01—Abstract
Summary
Summary of the 10-Q filed October 26, 2016. Cited figures are marked; the original filing is the authoritative source.
Northrop Grumman Corporation reported solid financial performance for the nine months ending September 30, 2016.
Total sales increased by 2% year-over-year to $18.11 billiona, driven by growth in the Aerospace Systems segment. Net earnings saw a significant rise of 9% to $1.68 billion, or $9.23 per diluted share, benefiting from a lower effective tax rate, which was positively impacted by a $42 million IRS examination resolution and $85 million in excess tax benefits from stock-based payments following the adoption of ASU No. 2016-09. The company generated strong operating cash flow of $1.28 billion for the nine-month period, a substantial increase from the prior year, contributing to robust free cash flow of $674 million.
This financial strength allowed for significant capital allocation towards share repurchases, totaling $1.15 billionb year-to-date, and increased dividend payments. The company also maintained a healthy backlog, indicating continued demand for its products and services.
02—Key points
Key Highlights
- Total sales for the nine months ended September 30, 2016, increased by 2% to $18.11 billion, driven by the Aerospace Systems segment.
- Net earnings for the nine months increased by 9% to $1.68 billion, with diluted EPS rising 17% to $9.23.
- Effective tax rate decreased significantly in both the current quarter (21.7% vs. 29.2%) and year-to-date (23.0% vs. 29.4%) due to tax benefits and ASU 2016-09 adoption.
- Net cash provided by operating activities more than doubled year-over-year to $1.28 billion for the nine months.
- Free cash flow increased substantially to $674 million for the nine months, up from $195 million in the prior year.
- The company repurchased approximately $1.15 billion of its common stock year-to-date.
- Aerospace Systems segment showed strong sales growth of 6% year-to-date, though operating income saw a slight decrease due to margin mix.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q3 FY2016, Northrop Grumman Corp kept $0.10.
- Revenue$6.16B100.0%
- Cost of revenue−$2.76B44.8%
- Gross profit$3.40B55.2%
- Operating costs−$2.57B41.7%
- Operating income$826.0M13.4%
- Interest, other & tax−$224.0M3.6%
- Net income$602.0M9.8%
04—Financials
Financial Highlights
Figures from 10-QQ3 FY2016filed October 26, 2016Financial Statements
Q3 FY2016 against Q3 FY2015
| Line item | Q3 FY2016Q3 FY2015 | Change |
|---|---|---|
| Revenue | $6.16B$5.98B | +2.9% |
| Cost of Revenue | $2.76B$2.63B | +4.8% |
| Gross Profit | $3.40B$3.35B | +1.5% |
| Operating Income | $826.00M$794.00M | +4.0% |
| Net Income | $602.00M$516.00M | +16.7% |
| EPS (Basic) | $3.38$2.78 | +21.6% |
| EPS (Diluted) | $3.35$2.75 | +21.8% |
| Shares Outstanding (Basic) | 178.10M185.80M | −4.1% |
| Shares Outstanding (Diluted) | 179.60M187.90M | −4.4% |
05—Questions
Frequently Asked Questions
What is the primary driver of the company's sales growth?
The primary driver of sales growth for the nine months ended September 30, 2016, was the Aerospace Systems segment, which experienced a 6% increase in sales. This was largely due to higher volume on Manned Aircraft and Autonomous Systems programs.
What factors contributed to the significant improvement in net earnings and EPS?
The substantial increase in net earnings and diluted earnings per share was primarily driven by a lower effective tax rate. This reduction was due to a $42 million benefit from the resolution of an IRS examination and $85 million in excess tax benefits from stock-based payment transactions resulting from the adoption of ASU No. 2016-09.
How did the company's cash flow generation perform during this period?
Northrop Grumman demonstrated strong cash flow generation. Net cash provided by operating activities increased significantly to $1.28 billion for the nine months ended September 30, 2016, up from $529 million in the prior year. This led to a substantial increase in free cash flow to $674 million.
What is the company's strategy for returning capital to shareholders?
The company is actively returning capital to shareholders through share repurchases and dividend payments. For the nine months ended September 30, 2016, share repurchases amounted to approximately $1.15 billion. The company also increased its quarterly common stock dividend in May 2016 to $0.90 per share.
06—Continue