01—Abstract
Summary
Summary of the 10-Q filed October 24, 2012. Cited figures are marked; the original filing is the authoritative source.
Northrop Grumman Corporation (NOC) reported $6.27 billiona in total sales for the third quarter of 2012, a decrease of 5% compared to $6.61 billion in the same period last year.
This decline was observed across most of its operating segments, including Aerospace Systems, Electronic Systems, Information Systems, and Technical Services. Despite the sales dip, the company maintained strong operating performance with a segment operating margin rate of 11.6%. For the first nine months of 2012, total sales were $18.74 billionb, down 6% from $19.91 billion in the prior year.
The company's earnings per diluted share for the quarter were $1.82, compared to $1.86c in the prior year. Management noted the impact of U.S. government fiscal challenges and budget uncertainties, including the potential for sequestration, as key factors influencing the operating environment. However, the company also highlighted its focus on cost management and contract performance, which contributed to improved segment operating income in some areas and a significant increase in cash provided by operating activities for the nine-month period.
02—Key points
Key Highlights
- Total sales for Q3 2012 were $6.27 billion, a decrease of 5% year-over-year, reflecting lower customer spending and portfolio shaping actions.
- Diluted earnings per share for Q3 2012 were $1.82, a slight decrease from $1.86 in Q3 2011.
- For the nine months ended September 30, 2012, total sales decreased by 6% to $18.74 billion.
- Despite lower sales, the company reported strong operating performance with a consolidated operating margin rate of 11.7% for Q3 2012.
- Cash provided by continuing operations for the nine months ended September 30, 2012, significantly increased to $1.58 billion from $0.79 billion in the prior year period.
- The company is navigating an uncertain U.S. government budget environment, including the potential impact of sequestration, which could affect future revenues and profits.
- Northrop Grumman continued its share repurchase program, repurchasing $846 million in the first nine months of 2012.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q3 FY2012, Northrop Grumman Corp kept $0.07.
- Revenue$6.27B100.0%
- Cost of revenue−$2.63B41.9%
- Gross profit$3.64B58.1%
- Operating costs−$2.90B46.3%
- Operating income$736.0M11.7%
- Interest, other & tax−$277.0M4.4%
- Net income$459.0M7.3%
04—Financials
Financial Highlights
Figures from 10-QQ3 FY2012filed October 24, 2012Financial Statements
Q3 FY2012 against Q3 FY2011
| Line item | Q3 FY2012Q3 FY2011 | Change |
|---|---|---|
| Revenue | $6.27B$6.61B | −5.2% |
| Cost of Revenue | $2.63B$2.85B | −7.6% |
| Gross Profit | $3.64B$3.77B | −3.3% |
| Operating Income | $736.00M$825.00M | −10.8% |
| Net Income | $459.00M$520.00M | −11.7% |
| EPS (Basic) | $1.86$1.89 | −1.6% |
| EPS (Diluted) | $1.82$1.86 | −2.2% |
| Shares Outstanding (Basic) | 247.20M274.90M | −10.1% |
| Shares Outstanding (Diluted) | 252.10M279.30M | −9.7% |
05—Questions
Frequently Asked Questions
What were the main drivers of the sales decline in the third quarter?
The sales decline in the third quarter of 2012 was primarily driven by lower customer spending, particularly from the U.S. government, and the company's own portfolio shaping actions which included the divestiture of certain businesses and realignments of contracts and programs. Specific segment impacts included lower volume in defense and intelligence programs for Information Systems, and reduced activity in combat avionics and postal automation for Electronic Systems.
How is the company managing the uncertainty in U.S. government defense spending?
Northrop Grumman acknowledges the significant fiscal and economic challenges facing the U.S. government, including budget control acts and the potential for sequestration. The company is managing this uncertainty by focusing on cost management, contract performance improvements, and strategically positioning itself in areas the Department of Defense has identified as priorities for future spending, such as cybersecurity and modernization of assets. While uncertainty remains, the company believes its business is well-positioned for areas of anticipated future defense spending.
What is the impact of the spin-off of the shipbuilding business on current financial results?
The spin-off of the shipbuilding business, Huntington Ingalls Industries, Inc., was completed in March 2011. Its results are no longer included in the current financial reporting as they are classified under discontinued operations for the prior year periods. The spin-off did contribute a $1.4 billion cash contribution to Northrop Grumman in 2011, impacting prior year cash flows from investing activities. For the nine months ended September 30, 2012, cash provided by investing activities was significantly lower due to the absence of this contribution compared to the prior year.
How did changes in contract estimates affect the company's operating income?
Changes in contract estimates, recognized using the cumulative catch-up method, had a favorable impact on operating income. For the three months ended September 30, 2012, aggregate net changes in contract estimates increased operating income by $214 million ($0.55 per diluted share). For the nine months ended September 30, 2012, these changes increased operating income by $701 million ($1.79 per diluted share). This indicates strong contract performance and effective management of contract risks and opportunities.
06—Continue