10-QPeriod: Q3 FY2019

NORTHROP GRUMMAN CORP /DE/ Quarterly Report for Q3 Ended Sep 30, 2019

Filed October 24, 2019For Securities:NOC

Summary

Northrop Grumman Corporation reported its third-quarter and nine-month results for the period ending September 29, 2019. Total sales for the third quarter increased by 5% to $8.5 billion, driven by higher sales across all four business sectors. For the nine-month period, sales saw a significant 14% increase to $25.1 billion, primarily due to the full inclusion of Innovation Systems' results and growth in Aerospace Systems and Mission Systems. However, net earnings for the third quarter declined by 25% to $933 million, resulting in diluted earnings per share of $5.49, a decrease from $7.11 in the prior year. This decline was attributed to higher unallocated corporate expenses and a reduction in the net FAS (service)/CAS pension adjustment, alongside lower segment operating income. For the nine-month period, net earnings decreased by 8% to $2.7 billion. Despite the decrease in earnings, the company maintained a strong backlog of $65.0 billion and reported solid free cash flow of $1.04 billion year-to-date.

Financial Highlights

50 data points
Beta

Revenue

$8.47B

Net Income

$933.00M

11.0% Net Margin

EPS (Diluted)

$5.49

Total Assets

$40.55B

Cash & Equivalents

$1.13B

Free Cash Flow

$882.00M

Financial Statements
Beta
Revenue$8.47B
Operating Income$951.00M
Net Income$933.00M
EPS (Basic)$5.52
EPS (Diluted)$5.49
Shares Outstanding (Basic)169.10M
Shares Outstanding (Diluted)169.90M

Key Highlights

  • 1Total sales for the third quarter of 2019 increased by 5% to $8.475 billion, reflecting growth across all business segments.
  • 2Year-to-date sales increased by 14% to $25.120 billion, largely due to the full nine months of results from the acquired Innovation Systems segment.
  • 3Net earnings for the third quarter decreased by 25% to $933 million, with diluted EPS falling to $5.49 from $7.11 in the prior year.
  • 4Year-to-date net earnings decreased by 8% to $2.657 billion, impacted by higher unallocated corporate expenses and lower pension adjustments.
  • 5The company's backlog remained strong, ending the third quarter at $65.0 billion, an increase of 22% from the prior year.
  • 6Free cash flow for the first nine months of 2019 improved significantly to $1.040 billion, up 57% from the same period in 2018.

Frequently Asked Questions

The significant increase in sales for the nine-month period ending September 30, 2019, was primarily driven by the inclusion of a full nine months of sales from the Innovation Systems segment (acquired in June 2018), along with higher sales in the Aerospace Systems and Mission Systems segments. Partially offsetting this growth was a decrease in sales from the Technology Services segment.

The decrease in net earnings for the third quarter and year-to-date was mainly due to increased unallocated corporate expenses, a decline in the net FAS (service)/CAS pension adjustment, and lower segment operating income in the third quarter. Specifically, the prior year's third quarter included a significant benefit from the finalization of prior year cost claims, which was not present in the current year.

The acquisition of Orbital ATK (now Innovation Systems) has significantly increased sales, especially for the nine-month period. While it contributes positively to revenue, the integration and associated costs, as well as the impact on overall corporate expenses and pension adjustments, have influenced the company's profitability metrics. The company noted cost synergies realized from the acquisition contributing to a decrease in G&A expenses as a percentage of sales.

Northrop Grumman reported a strong backlog of $65.0 billion as of September 30, 2019, which represents future sales expected from firm orders. The company expects to recognize approximately 40% of this backlog within the next 12 months. Management believes its capabilities in key defense areas position it for continued profitable growth.