- EPS Increase 22 Percent to $2.75
- Sales Total $6.0 Billion
- 5.6 Million Shares Repurchased for $944 Million in Q3; 17.7 Million Shares Repurchased Year to Date for $2.9 Billion
- 2015 EPS Guidance Range Increased to $9.70 - $9.80
FALLS CHURCH, Va. – Oct. 28, 2015 – Northrop Grumman Corporation (NYSE:NOC) reported third quarter 2015 net earnings increased 9 percent to $516 million, or $2.75 per diluted share, from $473 million, or $2.26 per diluted share in the third quarter of 2014. Third quarter 2015 diluted earnings per share are based on 187.9 million weighted average shares outstanding compared with 209.2 million shares in the prior year period. The company repurchased 5.6 million shares of its common stock for $944 million in the third quarter of 2015. The company has now completed the 60 million share repurchase goal announced in May 2013. As of Sept. 30, 2015, $4.6 billion remained on the company's share repurchase authorizations.
"We continue to position Northrop Grumman for innovation and affordability and remain focused on creating value through our strong performance, outstanding portfolio and value-creating cash deployment. Our opportunity set offers the potential for long-term profitable growth and value creation for our shareholders, customers and employees," said Wes Bush, chairman, chief executive officer and president.
Table 1 — Financial Highlights | ||||||
Third Quarter | Nine Months | |||||
($ in millions, except per share amounts) | 2015 | 2014 | 2015 | 2014 | ||
Sales | $ 5,979 | $ 5,984 | $ 17,832 | $ 17,871 | ||
Segment operating income 1 | 726 | 840 | 2,203 | 2,339 | ||
Segment operating margin rate 1 | 12.1% | 14.0% | 12.4% | 13.1% | ||
Operating income | 794 | 769 | 2,387 | 2,434 | ||
Operating margin rate | 13.3% | 12.9% | 13.4% | 13.6% | ||
Net earnings | 516 | 473 | 1,531 | 1,563 | ||
Diluted EPS | 2.75 | 2.26 | 7.89 | 7.28 | ||
Net cash provided by operating activities | 557 | 933 | 529 | 1,103 | ||
Free cash flow 1 | 455 | 824 | 195 | 818 | ||
Pension-adjusted Operating Highlights | ||||||
Operating income | 794 | 769 | 2,387 | 2,434 | ||
Net FAS/CAS pension adjustment 1 | (97) | 20 | (261) | (200) | ||
Pension-adjusted operating income 1 | $ 697 | $ 789 | 2,126 | $ 2,234 | ||
Pension-adjusted operating margin rate 1 | 11.7% | 13.2% | 11.9% | 12.5% | ||
Pension-adjusted Per Share Data | ||||||
Diluted EPS | $ 2.75 | $ 2.26 | $ 7.89 | $ 7.28 | ||
After-tax net pension adjustment per share 1 | (0.34) | 0.06 | (0.87) | (0.61) | ||
Pension-adjusted diluted EPS 1 | $ 2.41 | $ 2.32 | $ 7.02 | $ 6.67 | ||
Weighted average shares outstanding — Basic | 185.8 | 206.2 | 191.8 | 211.6 | ||
Dilutive effect of stock awards and options | 2.1 | 3.0 | 2.2 | 3.2 | ||
Weighted average shares outstanding — Diluted | 187.9 | 209.2 | 194.0 | 214.8 | ||
1 Non-GAAP metric — see definitions at the end of this press release. |
Table 2 — Cash Flow Highlights | ||||||
Third Quarter | Nine Months | |||||
($ millions) | 2015 | 2014 | 2015 | 2014 | ||
Cash provided by operating activities before after-tax discretionary pension contributions 1 | $ 557 | $ 933 | $ 854 | $ 1,103 | ||
After-tax discretionary pension pre-funding impact | — | — | (325) | — | ||
Net cash provided by operating activities | $ 557 | $ 933 | $ 529 | $ 1,103 | ||
Less: | ||||||
