10-QPeriod: Q3 FY2021

NORTHROP GRUMMAN CORP /DE/ Quarterly Report for Q3 Ended Sep 30, 2021

Filed October 28, 2021For Securities:NOC

Summary

Northrop Grumman Corporation (NOC) reported strong financial results for the nine months ended September 30, 2021, with total sales increasing by 2% to $27.0 billion. This growth was primarily driven by a significant 28% increase in Space Systems sales, reaching $7.95 billion, and a 4% increase in Mission Systems sales to $7.61 billion. The company successfully completed the divestiture of its IT and mission support services business for $3.4 billion in cash, resulting in a substantial pre-tax gain of $2.0 billion. This strategic move, along with ongoing share repurchases and dividend payments, reflects a commitment to enhancing shareholder value. Operationally, the company demonstrated resilience despite ongoing impacts from the COVID-19 pandemic, including labor market tightness and supply chain challenges. These factors affected revenue in the Defense Systems segment, which saw a 22% decrease in sales, largely due to the IT services divestiture. Despite these headwinds, the overall operating income saw a significant 69% increase year-over-year, largely attributable to the gain on the divestiture. Diluted EPS also showed robust growth, increasing by 56% to $26.55 for the nine-month period, reflecting improved profitability and a reduction in outstanding shares.

Financial Highlights

50 data points
Beta

Revenue

$8.72B

Net Income

$1.06B

12.2% Net Margin

EPS (Diluted)

$6.63

Total Assets

$42.35B

Cash & Equivalents

$4.05B

Free Cash Flow

$916.00M

Financial Statements
Beta
Revenue$8.72B
Operating Expenses$7.68B
Operating Income$1.04B
Net Income$1.06B
EPS (Basic)$6.65
EPS (Diluted)$6.63
Shares Outstanding (Basic)159.80M
Shares Outstanding (Diluted)160.40M

Key Highlights

  • 1Total sales for the nine months ended September 30, 2021, increased by 2% to $27.03 billion compared to $26.59 billion in the prior year period.
  • 2The company completed the divestiture of its IT and mission support services business for $3.4 billion, recognizing a pre-tax gain of $2.0 billion.
  • 3Space Systems segment sales grew significantly by 28% to $7.95 billion for the nine-month period.
  • 4Operating income for the nine months ended September 30, 2021, increased by 69% to $4.91 billion, largely boosted by the gain on the IT services divestiture.
  • 5Diluted earnings per share (EPS) for the nine months ended September 30, 2021, rose by 56% to $26.55.
  • 6The company repurchased approximately $2.7 billion of its common stock during the first nine months of 2021.
  • 7Backlog remained substantial at $74.8 billion as of September 30, 2021, though it decreased by 8% from the previous year-end.

Frequently Asked Questions

The divestiture of the IT and mission support services business was a significant event, generating $3.4 billion in cash and a pre-tax gain of $2.0 billion recognized in the nine months ended September 30, 2021. This divestiture also led to a reduction in sales for the Defense Systems segment and impacted overall reported sales figures. While contributing positively to operating income due to the gain, it also resulted in a significant increase in the effective tax rate for the year-to-date period due to associated tax expenses.

Space Systems showed the strongest growth with a 28% increase in sales year-to-date. Mission Systems also saw a 4% increase in sales. Defense Systems experienced a 22% sales decrease, largely due to the IT services divestiture. Aeronautics Systems sales were relatively flat, down 1% year-to-date. Overall, segment operating income increased by 7% year-to-date, driven by growth in Space Systems and Mission Systems, partly offset by the impact of divestiture on Defense Systems.

Northrop Grumman actively deploys capital through share repurchases and dividends. In the first nine months of 2021, the company repurchased approximately $2.7 billion of its common stock and paid $737 million in dividends. The company also increased its quarterly common stock dividend by 8% to $1.57 per share in May 2021, indicating a commitment to returning value to shareholders.

The company continues to navigate the impacts of the COVID-19 pandemic, including labor shortages, supply chain disruptions, and evolving government mandates like vaccine requirements. Additionally, the company faces risks related to U.S. government budget appropriations, geopolitical factors, potential legal proceedings, and the inherent complexities and estimates involved in long-term government contracts.