10-QPeriod: Q2 FY2013

NORTHROP GRUMMAN CORP /DE/ Quarterly Report for Q2 Ended Jun 30, 2013

Filed July 24, 2013For Securities:NOC

Summary

Northrop Grumman Corporation's Q2 2013 report for the period ending June 29, 2013, shows stable total sales compared to the prior year, with $6.294 billion for the quarter and $12.398 billion for the first six months. Net earnings saw a slight increase to $488 million for the quarter and a marginal decrease to $977 million for the six-month period. Diluted EPS improved to $2.05 for the quarter, indicating effective share repurchases. The company's balance sheet strengthened with an increase in cash and cash equivalents to $4.9 billion. Significant financing activities included issuing $2.85 billion in senior notes and substantial share repurchases, underscoring a focus on capital return to shareholders. However, the company operates within a challenging defense budget environment, with ongoing concerns about sequestration and potential future reductions in government spending, which could impact future awards and revenues.

Financial Highlights

48 data points
Beta

Revenue

$6.29B

57.1% Gross Margin

Net Income

$488.00M

7.8% Net Margin

EPS (Diluted)

$2.05

Total Assets

$27.51B

Cash & Equivalents

$4.90B

Free Cash Flow

$280.00M

Financial Statements
Beta
Revenue$6.29B
Cost of Revenue$2.70B
Gross Profit$3.59B
Operating Income$806.00M
Net Income$488.00M
EPS (Basic)$2.09
EPS (Diluted)$2.05
Shares Outstanding (Basic)234.00M
Shares Outstanding (Diluted)237.50M

Key Highlights

  • 1Total sales remained stable year-over-year for both the quarter ($6.294B vs $6.274B) and the first six months ($12.398B vs $12.472B).
  • 2Net earnings increased slightly for the quarter to $488 million, but decreased marginally for the six-month period to $977 million.
  • 3Diluted Earnings Per Share (EPS) improved significantly to $2.05 for the quarter, up from $1.88 in the prior year, reflecting the positive impact of share repurchases.
  • 4Cash and cash equivalents increased substantially to $4.9 billion as of June 30, 2013, up from $3.862 billion at year-end 2012.
  • 5The company raised $2.85 billion in new senior notes in May 2013 and actively engaged in share repurchases, totaling $921 million in the first six months of 2013.
  • 6Aerospace Systems and Electronic Systems segments showed sales growth, while Information Systems and Technical Services experienced declines.
  • 7Management expresses concern over ongoing U.S. government budget uncertainty, particularly sequestration, and its potential impact on future contract awards and revenues.

Frequently Asked Questions

For the second quarter of 2013, total sales were largely flat at $6.294 billion compared to $6.274 billion in Q2 2012. Net earnings increased slightly to $488 million from $480 million. Diluted EPS showed a notable improvement, rising to $2.05 from $1.88.

Sales were driven by growth in the Aerospace Systems and Electronic Systems segments, partially offset by declines in Information Systems and Technical Services. The improvement in earnings and EPS was supported by higher net favorable adjustments in contract estimates, particularly in Aerospace and Electronic Systems, and the positive impact of ongoing share repurchases.

The company's financial position improved with a significant increase in cash and cash equivalents to $4.9 billion. However, net cash provided by operating activities decreased notably for the first six months of 2013 ($329 million vs $771 million), primarily due to a substantial voluntary pension contribution of $500 million in April 2013. The company issued new debt and actively repurchased shares, indicating a strategy to manage capital and return value to shareholders.

The primary risk highlighted is the uncertainty in U.S. government defense budgets, including the potential impact of sequestration. This could lead to reduced contract awards, lower revenues, and decreased earnings in the future. Changes in government business practices and audits also pose challenges.