01—Abstract
Summary
Summary of the 10-Q filed October 22, 2014. Cited figures are marked; the original filing is the authoritative source.
Northrop Grumman Corporation reported total sales of $5.98 billiona for the third quarter of 2014, a slight decrease of 2% compared to the same period in the prior year.
This decline was primarily driven by lower sales in the Information Systems and Technical Services segments. Net earnings for the quarter were $473 millionb, resulting in diluted earnings per share of $2.26, an increase from $2.14 in Q3 2013, aided by a reduction in outstanding shares due to ongoing share repurchase programs. For the nine-month period, total sales were $17.87 billion, down 3% year-over-year.
Net earnings for the nine months increased to $1.56 billionc from $1.47 billion in the prior year, with diluted EPS rising to $7.28 from $6.22. The company's operating income showed resilience, with a slight decrease in the quarter but an overall increase for the year-to-date period, supported by favorable contract estimate adjustments and lower pension expenses due to recent legislation. The company continues to manage its business through its four key segments and maintains a strong backlog of $38.5 billion.
02—Key points
Key Highlights
- Total sales for the third quarter of 2014 were $5.98 billion, down 2% year-over-year, with the Information Systems and Technical Services segments showing declines.
- Net earnings for the quarter were $473 million, with diluted EPS of $2.26, an increase from $2.14 in Q3 2013, partly due to fewer outstanding shares from buybacks.
- For the nine months ended September 30, 2014, net earnings increased to $1.56 billion from $1.47 billion, and diluted EPS rose to $7.28 from $6.22.
- Operating income for the nine-month period increased to $2.43 billion from $2.36 billion, reflecting favorable contract estimate adjustments and reduced pension costs.
- The company's total backlog stood at $38.5 billion as of September 30, 2014, an increase of 4% from the end of 2013, driven by awards in the Aerospace Systems segment.
- Cash and cash equivalents decreased to $3.4 billion from $5.15 billion at the beginning of the year, reflecting significant share repurchases and debt-related activities.
- The company received a $75 million settlement from the U.S. Government related to intellectual property use and a terminated program, recognized in product sales for the Aerospace Systems segment.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q3 FY2014, Northrop Grumman Corp kept $0.08.
- Revenue$5.98B100.0%
- Cost of revenue−$2.61B43.7%
- Gross profit$3.37B56.3%
- Operating costs−$2.60B43.5%
- Operating income$769.0M12.9%
- Interest, other & tax−$296.0M4.9%
- Net income$473.0M7.9%
04—Financials
Financial Highlights
Figures from 10-QQ3 FY2014filed October 22, 2014Financial Statements
Q3 FY2014 against Q3 FY2013
| Line item | Q3 FY2014Q3 FY2013 | Change |
|---|---|---|
| Revenue | $5.98B$6.11B | −2.0% |
| Cost of Revenue | $2.61B$2.50B | +4.6% |
| Gross Profit | $3.37B$3.61B | −6.6% |
| Operating Income | $769.00M$790.00M | −2.7% |
| Net Income | $473.00M$497.00M | −4.8% |
| EPS (Basic) | $2.29$2.18 | +5.0% |
| EPS (Diluted) | $2.26$2.14 | +5.6% |
| Shares Outstanding (Basic) | 206.20M228.20M | −9.6% |
| Shares Outstanding (Diluted) | 209.20M232.60M | −10.1% |
05—Questions
Frequently Asked Questions
What was the primary driver for the decrease in sales in the third quarter of 2014?
The primary driver for the sales decrease in the third quarter of 2014 was lower volume in the Information Systems segment, particularly for C2 programs due to reduced funding and in-theater force reductions. The Technical Services segment also saw a decrease due to lower volume on ICBM and CTTR programs.
How did share repurchases impact the company's financial results?
Share repurchases significantly reduced the weighted-average shares outstanding, which contributed to the increase in diluted earnings per share for both the three and nine months ended September 30, 2014, compared to the prior year periods. The company spent $2.06 billion on share repurchases in the nine months of 2014.
What is the significance of the Highway and Transportation Funding Act of 2014 (HATFA) for Northrop Grumman?
The HATFA legislation, passed in the third quarter of 2014, reduced the amount of Cost Accounting Standards (CAS) pension expense charged to contracts. This resulted in a $132 million cumulative reduction in 2014 CAS pension expense and positively impacted operating income across several segments, particularly Aerospace Systems and Information Systems.
Are there any significant legal proceedings that could materially impact the company?
While Northrop Grumman is involved in various ongoing legal proceedings, including a significant False Claims Act case related to an FSS contract and litigation in Brazil, the company states that, other than the FSS matters (the outcome of which cannot be predicted), it does not believe the outcome of any other pending matter is likely to have a material adverse effect on its financial position, results of operations, or cash flows as of September 30, 2014.
06—Continue