10-QPeriod: Q3 FY2020

NORTHROP GRUMMAN CORP /DE/ Quarterly Report for Q3 Ended Sep 30, 2020

Filed October 22, 2020For Securities:NOC

Summary

Northrop Grumman Corporation (NOC) reported strong financial results for the third quarter and first nine months of 2020, demonstrating resilience amidst the ongoing COVID-19 pandemic. Total sales increased by 7% in the quarter and 6% year-to-date, driven by growth across all segments, particularly Space Systems and Mission Systems. Net earnings saw a significant rise of 6% in Q3 and 8% year-to-date. The company also reported a substantial increase in operating cash flow, up 47% year-to-date, leading to a significant improvement in free cash flow, which more than doubled year-over-year. Financially, the company ended the period with a robust cash position of $5.0 billion. Despite some increased costs related to operational adjustments for COVID-19 and higher income tax expenses, Northrop Grumman maintained healthy operating margins and demonstrated effective cost management. The company also highlighted its commitment to shareholders through dividend increases and ongoing share repurchase programs, with $2.8 billion remaining under its current authorization.

Financial Highlights

50 data points
Beta

Revenue

$9.08B

Net Income

$986.00M

10.9% Net Margin

EPS (Diluted)

$5.89

Total Assets

$44.77B

Cash & Equivalents

$5.00B

Free Cash Flow

$1.07B

Financial Statements
Beta
Revenue$9.08B
Operating Expenses$8.10B
Operating Income$985.00M
Net Income$986.00M
EPS (Basic)$5.91
EPS (Diluted)$5.89
Shares Outstanding (Basic)166.80M
Shares Outstanding (Diluted)167.30M

Key Highlights

  • 1Total sales increased by 7% to $9.1 billion in Q3 2020 and by 6% to $26.6 billion year-to-date, with growth observed across all segments.
  • 2Net earnings rose by 6% to $986 million in Q3 2020 and by 8% to $2.86 billion year-to-date.
  • 3Diluted earnings per share (EPS) increased by 7% to $5.89 in Q3 2020 and by 9% to $17.05 year-to-date, reflecting strong profitability.
  • 4Operating cash flow significantly improved, increasing by 47% to $2.7 billion year-to-date, enabling a 80% surge in free cash flow to $1.875 billion.
  • 5The company ended the period with a strong cash and cash equivalents balance of $5.0 billion, up from $2.2 billion at the beginning of the year.
  • 6Backlog remained substantial at $81.3 billion as of September 30, 2020, indicating strong future revenue potential.
  • 7The company increased its quarterly common stock dividend by 10% in May 2020.

Frequently Asked Questions

Northrop Grumman stated that the company's third quarter revenue and operating income were not significantly impacted by COVID-19. While they experienced some increased costs related to health and safety measures and operational adjustments, these were largely offset by lower costs in areas like employee travel and benefits. The company expects to continue mitigating impacts through CARES Act provisions and increased government progress payments.

Northrop Grumman reported a substantial backlog of $81.3 billion as of September 30, 2020. The company expects to recognize approximately 35% and 55% of this backlog as revenue over the next 12 and 24 months, respectively, indicating a strong revenue pipeline for the near to medium term.

Northrop Grumman has a strong liquidity position with $5.0 billion in cash and cash equivalents. In March 2020, they issued $2.25 billion in unsecured senior notes to enhance financial flexibility. The company repaid $1.0 billion of notes in October 2020. They also noted that cash generated from operations, supplemented by available credit facilities, is expected to be sufficient for at least the next 12 months.

The increase in net earnings and EPS was driven by several factors, including higher sales across all segments, an increase in FAS (non-service) pension benefit, and improved operating income. These positive impacts were partially offset by higher income tax expense and interest expense.