01—Abstract
Summary
Summary of the 10-Q filed July 23, 2009. Cited figures are marked; the original filing is the authoritative source.
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.
02—Key points
Key Highlights
- Total 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).
- Operating income for the quarter decreased by 19% to $653 million, primarily impacted by a $105 million pre-tax charge in the Shipbuilding segment.
- Diluted 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.
- The company increased its quarterly common stock dividend from $0.40 to $0.43 per share.
- Share 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.
- Net cash provided by operating activities decreased by 18.6% for the six-month period to $658 million, impacted by discretionary pension contributions.
- Backlog remained substantial, totaling approximately $70.4 billion at the end of the quarter, though down from $78.1 billion at the end of 2008.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2009, Northrop Grumman Corp kept $0.05.
- Revenue$8.54B100.0%
- Cost of revenue−$4.34B50.8%
- Gross profit$4.20B49.2%
- Operating costs−$3.59B42.0%
- Operating income$614.0M7.2%
- Interest, other & tax−$220.0M2.6%
- Net income$394.0M4.6%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2009filed July 23, 2009Financial Statements
Q2 FY2009 against Q2 FY2008
| Line item | Q2 FY2009Q2 FY2008 | Change |
|---|---|---|
| Revenue | $8.54B$8.63B | −1.0% |
| Cost of Revenue | $4.34B$3.79B | +14.6% |
| Gross Profit | $4.20B$4.83B | −13.1% |
| Operating Income | $614.00M$806.00M | −23.8% |
| Net Income | $394.00M$495.00M | −20.4% |
| EPS (Basic) | $1.22$1.46 | −16.4% |
| EPS (Diluted) | $1.21$1.44 | −16.0% |
| Shares Outstanding (Basic) | 322.00M339.00M | −5.0% |
| Shares Outstanding (Diluted) | 325.80M344.10M | −5.3% |
05—Questions
Frequently Asked Questions
What were the primary drivers for the change in sales and service revenues?
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.
What impacted the company's operating income in the second quarter?
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.
How did the company's cash flow generation perform during the period?
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.
What is the outlook for defense spending, and how might it affect Northrop Grumman?
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.
06—Continue