10-QPeriod: Q2 FY2020

NORTHROP GRUMMAN CORP /DE/ Quarterly Report for Q2 Ended Jun 30, 2020

Filed July 30, 2020For Securities:NOC

Summary

Northrop Grumman Corporation (NOC) reported strong financial results for the second quarter and first half of 2020, demonstrating resilience amidst the COVID-19 pandemic. Total sales increased by 5% for both periods, reaching $8.88 billion in Q2 and $17.50 billion year-to-date, driven by growth across all four operating segments: Aeronautics Systems, Defense Systems, Mission Systems, and Space Systems. Net earnings saw a significant increase of 17% in Q2 and 9% year-to-date, with diluted EPS growing by 19% and 10% respectively. The company also reported a substantial increase in operating cash flow and free cash flow, significantly improved by CARES Act provisions and increased DoD progress payments. Despite global uncertainties, Northrop Grumman maintained a positive outlook for the remainder of the year, with a robust backlog of $70 billion providing visibility into future revenue. The company's balance sheet remains strong with $4.2 billion in cash and cash equivalents as of June 30, 2020. Management's strategic actions, including the issuance of $2.25 billion in senior notes, have bolstered financial flexibility. While acknowledging potential impacts from COVID-19, including increased costs and productivity reductions, the company has implemented robust measures to protect employees and ensure operational continuity. The company's diversified business and strong government customer relationships position it well to navigate the current economic climate and continue delivering critical defense and aerospace solutions.

Financial Highlights

50 data points
Beta

Revenue

$8.88B

Net Income

$1.00B

11.3% Net Margin

EPS (Diluted)

$6.01

Total Assets

$43.48B

Cash & Equivalents

$4.18B

Free Cash Flow

$2.07B

Financial Statements
Beta
Revenue$8.88B
Operating Expenses$7.89B
Operating Income$994.00M
Net Income$1.00B
EPS (Basic)$6.02
EPS (Diluted)$6.01
Shares Outstanding (Basic)166.90M
Shares Outstanding (Diluted)167.30M

Key Highlights

  • 1Total sales increased by 5% to $8.88 billion in Q2 2020 and 5% to $17.50 billion year-to-date, demonstrating continued revenue growth.
  • 2Net earnings rose significantly by 17% in Q2 2020 to $1.005 billion and by 9% year-to-date to $1.873 billion.
  • 3Diluted earnings per share (EPS) saw robust growth, up 19% in Q2 2020 to $6.01 and 10% year-to-date to $11.16.
  • 4Operating cash flow significantly improved, increasing by 94% year-to-date to $1.344 billion, aided by CARES Act provisions and increased DoD progress payments.
  • 5Free cash flow saw a substantial increase of 408% year-to-date, reaching $803 million.
  • 6The company ended the period with a strong backlog of $70.0 billion, providing excellent revenue visibility.
  • 7Cash and cash equivalents stood at a healthy $4.178 billion as of June 30, 2020, bolstered by a recent debt issuance.

Frequently Asked Questions

COVID-19 had some impact, reducing revenue and operating income particularly at Aeronautics and Mission Systems. However, these impacts were less significant than initially expected. The company has implemented robust measures to protect employees and maintain operations, and does not currently expect material reductions in revenue or operating income for the second half of 2020 due to COVID-19.

Northrop Grumman reported a strong backlog of $70.0 billion as of June 30, 2020. Management expects to recognize approximately 40% of this backlog over the next 12 months and 65% over the next 24 months, indicating strong revenue visibility for the foreseeable future.

The company demonstrated strong cash flow generation, with a significant increase in operating cash flow and free cash flow year-to-date. They also bolstered financial flexibility by issuing $2.25 billion in unsecured senior notes in March 2020, intended for general corporate purposes including debt repayment and working capital.

Sales increased across all four operating segments, driven by higher volumes in programs such as restricted programs, Next Generation Overhead Persistent Infrared Radar (Next Gen OPIR), and E-2D. The increase in net earnings was primarily due to a higher FAS (non-service) pension benefit, improved operating income, and higher returns on marketable securities related to non-qualified benefit plans.