Northrop Grumman [NOC] on Thursday reported lower net income in the fourth due to lower pension benefits, although segment operations and sales were strong on contributions from across the company’s sectors.
Net income fell 23 percent to $2.1 billion, $13.46 earnings per share (EPS), from $2.7 billion ($17.14 EPS) a year ago. Excluding mark-to-market adjustments for pension and tax impacts, per share earnings were higher at $7.50 versus $6 EPS a year ago, beating consensus estimates by 93 cents EPS.
Sales in the quarter increased 10 percent to $10 billion from $8.6 billion a year ago.
At the operating level, Northrop Grumman’s Space Systems segment continued to lead the way, posting strong double-digit top and bottom-line gains across a variety of programs. All four operating segments shared in the positive results and the Aeronautics segment reported the largest increase in operating income, up 31 percent on higher sales, including positive adjustments in expected estimates on completing development of the Air Force’s B-21 Raider stealth bomber.
Overall, in 2022 net income slid 30 percent to $4.9 billion ($31.47 EPS) from $7 billion ($43.54 EPS) although, again, segment operating income was higher. Excluding the pension and tax adjustments, per share earnings fell slightly to $25.54 EPS from $25.63 EPS. Sales increased 3 percent to $36.6 billion from $35.7 billion. Segment operating margin was 11.3 percent, up 10 basis points over 2021.
The 2022 results were again driven by the Space Systems segment and to a lesser degree Mission Systems.
For 2023, Northrop Grumman raised its sales guidance from the prior outlook of the high $37 billion range to between $38 billion and $38.4 billion with margins between 11.3 and 11.5 percent, resulting in adjusted earnings between $21.85 and $22.45 EPS.
Space Systems will be the primary growth driver in 2023. The EPS decline this year is expected to be driven by additional pension and federal tax headwinds that will more than offset improved performance at the operating segments and lower amortization expenses.
Free cash flow in 2023 is expected to be between $1.9 billion and $2.2 billion, versus $1.6 billion in 2022. Northrop Grumman is bullish on its free cash flow outlook and expects greater than 20 percent annual growth by 2025 when the outlook is for between $2.9 billion and $3.3 billion.
International sales increased in 2022, particularly in the Defense Systems segment around ammunition and armaments, and represents an “upside opportunity,” Kathy Warden, chair, president and CEO of Northrop Grumman, said during the company’s earnings call. There is also growing interest in the Integrated Air and Missile Defense Battle Command System (IBCS), which is expected to go from low-rate to full-rate production this year for the U.S. Army, from potential international customers.
In addition to Poland, which previously selected IBCS, 10 other countries “are expressing interest in obtaining this system,” Warden said. IBCS integrates and connects sensors and effectors across the battlespace.
International business is expected to grow at “double-digit low teens” rates over the next few years compared to the domestic business that will be consistent with the normal mid-single digits, she said. This adds up to international work accounting for a greater percentage of the company’s overall business, she said.
Orders in 2022 were strong at $39.3 billion, exceeding sales, and drove up backlog 4 percent to $78.7 billion versus $76 billion a year ago.