01—Abstract
Summary
Summary of the 10-Q filed July 23, 2014. Cited figures are marked; the original filing is the authoritative source.
Northrop Grumman Corporation (NOC) reported its financial results for the second quarter and first six months of 2014.
Total sales for the quarter decreased by 4% to $6.04 billiona compared to the same period in the prior year, and for the six-month period, sales decreased by 4% to $11.89 billion. Despite the decline in sales, operating income saw a modest increase of 1.9% to $820 million for the quarter and a 5.8% increase to $1.67 billion for the six months. This improvement was driven by favorable net adjustments in contract estimates and improved performance in certain segments, particularly Information Systems, which offset lower sales volumes in segments like Aerospace Systems and Electronic Systems.
Net earnings for the quarter rose by 4.7% to $511 millionb ($2.37 per diluted share), and for the six-month period, net earnings increased by 11.6% to $1.09 billion ($5.01 per diluted share). This earnings growth, despite lower sales, is attributed to improved operating margins and a favorable effective tax rate in the six-month period due to a tax benefit from the resolution of an IRS examination.
The company continued its focus on returning capital to shareholders, repurchasing $1.3 billionc of stock in the first six months and increasing its quarterly dividend. The company maintained a strong liquidity position with $3.48 billion in cash and cash equivalents.
02—Key points
Key Highlights
- Total sales decreased by 4% to $6.04 billion for the quarter and $11.89 billion for the first six months of 2014 compared to the prior year periods.
- Operating income increased by 1.9% to $820 million for the quarter and by 5.8% to $1.67 billion for the six months, driven by favorable contract estimate adjustments and segment performance improvements.
- Diluted earnings per share increased to $2.37 for the quarter (up 16%) and $5.01 for the six months (up 23%), benefiting from higher net earnings and a reduced share count due to buybacks.
- The company resolved a significant portion of its 2007-2009 IRS tax examination, resulting in a $51 million income tax benefit for the six-month period, lowering the effective tax rate.
- Significant share repurchases continued, with $1.3 billion executed in the first six months of 2014, contributing to the decrease in weighted-average shares outstanding and boosting EPS.
- The company announced a 15% increase in its quarterly common stock dividend to $0.70 per share in May 2014.
- Total backlog stood at $35.56 billion as of June 30, 2014, a decrease of 4% from December 31, 2013, reflecting timing of awards.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2014, Northrop Grumman Corp kept $0.08.
- Revenue$6.04B100.0%
- Cost of revenue−$2.67B44.2%
- Gross profit$3.37B55.8%
- Operating costs−$2.55B42.2%
- Operating income$820.0M13.6%
- Interest, other & tax−$309.0M5.1%
- Net income$511.0M8.5%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2014filed July 23, 2014Financial Statements
Q2 FY2014 against Q2 FY2013
| Line item | Q2 FY2014Q2 FY2013 | Change |
|---|---|---|
| Revenue | $6.04B$6.29B | −4.1% |
| Cost of Revenue | $2.67B$2.70B | −1.3% |
| Gross Profit | $3.37B$3.59B | −6.1% |
| Operating Income | $820.00M$806.00M | +1.7% |
| Net Income | $511.00M$488.00M | +4.7% |
| EPS (Basic) | $2.41$2.09 | +15.3% |
| EPS (Diluted) | $2.37$2.05 | +15.6% |
| Shares Outstanding (Basic) | 212.40M234.00M | −9.2% |
| Shares Outstanding (Diluted) | 215.20M237.50M | −9.4% |
05—Questions
Frequently Asked Questions
How did sales performance change compared to the previous year?
Sales for the second quarter of 2014 decreased by 4% to $6.04 billion, and for the first six months of 2014, sales decreased by 4% to $11.89 billion, compared to the same periods in 2013. This decline was primarily driven by lower sales volumes in the Aerospace Systems and Information Systems segments.
What drove the increase in operating income despite lower sales?
Operating income increased due to favorable net adjustments in contract estimates, particularly in the Aerospace Systems and Electronic Systems segments, and improved operating performance in the Information Systems segment. These factors helped offset the impact of lower sales volume.
What is the impact of the IRS tax examination resolution on the company's financials?
The partial resolution of the 2007-2009 IRS examination resulted in a $51 million reduction in income tax expense for the six months ended June 30, 2014, contributing to a lower effective tax rate of 29.3% for that period. The company also reduced its unrecognized tax benefits by $59 million.
How is the company returning capital to shareholders?
Northrop Grumman continued its robust share repurchase program, buying back $1.3 billion of its common stock in the first six months of 2014. Additionally, the company increased its quarterly dividend by 15% to $0.70 per share in May 2014.
06—Continue