Northrop Grumman [NOC] on Wednesday reported strong first quarter earnings driven by an accounting change that led to a handsome tax benefit while sales were level with a year ago.
Net income jumped 15 percent to $556 million, $3.03 earnings per share (EPS), from $484 million ($2.41 EPS) a year ago, cruising above consensus estimates by 40 cents per share. The company adopted an accounting standard update related to share-based compensation expense that added $80 million (44 cents EPS) to the bottom line.
Sales were flat at $6 billion.
Oddly, Northrop Grumman didn’t include backlog and order figures in its quarterly results and said it will provide numbers at the end of its fiscal year. The company said backlog did increase in the first quarter due to gains at the Aerospace Systems and Mission Systems segments, which more than offset a “modest decline” at Technology Services.
Ken Bedingfield, Northrop Grumman’s chief financial officer, said on an analyst call that the company recorded orders for a portion of the B-21 Long Range Strike-Bomber program in the quarter. Northrop Grumman beat a Boeing [BA]-Lockheed Martin [LMT] team for the B-21 last October, although most of the program’s details are classified, including contract amounts.
The tax benefit, coupled with first quarter performance, led Northrop Grumman to boost its earnings guidance for the year by 50 cents to between $10.40 and $10.70 EPS. The company didn’t change its outlook for sales, cash, or operating margin.
Operationally Northrop Grumman’s income was down in the quarter, driven by declines in the Aerospace Systems and Technology Services segments. Operating income fell 5 percent to $739 million and margins dropped 70 basis points to 12.4 percent. Less favorable pension adjustments also contributed to the lower operating income.
At Aerospace, sales increased slightly on higher volume for the E-2D airborne radar and F-35 fighter aircraft programs, and the Global Hawk and Triton unmanned aerial vehicle programs. Operating income in the segment fell on lower margins at several manned aircraft programs.
Sales and profits were down at Technology Services on lower volume in logistics and modernization programs, and defense services.
The Mission Systems segment posted essentially flat sales, down less than a percent, but higher operating income due to higher margins on advanced capabilities programs.
Free cash flow in the quarter was a $358 million outflow. Cash flow guidance for the year remains unchanged at between $1.5 billion and $1.8 billion.