10-QPeriod: Q3 FY2016

NORTHROP GRUMMAN CORP /DE/ Quarterly Report for Q3 Ended Sep 30, 2016

Filed October 26, 2016For Securities:NOC

Summary

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 billion, 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 billion year-to-date, and increased dividend payments. The company also maintained a healthy backlog, indicating continued demand for its products and services.

Financial Highlights

48 data points
Beta

Revenue

$6.16B

55.2% Gross Margin

Net Income

$602.00M

9.8% Net Margin

EPS (Diluted)

$3.35

Total Assets

$24.10B

Cash & Equivalents

$1.10B

Free Cash Flow

$601.00M

Financial Statements
Beta
Revenue$6.16B
Cost of Revenue$2.76B
Gross Profit$3.40B
Operating Income$826.00M
Net Income$602.00M
EPS (Basic)$3.38
EPS (Diluted)$3.35
Shares Outstanding (Basic)178.10M
Shares Outstanding (Diluted)179.60M

Key Highlights

  • 1Total sales for the nine months ended September 30, 2016, increased by 2% to $18.11 billion, driven by the Aerospace Systems segment.
  • 2Net earnings for the nine months increased by 9% to $1.68 billion, with diluted EPS rising 17% to $9.23.
  • 3Effective 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.
  • 4Net cash provided by operating activities more than doubled year-over-year to $1.28 billion for the nine months.
  • 5Free cash flow increased substantially to $674 million for the nine months, up from $195 million in the prior year.
  • 6The company repurchased approximately $1.15 billion of its common stock year-to-date.
  • 7Aerospace Systems segment showed strong sales growth of 6% year-to-date, though operating income saw a slight decrease due to margin mix.

Frequently Asked Questions

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.

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.

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.

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.