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Northrop Grumman (NOC) Beats on Q3 Earnings, Ups '19 EPS View

Zacks Equity Research

Northrop Grumman Corporation NOC reported third-quarter 2019 earnings of $5.49 per share, which surpassed the Zacks Consensus Estimate of $4.74 by 15.8%. However, the bottom line declined 22.8% from $7.11 reported in the year-ago quarter.

Total Sales

In third-quarter 2019, Northrop Grumman reported total sales of $8,475 million, which missed the Zacks Consensus Estimate of $8,546 million by 0.83%. However, sales grew 4.8% from the year-ago quarter’s $8,085 million. The upside was driven by growth in all business segments.

Backlog

Northrop Grumman’s total backlog at the end of third-quarter 2019 was $65 billion. Funded backlog during the quarter amounted to $31.96 billion, whereas unfunded backlog amounted to $33.04 billion.

Segmental Details

Aerospace Systems: Sales at this segment totaled $3,458 million, up 5% year over year, backed by increased sales owing to higher volumes of Manned Aircraft, Autonomous Systems and Space programs.

Operating income declined 14% to $324 million, while operating margin contracted 210 basis points (bps) to 9.4%.

Mission Systems: Segment sales rose 4% to $3,029 million on higher sales in Cyber and ISR, Advanced Capabilities, and Sensors and Processing business areas.

Operating income declined 0.3% to $398 million, while operating margin contracted 60 bps to 13.1%.

Technology Services: Sales at this segment rose 3% to $1,067 million, due to high Global Logistics and Modernization sales.

Operating income improved 23% to $136 million, with operating margin expansion of 200 bps to 12.7%.

Innovation Systems: Segment sales grew 12% to $1,584 million compared with $1,415 million in the third quarter of 2018. The increase was principally owing to higher sales in Space Systems, Flight Systems and Defense Systems.

Meanwhile, the segment’s operating income totaled $164 million and operating margin contracted 100 bps to 10.4%.

Operational Update

Total operating costs and expenses at the end of the quarter were $7,524 million, up 8.8% from the year- ago quarter’s $6,913 million.

Operating income during the quarter declined 18.9% year over year to $951 million.

Northrop Grumman Corporation Price, Consensus and EPS Surprise

Northrop Grumman Corporation Price, Consensus and EPS Surprise

Northrop Grumman Corporation price-consensus-eps-surprise-chart | Northrop Grumman Corporation Quote

Financial Condition

Northrop Grumman’s cash and cash equivalents as of Sep 30, 2019, were $1,127 million, down from $1,579 million as of Dec 31, 2018.

Long-term debt (net of current portion) as of Sep 30, 2019, was $13,826 million, down from $13,883 million as of Dec 31, 2018.

Net cash inflow from operating activities as of Sep 30, 2019, was $1,833 million compared with $1,450 million as of Sep 30, 2018.

2019 Guidance

Northrop Grumman expects to generate revenues of $34 billion for 2019. The Zacks Consensus Estimate for the company’s full-year sales, pegged at $33.99 billion, lies slightly below its projected view.

It expects free cash flow of $2.7-$3 billion for 2019.

However, Northrop Grumman raised its full-year earnings expectations from $19.30-$19.55 to $20.10-$20.35 per share. The Zacks Consensus Estimate for 2019 earnings, pegged at $19.63, lies below the company’s guidance.  

Zacks Rank

Northrop Grumman currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Recent Defense Releases

Lockheed Martin Corp. LMT reported third-quarter 2019 earnings of $5.66 per share, which surpassed the Zacks Consensus Estimate of $5.03 by 12.5%. The bottom line also improved 10.1% from $5.14 in the year-ago quarter.

Textron Inc. TXT reported third-quarter 2019 earnings from continuing operations of 95 cents per share, which surpassed the Zacks Consensus Estimate of 85 cents by 11.8%. The bottom line surged 55.7% from the year-ago quarter.

General Dynamics Corporation GD reported third-quarter 2019 earnings from continuing operations of $3.14 per share, which beat the Zacks Consensus Estimate of $3.06 by 2.6%. The bottom line also improved 10.2% from the prior-year quarter’s $2.85.

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