10-QPeriod: Q1 FY2017

NORTHROP GRUMMAN CORP /DE/ Quarterly Report for Q1 Ended Mar 31, 2017

Filed April 26, 2017For Securities:NOC

Summary

Northrop Grumman Corporation (NOC) reported strong financial performance for the first quarter of 2017, demonstrating significant growth in both sales and profitability compared to the prior year. Total sales increased by 5% to $6.27 billion, driven primarily by robust performance in the Aerospace Systems segment. Net earnings saw a substantial 15% increase, reaching $640 million, which translated to a 20% rise in diluted earnings per share to $3.63. This earnings growth was supported by improved operating margins, a favorable shift in operating costs as a percentage of sales, and disciplined share repurchases that reduced the outstanding share count. The company's operating income grew by 13% to $832 million, reflecting effective cost management and a higher operating margin rate of 13.3%. The company continues to execute its strategic priorities, as evidenced by segment performance across Aerospace Systems, Mission Systems, and Technology Services. Despite ongoing uncertainties in the global geopolitical and U.S. political/economic environments, including potential impacts from continuing resolutions and debt ceiling debates, Northrop Grumman's diversified portfolio and strong contract execution position it well. The company also continued its commitment to returning capital to shareholders through share repurchases and dividend payments.

Financial Statements
Beta

Key Highlights

  • 1Total sales increased by 5% to $6.27 billion for the three months ended March 31, 2017, compared to $5.96 billion in the prior year period.
  • 2Net earnings rose by 15% to $640 million, up from $556 million in the first quarter of 2016.
  • 3Diluted earnings per share (EPS) saw a significant 20% increase, reaching $3.63 from $3.03 in the prior year.
  • 4Operating income grew by 13% to $832 million, with operating margin rate improving to 13.3% from 12.4%.
  • 5Aerospace Systems segment was a key driver of sales growth, with a 13% increase year-over-year, primarily due to higher volume on Manned Aircraft programs.
  • 6The company repurchased $229 million of common stock during the quarter, contributing to a reduction in weighted-average shares outstanding.
  • 7Cash used in operating activities increased to $439 million, which is noted as consistent with historical Q1 trends and a net use of cash expected to be weighted towards the second half of the year.

Frequently Asked Questions

The primary driver of Northrop Grumman's sales growth in Q1 2017 was the Aerospace Systems segment, which saw a 13% increase in sales due to higher volume on Manned Aircraft programs and increased deliveries.

Profitability improved significantly. Net earnings increased by 15% to $640 million, and diluted earnings per share grew by 20% to $3.63. This was supported by a 13% increase in operating income to $832 million and an improved operating margin rate of 13.3%.

The company notes ongoing uncertainty in the U.S. political and economic environment, including potential impacts from continuing resolutions and debt ceiling discussions. While the federal government has been operating under continuing resolutions, the company's business is heavily reliant on U.S. Government contracts, and a prolonged shutdown could limit its ability to perform and receive timely payments. The company continues to monitor these developments closely.

Northrop Grumman actively engages in capital deployment to maximize shareholder value. During Q1 2017, the company repurchased $229 million of its common stock under its existing repurchase program. The company also increased its quarterly common stock dividend in May 2016 to $0.90 per share, demonstrating a commitment to returning capital to shareholders.