01—Abstract
Summary
Summary of the 10-Q filed July 27, 2016. Cited figures are marked; the original filing is the authoritative source.
Northrop Grumman Corporation (NOC) reported financial results for the second quarter and first half of 2016.
For the three months ended June 30, 2016, total sales increased by 2% to $6.0 billiona compared to the prior year, while net earnings decreased by 3% to $517 million. Diluted earnings per share saw a 4% increase to $2.85, driven by lower share counts from buybacks. For the six months ended June 30, 2016, sales grew by 1% to $11.96 billion, and net earnings increased by 6% to $1.07 billion, with diluted EPS rising 14% to $5.88.
Operating income for the quarter declined 2% to $797 millionb, and the operating margin rate compressed slightly to 13.3% from 13.8%. This was primarily due to increased operating costs and expenses as a percentage of sales.
The effective tax rate for the year-to-date period was significantly lower due to the adoption of new accounting standards related to share-based payments and the extension of the research tax credit, partially offset by the absence of prior year refund claims. The company also reported a substantial improvement in operating cash flow for the first half of the year, generating $544 millionc compared to a use of $28 million in the prior year, largely due to a significant pension contribution made in the prior year and improved working capital management.
02—Key points
Key Highlights
- Total sales for the second quarter of 2016 increased by 2% to $6.0 billion year-over-year.
- Net earnings for the second quarter decreased by 3% to $517 million, while diluted EPS increased by 4% to $2.85.
- For the first six months of 2016, sales grew 1% to $11.96 billion and net earnings increased 6% to $1.07 billion.
- Operating income for the quarter declined by 2% to $797 million, with operating margin rate decreasing to 13.3% from 13.8%.
- Operating cash flow for the first six months of 2016 was a strong positive $544 million, a significant improvement from -$28 million in the prior year.
- The company repurchased $0.4 billion of its stock under the 2015 Repurchase Program as of June 30, 2016, with $3.6 billion remaining authorization.
- A significant portion of the effective tax rate reduction for the year-to-date period was due to the adoption of ASU No. 2016-09, related to share-based payment accounting.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2016, Northrop Grumman Corp kept $0.09.
- Revenue$6.00B100.0%
- Cost of revenue−$2.62B43.7%
- Gross profit$3.38B56.3%
- Operating costs−$2.58B43.0%
- Operating income$797.0M13.3%
- Interest, other & tax−$280.0M4.7%
- Net income$517.0M8.6%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2016filed July 27, 2016Financial Statements
Q2 FY2016 against Q2 FY2015
| Line item | Q2 FY2016Q2 FY2015 | Change |
|---|---|---|
| Revenue | $6.00B$5.90B | +1.8% |
| Cost of Revenue | $2.62B$2.57B | +2.1% |
| Gross Profit | $3.38B$3.33B | +1.5% |
| Operating Income | $797.00M$813.00M | −2.0% |
| Net Income | $517.00M$531.00M | −2.6% |
| EPS (Basic) | $2.87$2.77 | +3.6% |
| EPS (Diluted) | $2.85$2.74 | +4.0% |
| Shares Outstanding (Basic) | 180.10M191.80M | −6.1% |
| Shares Outstanding (Diluted) | 181.50M193.70M | −6.3% |
05—Questions
Frequently Asked Questions
What were the main drivers of the sales increase in the second quarter?
The increase in sales was primarily driven by higher sales in the Aerospace Systems and Mission Systems segments, which were partially offset by lower sales in the Technology Services segment.
Why did the operating income decrease in the second quarter despite higher sales?
Operating income for the quarter decreased primarily due to higher operating costs and expenses as a percentage of sales. This compressed the operating margin rate to 13.3% from 13.8% in the prior year period, mainly due to lower segment margin rates and a decrease in the net FAS/CAS pension adjustment.
What is the company's stance on share repurchases and dividends?
Northrop Grumman actively repurchases its stock, with $3.6 billion remaining under its 2015 Repurchase Program as of June 30, 2016. The company also increased its quarterly common stock dividend in May 2016 to $0.90 per share from $0.80 per share.
Are there any significant legal or environmental matters that could impact the company's financials?
The company is involved in ongoing litigation, including a significant case related to a U.S. Postal Service contract. While the outcomes are uncertain, the company states that, based on current information, they do not believe the outcome of any pending matter is likely to have a material adverse effect on its financial position, results of operations, or cash flows, with the exception of the aforementioned FSS matters which are separately discussed. Environmental remediation cost estimates are provided, with a range of $361 - $771 million in reasonably possible future costs.
06—Continue