10-QPeriod: Q2 FY2019

NORTHROP GRUMMAN CORP /DE/ Quarterly Report for Q2 Ended Jun 30, 2019

Filed July 24, 2019For Securities:NOC

Summary

Northrop Grumman Corporation (NOC) reported strong financial performance for the second quarter and first six months of 2019. Total sales for the quarter increased significantly by 19% to $8.5 billion, driven by the full inclusion of Innovation Systems following the 2018 acquisition of Orbital ATK, as well as growth in Mission Systems and Aerospace Systems. Net earnings also saw a healthy increase of 9% to $861 million for the quarter, with diluted EPS rising to $5.06. The company's operating income improved by 16% to $946 million, and the operating margin remained robust at 11.2%. Year-to-date figures also reflect substantial sales growth and increased profitability. The company's strategic acquisition of Orbital ATK continues to contribute positively, with the Innovation Systems segment showing strong performance. Backlog remains substantial at $63.0 billion, indicating a strong pipeline of future revenue. While there were increases in certain operating costs, particularly related to intangible asset amortization and depreciation from the acquisition, the overall financial health of the company appears strong, supported by consistent government and international contracts across its diverse segments.

Financial Highlights

50 data points
Beta

Revenue

$8.46B

Net Income

$861.00M

10.2% Net Margin

EPS (Diluted)

$5.06

Total Assets

$39.58B

Cash & Equivalents

$1.09B

Free Cash Flow

$1.35B

Financial Statements
Beta
Revenue$8.46B
Operating Income$946.00M
Net Income$861.00M
EPS (Basic)$5.07
EPS (Diluted)$5.06
Shares Outstanding (Basic)169.70M
Shares Outstanding (Diluted)170.30M

Key Highlights

  • 1Total sales for Q2 2019 surged 19% to $8.46 billion, reflecting the full impact of the Orbital ATK acquisition and growth across multiple segments.
  • 2Net earnings for Q2 2019 increased 9% to $861 million, with diluted EPS rising to $5.06, demonstrating improved profitability.
  • 3Operating income grew 16% to $946 million in Q2 2019, showing strong operational performance.
  • 4The Innovation Systems segment, formed after the Orbital ATK acquisition, is fully integrated and contributing positively to revenue and results.
  • 5The company's backlog stood at a robust $63.0 billion as of June 30, 2019, providing visibility into future revenue streams.
  • 6Effective tax rate improved due to higher research credits, positively impacting net earnings.
  • 7Shareholder returns were supported by a 10% increase in the quarterly common stock dividend and ongoing share repurchase programs.

Frequently Asked Questions

The primary driver for the 19% increase in sales to $8.46 billion in the second quarter of 2019 was the full inclusion of sales from the Innovation Systems segment, which resulted from the acquisition of Orbital ATK in June 2018. Additionally, higher sales from the Mission Systems and Aerospace Systems segments also contributed to the growth.

The acquisition of Orbital ATK, now operating as the Innovation Systems segment, contributed significantly to the company's revenue growth in the second quarter of 2019, as its results were fully consolidated. While the acquisition brought increased sales, it also led to higher operating costs, including intangible asset amortization and depreciation related to the fair value step-up of acquired assets. However, the overall impact on operating income and net earnings was positive.

Northrop Grumman reported a substantial backlog of $63.0 billion as of June 30, 2019. This significant backlog, which represents future contracted revenue, indicates a strong pipeline of work and provides good visibility into future sales and operational activity across the company's various segments. Approximately 40% of the backlog is expected to be recognized as revenue within the next 12 months.

The effective tax rate decreased in the second quarter of 2019 to 16.2% from 19.2% in the prior year period, and year-to-date it decreased to 16.4% from 17.5%. This improvement was primarily due to higher research credits claimed, which favorably impacted net earnings. The company also noted potential future increases in unrecognized tax benefits related to timing items.