10-QPeriod: Q2 FY2014

NORTHROP GRUMMAN CORP /DE/ Quarterly Report for Q2 Ended Jun 30, 2014

Filed July 23, 2014For Securities:NOC

Summary

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 billion 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 million ($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 billion 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.

Financial Highlights

47 data points
Beta

Revenue

$6.04B

55.8% Gross Margin

Net Income

$511.00M

8.5% Net Margin

EPS (Diluted)

$2.37

Total Assets

$25.35B

Cash & Equivalents

$3.48B

Free Cash Flow

$456.00M

Financial Statements
Beta
Revenue$6.04B
Cost of Revenue$2.67B
Gross Profit$3.37B
Operating Income$820.00M
Net Income$511.00M
EPS (Basic)$2.41
EPS (Diluted)$2.37
Shares Outstanding (Basic)212.40M
Shares Outstanding (Diluted)215.20M

Key Highlights

  • 1Total 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.
  • 2Operating 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.
  • 3Diluted 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.
  • 4The 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.
  • 5Significant 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.
  • 6The company announced a 15% increase in its quarterly common stock dividend to $0.70 per share in May 2014.
  • 7Total backlog stood at $35.56 billion as of June 30, 2014, a decrease of 4% from December 31, 2013, reflecting timing of awards.

Frequently Asked Questions

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.

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.

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.

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.