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Northrop Grumman (NOC) Beats on Q4 Earnings, Revenues Up Y/Y

Zacks Equity Research

Northrop Grumman Corporation NOC reported fourth-quarter 2018 earnings of $4.93 per share, beating the Zacks Consensus Estimate of $4.45 by 10.8%. Reported earnings also surged 224% from $1.52 recorded in the year-ago quarter.

For 2018, earnings were $21.33 per share, up 52% from the year-ago quarter. Moreover, full-year earnings figure exceeded the Zacks Consensus Estimate of $19.08 by 11.8%.

The improvement in full year earnings was primarily a result of the addition of Innovation Systems in 2018 and the impacts related to the Tax Cuts and Jobs Act in 2017.

Total Revenues

In fourth-quarter 2018, Northrop Grumman reported total revenues of $8,156 million, beating the Zacks Consensus Estimate of $8,109 million by 0.58%. Revenues also increased 24.5% from the year-ago quarter’s $6,552 million. The revenue upside was primarily driven by 6% increase in Aerospace systems sales and 2% in Mission Systems sales.

In 2018, total revenues increased 15.7% year over year to $30,095 million. Full-year revenues surpassed the Zacks Consensus Estimate of $30,050
million by a mere 0.15%.

Segmental Details

Aerospace Systems: Segment sales of $3,197 million increased 6% year over year as a result of higher volumes of manned aircraft and space programs.

Operating income rose 12% to $337 million, whereas operating margin expanded 50 basis points (bps) to 10.5%.

Mission Systems: Segment sales increased 2% to $3,041 million, due to higher sales volume of Sensors and Processing systems.

Operating income rose 17% to $398 million, with operating margin expanding 170 bps to 13.1%.

Technology Services: Sales at this segment dropped 8% to $1,065 million, primarily due to the completion of several programs, including JRDC and KC-10.

Operating income increased 62% to $115 million, with operating margin expanding a massive 460 bps to 10.8%.

Innovation Systems

Innovation Systems’ fourth-quarter 2018 sales increased 7% compared with $1,400 million proforma sales in the fourth quarter of 2017. The sales increase was due to higher volume for Flight Systems and Defense Systems. The segments’ operating income totaled $143 million and operating margin rate was 9.8%.

Northrop Grumman Corporation Price, Consensus and EPS Surprise

Northrop Grumman Corporation Price, Consensus and EPS Surprise | Northrop Grumman Corporation Quote

Operational Update

Total operating costs and expenses at the end of the quarter were $26,315 million, up 15.5%.

Operating income during the quarter increased 40.3% to $943 million.

Financial Condition

Northrop Grumman’s cash and cash equivalents as of Dec 31, 2018 were $1,579 million, down from $11,225 million as of Dec 31, 2017.

Long-term debt (net of current portion) as of Dec 31, 2018, was $13,883 million, down from $14,399 million as of 2017 end.

Net cash inflow from operating activities as of Dec 31, 2018 was $3,827 million compared with $2,613 million as of Dec 31, 2017.

2019 Guidance

Northrop Grumman currently expects to generate revenues in excess of $34 billion during 2019. The company expects free cash flow of $2.6-$3 billion in 2019. The 2019 earnings are expected to be $18.5-$19 per share.

Zacks Rank

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

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Textron TXT reported fourth-quarter 2018 adjusted earnings from continuing operations of $1.15 per share, which surpassed the Zacks Consensus Estimate of 98 cents by 17.3%. The bottom line also surged 55.4% from 74 cents in the year-ago quarter.

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