01—Abstract
Summary
Summary of the 10-Q filed July 27, 2011. Cited figures are marked; the original filing is the authoritative source.
Northrop Grumman Corporation (NOC) reported a decrease in sales and service revenues for the second quarter and first half of 2011 compared to the prior year, primarily driven by lower volumes across its four reporting segments and reduced participation in the NSTec joint venture.
Despite the revenue decline, operating income showed resilience, with total operating income increasing slightly in the first half due to performance improvements in Aerospace Systems and Electronic Systems, and the impact of the NSTec JV change. A significant event for the quarter was the completion of the spin-off of the Shipbuilding business (Huntington Ingalls Industries) as of March 31, 2011, which is now reported under discontinued operations. This transaction resulted in a substantial cash contribution to Northrop Grumman.
The company also continued its focus on capital allocation through share repurchases and dividend increases, alongside managing its debt profile. Looking ahead, the company faces a dynamic environment characterized by U.S. government budget constraints and ongoing discussions regarding deficit reduction. Management believes Northrop Grumman is well-positioned to meet future defense needs, with a development portfolio aligned with emerging DoD priorities such as anti-access/area denial capabilities and cybersecurity.
02—Key points
Key Highlights
- Total sales and service revenues decreased by 9.6% ($695 million) in Q2 2011 and 5.9% ($875 million) in the first half of 2011 compared to the prior year, primarily due to lower volume across all segments and reduced participation in the NSTec joint venture.
- Operating income increased by 12.1% ($91 million) in Q2 2011 and 16.1% ($223 million) in the first half of 2011, reflecting improved performance in key segments and cost management.
- Completed the spin-off of its Shipbuilding business (Huntington Ingalls Industries) on March 31, 2011, which is now classified as discontinued operations. The company received a $1.4 billion cash contribution from HII in connection with the spin-off.
- Diluted earnings per share from continuing operations decreased to $1.81 in Q2 2011 and $3.48 in the first half of 2011, compared to $2.44 and $3.77 respectively in the prior year, partly due to the absence of a significant tax benefit realized in 2010.
- The company repurchased approximately $1 billion of its common stock under an accelerated share repurchase agreement in Q2 2011 and increased its quarterly dividend.
- Total backlog stood at $41.8 billion at June 30, 2011, a decrease from $46.8 billion at December 31, 2010, reflecting contract awards and adjustments related to the NSTec JV and NPOESS program.
- The company highlighted ongoing U.S. government budget discussions and potential impacts of debt ceiling limitations as key risks to future revenue and operations.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2011, Northrop Grumman Corp kept $0.08.
- Revenue$6.56B100.0%
- Cost of revenue−$2.86B43.6%
- Gross profit$3.70B56.4%
- Operating costs−$2.86B43.6%
- Operating income$841.0M12.8%
- Interest, other & tax−$321.0M4.9%
- Net income$520.0M7.9%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2011filed July 27, 2011Financial Statements
Q2 FY2011 against Q2 FY2010
| Line item | Q2 FY2011Q2 FY2010 | Change |
|---|---|---|
| Revenue | $6.56B$7.25B | −9.6% |
| Cost of Revenue | $2.86B$3.08B | −7.1% |
| Gross Profit | $3.70B$4.18B | −11.4% |
| Operating Income | $841.00M$749.00M | +12.3% |
| Net Income | $520.00M$711.00M | −26.9% |
| EPS (Basic) | $1.84$2.37 | −22.4% |
| EPS (Diluted) | $1.81$2.34 | −22.6% |
| Shares Outstanding (Basic) | 282.60M299.60M | −5.7% |
| Shares Outstanding (Diluted) | 287.20M303.80M | −5.5% |
05—Questions
Frequently Asked Questions
What was the financial performance of Northrop Grumman in the second quarter of 2011?
In the second quarter of 2011, Northrop Grumman saw a decrease in sales and service revenues to $6.56 billion from $7.26 billion in the same period of 2010. However, operating income increased to $841 million from $750 million, driven by improved segment performance and cost efficiencies. Diluted earnings per share from continuing operations were $1.81, down from $2.44 in Q2 2010.
How did the spin-off of the Shipbuilding business impact the company's financials?
The spin-off of Huntington Ingalls Industries (HII) on March 31, 2011, resulted in the Shipbuilding business being classified as discontinued operations. This strategic move allowed Northrop Grumman to focus on its core businesses. The company received a $1.429 billion cash contribution from HII as part of the transaction.
What is the company's outlook regarding government spending and its impact?
Northrop Grumman operates in a challenging environment due to U.S. government focus on deficit reduction, which could moderate defense spending. The company is monitoring ongoing budget discussions and a strategic review by the DoD. Despite these uncertainties, Northrop Grumman believes its portfolio, particularly in areas like anti-access/area denial and cybersecurity, positions it to meet future defense needs.
How is the company managing its capital and returning value to shareholders?
Northrop Grumman is actively managing its capital resources. In Q2 2011, the company repurchased approximately $1 billion of its common stock through an accelerated share repurchase agreement and increased its quarterly dividend. It also repaid $750 million in notes during the first half of the year.
06—Continue