Northrop Grumman [NOC] on Thursday reported a slight increase in third quarter earnings on robust sales growth due to strong operating performance at its business segments coupled with the sale of a minority stake in a business in Australia.
Net income rose 2 percent to $937 million, $6.18 earnings per share (EPS), from $915 million ($5.89 EPS) a year ago, smashing consensus estimates by 37 cents per share. Earnings were held down by a $1 per share pension headwind. Segment operating margin declined 10 basis points to 11.1 percent.
The sale of a minority interest in the Australian business added $67 million (44 cents EPS) to net income. The Australian business is CEA Technologies Pty Ltd.
, a radar company acquired by the Australian government.
Sales in the quarter increased 9 percent to $9.8 billion from $9 billion a year ago.
All four of Northrop Grumman’s operating segments tallied top and bottom-line increases. Space Systems led the way on sales, posting an 11 percent increase on the Ground Based Strategic Deterrent ICBM program, Next-Generation Interceptor for missile defense, the Space Launch System solid rocket booster for NASA, classified work, and the Next-Generation Overhead Persistent Infrared Polar missile defense satellite program.
The Defense Systems segment notched a 15 percent increase in operating income, the only segment with a double-digit gain, due to higher sales and profit adjustments on battle management and missile systems programs. Segment sales were up 6 percent on the Integrated Air and Missile Defense Battle Command System, ammunition, subsystems for the Guided Multiple Launch Rocket System, and the Hypersonic Attack Cruise Missile.
Other growth drivers include the Air Force’s B-21 stealth bomber, which remains on track for first flight this year, classified network information systems, and marine systems. Ground testing of the B-21 is ongoing and first flight will trigger award of the low-rate initial production contract, also expected this year.
Northrop Grumman booked $15 billion in orders in the quarter, helping drive backlog to a record $83.9 billion, up 7 percent from $78.7 billion at the end of 2022.
Given results so far this year, Northrop Grumman raised its sales outlook for 2023 to around $39 billion, up from prior guidance of between $38.4 billion to $38.8 billion, representing nearly 7 percent growth over 2022. The increase in the sales outlook is being driven by the Aeronautics Systems and Space Systems segments.
The outlook for segment operating income is unchanged at between $4.3 billion and $4.4 billion although the company’s chief financial officer, Dave Keffer, said trends this year point to income in the lower half of the guidance range. Adjusted earnings are still forecast to in the range of $22.45 to $22.85 EPS.
Free cash flow in the quarter was $869 million and the outlook for the year is still between $1.9 billion and $2.2 billion.
Northrop Grumman provided preliminary guidance for 2024, with sales and segment operating income projected to grow between 4 and 5 percent. The outlook for free cash flow is between $2.3 billion and $2.7 billion.
Kathy Warden, chairwoman, president and CEO of Northrop Grumman, described the 2024 outlook for sales and segment profit as “broad ranges” and that more precise guidance will be issued during the fourth quarter earnings call in January. There are opportunities to improve operating margin next year depending on macro-economic trends around inflation, labor costs, and productivity, she said.