01—Abstract
Summary
Summary of the 10-Q filed April 24, 2019. Cited figures are marked; the original filing is the authoritative source.
Northrop Grumman Corporation reported strong performance for the first quarter of 2019, with total sales reaching $8.19 billiona, a significant increase of 22% compared to the same period last year.
This growth was primarily driven by the inclusion of the recently acquired Innovation Systems segment, which contributed $1.4 billionb in sales, and higher sales within the Aerospace Systems segment. Net earnings also saw a positive trend, increasing by 3% to $863 million, resulting in diluted earnings per share of $5.06, up from $4.79 in the prior year. The company's operating income grew by 10% to $936 million, though the operating margin rate saw a slight decrease to 11.4% from 12.6%.
This was largely due to an increase in unallocated corporate expenses, primarily related to intangible asset amortization and depreciation from the acquisition. Despite increased corporate expenses, segment operating income showed robust growth of 27%c, highlighting the strong underlying performance of the individual business units. Financially, the company's cash flow from operations was negatively impacted by changes in trade working capital, including the completion of an ERP conversion and the integration of Innovation Systems.
This resulted in net cash used in operating activities of $913 milliond for the quarter. However, the company remains adequately capitalized, with sufficient cash and credit facilities to fund operations and strategic initiatives.
02—Key points
Key Highlights
- Total sales increased by 22% to $8.19 billion, significantly boosted by the addition of the Innovation Systems segment ($1.4 billion) and growth in Aerospace Systems.
- Net earnings rose by 3% to $863 million, leading to a 6% increase in diluted earnings per share to $5.06.
- Operating income grew by 10% to $936 million, although the operating margin rate slightly decreased to 11.4% due to higher unallocated corporate expenses related to the Orbital ATK acquisition.
- Segment operating income demonstrated strong growth of 27%, indicating healthy performance across the company's core business segments.
- The company's backlog stood at $57.3 billion as of March 31, 2019, reflecting a solid pipeline of future revenue.
- Net cash used in operating activities was $913 million, primarily due to working capital changes and the integration of Innovation Systems, but the company expects recovery in the second quarter.
- The company repurchased approximately 1.1 million shares of common stock during the quarter for $289 million.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-QQ1 FY2019filed April 24, 2019Financial Statements
Q1 FY2019 against Q1 FY2018
| Line item | Q1 FY2019Q1 FY2018 | Change |
|---|---|---|
| Revenue | $8.19B$6.74B | +21.6% |
| Operating Income | $936.00M$848.00M | +10.4% |
| Net Income | $863.00M$840.00M | +2.7% |
| EPS (Basic) | $5.08$4.82 | +5.4% |
| EPS (Diluted) | $5.06$4.79 | +5.6% |
| Shares Outstanding (Basic) | 170.00M174.30M | −2.5% |
| Shares Outstanding (Diluted) | 170.70M175.40M | −2.7% |
05—Questions
Frequently Asked Questions
What drove the significant increase in sales in Q1 2019?
The substantial 22% increase in total sales to $8.19 billion was primarily driven by the consolidation of the recently acquired Innovation Systems segment, which contributed $1.4 billion in sales. Additionally, higher sales within the Aerospace Systems segment also contributed to this growth.
Why did the operating margin rate decrease despite an increase in operating income?
While operating income increased by 10% to $936 million, the operating margin rate declined slightly to 11.4% from 12.6%. This was mainly due to an increase in unallocated corporate expenses, which rose by $98 million. These expenses are largely related to intangible asset amortization and depreciation resulting from the acquisition of Orbital ATK.
What is the impact of the Orbital ATK acquisition on the company's financial statements?
The acquisition of Orbital ATK, now operating as the Innovation Systems segment, has significantly increased total sales and operating income. However, it has also led to higher unallocated corporate expenses, primarily due to the amortization of acquired intangible assets and step-up in depreciation, which impacted the overall operating margin rate in the first quarter of 2019.
What caused the negative cash flow from operations in the first quarter?
Net cash used in operating activities was negatively impacted by changes in trade working capital, which increased by $1.96 billion. This was attributed to the completion of an Enterprise Resource Planning (ERP) system conversion that delayed billings and cash receipts, and the operational cash needs of the newly integrated Innovation Systems segment. The company anticipates recovery of these amounts in the second quarter.
06—Continue