Northrop Grumman (NOC) Up 0.8% Since Last Earnings Report: Can It Continue?
A month has gone by since the last earnings report for Northrop Grumman (NOC). Shares have added about 0.8% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Northrop Grumman due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Northrop Grumman Tops on Q2 Earnings, Ups' 18 EPS View
Northrop Grumman Corporation reported second-quarter 2018 earnings of $3.93 per share, beating the Zacks Consensus Estimate of $3.83 by 2.6%. Reported earnings were also up 24.4% from $3.16 recorded in the year-ago quarter.
Total Revenues
In second-quarter 2018, Northrop Grumman reported total revenues of $7.12 billion, beating the Zacks Consensus Estimate of $7 billion by 1.65%. Revenues also increased 10% from the year-ago figure of $6.47 billion.
The revenue upside was primarily driven by an 11% increase in Aerospace systems sales.
Segmental Details
Aerospace Systems: Segment sales of $3.34 billion increased 11% year over year as a result of higher volumes of manned aircraft programs. Strong autonomous systems and space sales also benefitted this segment.
Operating income also rose 12% to $357 million, while operating margin was in line with the previous year’s margin.
Mission Systems: Segment sales increased 1% to $2.87 billion, due to higher sales volume of Sensors and Processing systems, and higher volume for Advanced Capabilities programs.
Operating income fell 8.3% to $352 million, along with operating margin contracting 120 bps to 12.2%.
Technology Services: Sales at this segment dropped 10% to $1.05 billion, primarily due to the completion of several programs, including JRDC, and lower volume on the KC-10 program, which is near completion.
Operating income decreased 24% to $95 million, along with operating margin contracting 170 bps to 9.1%.
Operational Update
Total operating cost and expenses at the end of the quarter was $6.29 billion, up 12.43%.
Operating income during the quarter declined 5.7% to $0.82 billion.
Financial Condition
Northrop Grumman’s cash and cash equivalents as of Jun 30, 2018 were $1.54 billion, down from $11.22 billion as of Dec 31, 2017.
Long-term debt (net of current portion) as of Jun 30, 2018, was $14.38 billion, down from $14.39 billion as of 2017 end.
Net cash inflow from operating activities as of Jun 30, 2018 was $638 million compared with the year-ago figure of $68 million.
2018 Guidance
Northrop Grumman currently expects to generate revenues of $30 billion during 2018, in line with its earlier guidance.
On the bottom-line front, the company has raised its outlook. Northrop Grumman now expects to generate earnings in the range of $16.60-$16.85 per share compared with the earlier guidance range of $16.20-$16.45. However, the company maintains its free cash flow guidance in the range of $2.4-$2.6 billion.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates flatlined during the past month.
VGM Scores
Currently, Northrop Grumman has a nice Growth Score of B, however its momentum is doing a bit better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Based on our scores, the stock is more suitable for momentum investors than those looking for value and growth.
Outlook
Northrop Grumman has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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