10-QPeriod: Q1 FY2012

NORTHROP GRUMMAN CORP /DE/ Quarterly Report for Q1 Ended Mar 31, 2012

Filed April 25, 2012For Securities:NOC

Summary

Northrop Grumman Corporation's first quarter 2012 results show a decline in total sales to $6.2 billion from $6.7 billion in the prior year's comparable period, an 8% decrease. This decline was attributed to reduced volume across all four business segments, with Aerospace Systems and Information Systems experiencing the most significant drops. Despite the sales decrease, operating income saw a modest decline of 2% to $796 million, and the operating margin rate improved to 12.8% from 12.0% in Q1 2011, reflecting performance improvements and cost reduction initiatives. Financially, the company reported net earnings of $506 million for the quarter, down from $530 million in the prior year, with basic EPS at $2.00 compared to $1.82 in Q1 2011. Cash flow from operations was negative $105 million, a decrease from positive $112 million in the prior year, largely due to increased working capital requirements. The company maintained a strong backlog of $39.1 billion at the end of the quarter, indicating continued demand for its products and services.

Financial Highlights

46 data points
Beta

Revenue

$6.20B

59.2% Gross Margin

Net Income

$506.00M

8.2% Net Margin

EPS (Diluted)

$1.96

Total Assets

$25.05B

Cash & Equivalents

$2.68B

Free Cash Flow

-$186.00M

Financial Statements
Beta
Revenue$6.20B
Cost of Revenue$2.53B
Gross Profit$3.67B
Operating Income$796.00M
Net Income$506.00M
EPS (Basic)$2.00
EPS (Diluted)$1.96
Shares Outstanding (Basic)253.10M
Shares Outstanding (Diluted)258.00M

Key Highlights

  • 1Total sales decreased by 8% to $6.2 billion in Q1 2012 compared to Q1 2011, primarily due to lower sales volume across all segments.
  • 2Operating income decreased by 2% to $796 million, but operating margin rate improved to 12.8% from 12.0% due to performance improvements and cost reduction initiatives.
  • 3Net earnings were $506 million, resulting in basic EPS of $2.00, an increase from $1.82 in the prior year's quarter.
  • 4Cash used in operating activities was $105 million, a notable decrease from cash provided by operations of $112 million in Q1 2011, driven by increased working capital needs.
  • 5The company successfully completed the spin-off of its shipbuilding business in March 2011, which generated a $1.4 billion cash contribution.
  • 6Total backlog remained strong at $39.1 billion as of March 31, 2012, providing visibility for future revenues.
  • 7The company repurchased approximately 4.4 million shares of common stock during the quarter, returning capital to shareholders.

Frequently Asked Questions

The primary driver for the decrease in sales was lower sales volume across all four business segments, with Aerospace Systems and Information Systems experiencing the most significant reductions.

While net earnings decreased slightly to $506 million from $530 million, the operating margin rate improved to 12.8% from 12.0%. This improvement was driven by performance enhancements and cost-reduction initiatives, offsetting the impact of lower sales volume.

The company anticipates continued debate and potential cuts in government defense spending, especially with the upcoming general election. The potential implementation of sequestration in January 2013 could significantly impact programs across the defense industry. However, the company believes spending on recapitalization, modernization, and maintenance of defense assets will remain a national priority.

The spin-off of Huntington Ingalls Industries (HII) was completed in March 2011, with HII contributing $1.4 billion in cash to Northrop Grumman. This transaction has removed the former shipbuilding business from the company's operations and financial statements as of the current reporting period.