01—Abstract
Summary
Summary of the 10-Q filed October 25, 2017. Cited figures are marked; the original filing is the authoritative source.
Northrop Grumman Corporation (NOC) reported solid financial results for the third quarter and the first nine months of 2017, demonstrating continued revenue and earnings growth.
Total sales increased by 6% year-over-year for both the quarter and year-to-date periods, reaching $6.53 billiona and $19.17 billion, respectively. Net earnings also saw a healthy increase, growing 7% for the quarter to $645 million and 10% year-to-date to $1.84 billion. Diluted Earnings Per Share (EPS) showed an even stronger performance, up 10% for the quarter to $3.68 and 13% year-to-date to $10.46.
The company's outlook is significantly influenced by the pending acquisition of Orbital ATK, Inc., announced in September 2017 for approximately $7.8 billionb in cash plus the assumption of $1.4 billion in net debt. This strategic move is expected to broaden NOC's capabilities and is anticipated to close in the first half of 2018. To finance this acquisition, NOC completed an $8.25 billion debt offering in October 2017.
Despite overall positive financial trends, investors should note the slight decrease in operating margin rate for the quarter to 12.9% from 13.4% in the prior year, primarily due to increased unallocated corporate expenses. However, the year-to-date operating margin improved slightly to 13.2% from 13.0%. The company continues to manage its capital effectively, with a remaining share repurchase authorization of $2.3 billionc under its 2015 program.
02—Key points
Key Highlights
- Total sales for Q3 2017 increased 6% to $6.53 billion; year-to-date sales grew 6% to $19.17 billion.
- Net earnings increased 7% in Q3 2017 to $645 million; year-to-date net earnings rose 10% to $1.84 billion.
- Diluted EPS grew 10% for the quarter to $3.68 and 13% year-to-date to $10.46.
- The company announced a definitive agreement to acquire Orbital ATK for approximately $7.8 billion in cash plus $1.4 billion in net debt, expected to close in H1 2018.
- Northrop Grumman completed an $8.25 billion unsecured senior notes issuance in October 2017 to finance the Orbital ATK acquisition.
- Operating income saw a modest 2% increase for the quarter to $845 million, but a stronger 7% increase year-to-date to $2.53 billion.
- Aerospace Systems segment sales grew 11% for the quarter and 12% year-to-date, driven by Manned Aircraft and Space programs.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q3 FY2017, Northrop Grumman Corp kept $0.11.
- Revenue$6.53B100.0%
- Cost of revenue−$3.15B48.3%
- Gross profit$3.37B51.7%
- Operating costs−$2.54B39.0%
- Operating income$829.0M12.7%
- Interest, other & tax−$79.0M1.2%
- Net income$750.0M11.5%
04—Financials
Financial Highlights
Figures from 10-QQ3 FY2017filed October 25, 2017Financial Statements
Q3 FY2017 against Q3 FY2016
| Line item | Q3 FY2017Q3 FY2016 | Change |
|---|---|---|
| Revenue | $6.53B$6.16B | +6.0% |
| Cost of Revenue | $3.15B$2.76B | +14.2% |
| Gross Profit | $3.37B$3.40B | −0.6% |
| Operating Income | $829.00M$826.00M | +0.4% |
| Net Income | $750.00M$602.00M | +24.6% |
| EPS (Basic) | $4.31$3.38 | +27.5% |
| EPS (Diluted) | $4.28$3.35 | +27.8% |
| Shares Outstanding (Basic) | 174.20M178.10M | −2.2% |
| Shares Outstanding (Diluted) | 175.30M179.60M | −2.4% |
05—Questions
Frequently Asked Questions
What is the financial performance of Northrop Grumman for the third quarter and year-to-date 2017?
For the third quarter of 2017, Northrop Grumman reported total sales of $6.53 billion, a 6% increase year-over-year, and net earnings of $645 million, a 7% increase. Diluted Earnings Per Share (EPS) was $3.68, up 10%. Year-to-date, total sales were $19.17 billion (up 6%), net earnings were $1.84 billion (up 10%), and diluted EPS was $10.46 (up 13%).
What are the key strategic developments for Northrop Grumman?
The most significant strategic development is the announced definitive agreement to acquire Orbital ATK, Inc. for approximately $7.8 billion in cash, plus the assumption of $1.4 billion in net debt. This acquisition is expected to close in the first half of 2018 and is being financed through a combination of debt financing, including an $8.25 billion unsecured senior notes issuance in October 2017.
How did the company's segments perform?
Northrop Grumman operates in three segments: Aerospace Systems, Mission Systems, and Technology Services. Aerospace Systems showed strong growth with sales up 11% for the quarter and 12% year-to-date, driven by Manned Aircraft and Space programs. Mission Systems saw sales increase 5% for the quarter and 3% year-to-date. Technology Services experienced a slight sales decrease of 1% for the quarter and 2% year-to-date, but reported improved operating margins.
What is the outlook regarding share repurchases and dividends?
The company continues its share repurchase program, with $2.3 billion remaining authorization under the 2015 Repurchase Program as of September 30, 2017. Additionally, the quarterly common stock dividend was increased by 11% in May 2017 to $1.00 per share.
06—Continue