.7% year-to-date ($17.28 billion vs. $16.35 billion).
  • 2Operating income for the quarter decreased by 19% to $653 million, primarily impacted by a $105 million pre-tax charge in the Shipbuilding segment.
  • 3Diluted earnings per share from continuing operations were $1.21 for the quarter, down from $1.40 in the prior year, but increased to $2.38 year-to-date from $2.15.
  • 4The company increased its quarterly common stock dividend from $0.40 to $0.43 per share.
  • 5Share repurchases continued, with approximately 5.8 million shares bought back in the second quarter for $275 million, and $508 million remaining under the current authorization.
  • 6Net cash provided by operating activities decreased by 18.6% for the six-month period to $658 million, impacted by discretionary pension contributions.
  • 7Backlog remained substantial, totaling approximately $70.4 billion at the end of the quarter, though down from $78.1 billion at the end of 2008.

Frequently Asked Questions

Sales and service revenues increased due to higher sales in the Aerospace Systems, Electronic Systems, and Information Systems segments. This growth was driven by factors such as increased sales volume on various aircraft programs (F/A-18, Global Hawk), higher volume on space programs (SBIRS), and growth in intelligence and defense systems, partially offset by a decrease in the Shipbuilding segment due to revised estimates for LPD-class ships and LHA 6.

Operating income for the quarter declined primarily due to a significant $105 million pre-tax charge in the Shipbuilding segment related to cost growth on LPD-class ships and LHA 6, stemming from issues with design, engineering, production, and quality processes. This was partially offset by improved performance in other segments and a favorable legal settlement that reduced unallocated expenses.

Net cash provided by operating activities for the six-month period decreased to $658 million from $801 million in the prior year. This decrease was mainly attributable to discretionary pension contributions totaling $214 million during the period, and higher trade working capital requirements. However, the company generated $324 million in free cash flow for the six months, indicating its ability to fund operations and investments.

The company anticipates continued investment in intelligence, surveillance, and reconnaissance (ISR) systems, cyber-security, and information processing, driven by the current era of irregular warfare. While the President's fiscal year 2010 budget proposes an increase in defense spending, it also includes reductions in certain programs. Northrop Grumman expects defense budgets to remain responsive to the global security environment, with a continued focus on modernization and homeland security assets.