10-QPeriod: Q2 FY2023

NORTHROP GRUMMAN CORP /DE/ Quarterly Report for Q2 Ended Jun 30, 2023

Filed July 27, 2023For Securities:NOC

Summary

Northrop Grumman Corporation reported solid top-line growth in its second-quarter and first-half 2023 results, with total sales increasing by 9% and 7% year-over-year, respectively. This growth was driven by strong demand across all four operating sectors, benefiting from improved labor availability and supplier deliveries. Despite increased sales, net earnings saw a decrease of 14% and 13% for the quarter and year-to-date periods, respectively. This decline was primarily attributed to a significant reduction in the non-operating FAS pension benefit and, in the current quarter, an unfavorable Estimate at Completion (EAC) adjustment on the Habitation and Logistics Outpost (HALO) program within the Space Systems segment. The company also reported increased borrowings on commercial paper and the issuance of new long-term debt, contributing to a stronger cash position, while continuing its share repurchase program. Investors should note the ongoing macroeconomic challenges, including inflationary pressures and supply chain disruptions, which are expected to continue impacting the business. The company's significant backlog of $78.8 billion provides a strong foundation for future revenue, with approximately 40% expected to be recognized over the next 12 months. While the company continues to navigate various legal and regulatory matters, it maintains that the outcomes are not expected to have a material adverse effect on its financial position. The company's effective tax rate remained stable, though future impacts from tax legislation, particularly related to R&D expense amortization, are anticipated.

Financial Highlights

49 data points
Beta

Revenue

$9.58B

Net Income

$812.00M

8.5% Net Margin

EPS (Diluted)

$5.34

Total Assets

$45.61B

Cash & Equivalents

$3.38B

Free Cash Flow

$615.00M

Financial Statements
Beta
Revenue$9.58B
Operating Expenses$8.61B
Operating Income$967.00M
Net Income$812.00M
EPS (Basic)$5.35
EPS (Diluted)$5.34
Shares Outstanding (Basic)151.70M
Shares Outstanding (Diluted)152.20M

Key Highlights

  • 1Total sales increased by 9% to $9.58 billion for the three months ended June 30, 2023, compared to $8.80 billion in the prior year period.
  • 2Net earnings decreased by 14% to $812 million for the three months ended June 30, 2023, compared to $946 million in the prior year period.
  • 3Operating income increased slightly by 1% to $967 million for the three months ended June 30, 2023.
  • 4The company's backlog remained strong at $78.8 billion as of June 30, 2023.
  • 5The Space Systems segment experienced an unfavorable EAC adjustment of $36 million on the HALO program, impacting segment operating income.
  • 6Net cash provided by operating activities improved significantly to $217 million for the six months ended June 30, 2023, compared to a use of $685 million in the prior year period.
  • 7The company issued $2.0 billion in unsecured senior notes and had $779 million in outstanding commercial paper borrowings as of June 30, 2023.

Frequently Asked Questions

Sales increased by 9% to $9.58 billion, primarily due to higher sales across all four operating sectors. This growth was supported by continued strong demand, improving labor availability, and better supplier deliveries.

Net earnings decreased by 14% to $812 million. This was mainly due to a $244 million reduction in the non-operating FAS pension benefit, an unfavorable Estimate at Completion (EAC) adjustment of $36 million on the HALO program in the Space Systems segment, and other factors, partially offset by higher operating income and favorable returns on marketable securities.

Northrop Grumman acknowledges that macroeconomic factors, including inflationary pressures and supply chain challenges, have adversely affected and are expected to continue to affect its business, suppliers, and customers. The company is actively working to mitigate these impacts through various strategies.

The company's cash position improved, with $3.4 billion in cash and cash equivalents at June 30, 2023. Net cash from operations turned positive, increasing to $217 million for the first half of 2023, up from a negative $685 million in the prior year. The company also issued new long-term debt and utilized commercial paper to support its liquidity, while continuing share repurchases and dividend payments.