01—Abstract
Summary
Summary of the 10-Q filed July 25, 2012. Cited figures are marked; the original filing is the authoritative source.
Northrop Grumman Corporation reported total sales of $6.3 billiona for the second quarter of 2012, a decrease of 4% year-over-year.
Earnings from continuing operations were $480 millionb, or $1.88 per diluted share, compared to $520 million, or $1.81 per diluted share, in the same period last year. The company experienced a decline in sales across most segments, notably in Information Systems and Aerospace Systems, impacted by factors such as program changes and lower volume. Despite the revenue decrease, the company maintained a strong backlog of $41.5 billion.
Management highlighted improved segment operating margin rates due to performance enhancements and cost reduction initiatives, particularly in Information Systems and Technical Services. The company also continued its capital return strategy, repurchasing shares and increasing its quarterly dividend, reflecting confidence in its financial position and future outlook amidst a challenging defense spending environment.
02—Key points
Key Highlights
- Total sales for Q2 2012 were $6.3 billion, down 4% from $6.56 billion in Q2 2011.
- Earnings from continuing operations for Q2 2012 were $480 million ($1.88 diluted EPS), down from $520 million ($1.81 diluted EPS) in Q2 2011.
- Segment operating income was comparable at $782 million, with an improved segment operating margin rate of 12.5% compared to 12.0% in the prior year period.
- Total backlog stood at $41.5 billion as of June 30, 2012, an increase from $39.5 billion at the end of 2011.
- The company repurchased approximately 4.9 million shares for $297 million during the quarter.
- Northrop Grumman increased its quarterly dividend to $0.55 per share in May 2012.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2012, Northrop Grumman Corp kept $0.08.
- Revenue$6.27B100.0%
- Cost of revenue−$2.60B41.5%
- Gross profit$3.67B58.5%
- Operating costs−$2.90B46.2%
- Operating income$774.0M12.3%
- Interest, other & tax−$294.0M4.7%
- Net income$480.0M7.7%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2012filed July 25, 2012Financial Statements
Q2 FY2012 against Q2 FY2011
| Line item | Q2 FY2012Q2 FY2011 | Change |
|---|---|---|
| Revenue | $6.27B$6.56B | −4.4% |
| Cost of Revenue | $2.60B$2.86B | −9.0% |
| Gross Profit | $3.67B$3.70B | −0.8% |
| Operating Income | $774.00M$841.00M | −8.0% |
| Net Income | $480.00M$520.00M | −7.7% |
| EPS (Basic) | $1.91$1.84 | +3.8% |
| EPS (Diluted) | $1.88$1.81 | +3.9% |
| Shares Outstanding (Basic) | 250.80M282.60M | −11.3% |
| Shares Outstanding (Diluted) | 254.70M287.20M | −11.3% |
05—Questions
Frequently Asked Questions
What is the primary driver of the decrease in sales for the quarter?
The primary driver of the decrease in sales for the quarter was lower volume across several segments, particularly in Information Systems and Aerospace Systems. This was influenced by factors such as program changes, terminations, and shifts in customer orders, as well as the de-emphasis of the domestic postal automation business in Electronic Systems.
How did the company manage profitability despite lower sales?
Despite lower sales, the company's segment operating income remained comparable, and the segment operating margin rate improved. This was achieved through performance improvements on contracts, risk reduction initiatives, cost-saving measures, and a favorable change in contract estimates, especially noted in the Information Systems and Technical Services segments.
What is the company's outlook regarding defense spending and its impact?
The company acknowledges uncertainty in the defense spending environment, particularly concerning potential 'sequestration' as mandated by the Budget Control Act of 2011. Management expects that sequestration, if implemented, would negatively impact revenues, profits, and cash flows. However, they believe spending on recapitalization, modernization, and maintenance of defense assets will remain a priority and anticipate opportunities in areas like missile defense, cybersecurity, and satellite systems.
What is the significance of the spin-off of Huntington Ingalls Industries (HII)?
The spin-off of HII, completed in March 2011, separated the company's former shipbuilding business. While it resulted in discontinued operations in prior periods, it provided a $1.4 billion cash contribution to Northrop Grumman and allowed the company to focus on its core aerospace and defense technology businesses. The report notes that the company has certain limitations on share repurchases related to this spin-off until March 2013.
06—Continue