Capital expenditures | (102) | (109) | (334) | (285) | ||
Free cash flow 1 | $ 455 | $ 824 | $ 195 | $ 818 | ||
After-tax discretionary pension pre-funding impact | — | — | 325 | — | ||
Free cash flow before after-tax discretionary pension contributions 1 | $ 455 | $ 824 | $ 520 | $ 818 |
1 Non-GAAP metric — see definitions at the end of this press release. |
2015 Guidance | ||||||
($ in millions, except per share amounts) | Prior - 7/29/15 | Current | ||||
Sales | 23,400 — 23,800 | 23,600 — 23,800 | ||||
Segment operating margin % 1 | ~12% | ~12% | ||||
Net FAS/CAS pension adjustment 1 | ~320 | ~335 | ||||
Unallocated corporate expense | ~200 | |||||
Operating margin % | Mid-12% | Mid-12% | ||||
Effective tax rate % | ~32% | ~31.5% | ||||
Diluted EPS | 9.55 — 9.70 | 9.70 — 9.80 | ||||
Cash provided by operating activities before after-tax discretionary pension contributions 1 | 2,600 — 2,800 | ~2,600 | ||||
Free cash flow before after-tax discretionary pension contributions 1 | 1,900 — 2,100 | ~2,000 | ||||
1 Non-GAAP metric - see definitions at the end of this press release. |
Table 3 — Business Results | ||||||
Consolidated Sales & Segment Operating Income 1 | ||||||
Third Quarter | Nine Months | |||||
($ millions) | 2015 | 2014 | Change | 2015 | 2014 | Change |
Sales | ||||||
Aerospace Systems | $ 2,563 | $ 2,543 | 1% | $ 7,573 | $ 7,465 | 1% |
Electronic Systems | 1,767 | 1,733 | 2% | 5,131 | 5,121 | — |
Information Systems | 1,472 | 1,511 | (3%) | 4,531 | 4,650 | (3%) |
Technical Services | 695 | 691 | 1% | 2,185 | 2,120 | 3% |
Intersegment eliminations | (518) | (494) | (1,588) | (1,485) | ||
5,979 | 5,984 | — | 17,832 | 17,871 | — | |
Segment operating income 1 | ||||||
Aerospace Systems | 303 | 402 | (25%) | 940 | 1,016 | (7%) |
Electronic Systems | 275 | 274 | — | 787 | 833 | (6%) |
Information Systems | 146 | 150 | (3%) | 462 | 465 | (1%) |
Technical Services | 64 | 66 | (3%) | 199 | 202 | (1%) |
Intersegment eliminations | (62) | (52) | (185) | (177) | ||
Segment operating income 1 | 726 | 840 | (14%) | 2,203 | 2,339 | (6%) |
Segment operating margin rate 1 | 12.1% | 14.0% | (190) bps | 12.4% | 13.1% | (70) bps |
Reconciliation to operating income | ||||||
Net FAS/CAS pension adjustment 1 | 97 | (20) | 585% | 261 | 200 | 31% |
Unallocated corporate expenses | (29) | (50) | 42% | (76) | (103) | 26% |
Other | — | (1) | 100% | (1) | (2) | 50% |
Operating income | 794 | 769 | 3% | 2,387 | 2,434 | (2%) |
Operating margin rate | 13.3% | 12.9% | 40 bps | 13.4% | 13.6% | (20) bps |
Interest expense | (75) | (69) | (9%) | (226) | (208) | (9%) |
Other, net | 10 | (6) | 267% | 8 | 10 | (20%) |
Earnings before income taxes | 729 | 694 | 5% | 2,169 | 2,236 | (3%) |
Federal and foreign income tax expense | (213) | (221) | 4% | (638) | (673) | 5% |
Net earnings | $ 516 | $ 473 | 9% | $ 1,531 | $ 1,563 | (2%) |
1 Non-GAAP metric — see definitions at the end of this press release. |
Aerospace Systems ($ millions) | ||||||
Third Quarter | Nine Months | |||||
2015 | 2014 | Change | 2015 | 2014 | Change | |
Sales | $ 2,563 | $ 2,543 | 0.8% | $ 7,573 | $ 7,465 | 1.4% |
Operating income | 303 | 402 | (24.6%) | 940 | 1,016 | (7.5%) |
Operating margin rate | 11.8% | 15.8% | 12.4% | 13.6% |
Electronic Systems ($ millions) | ||||||
Third Quarter | Nine Months | |||||
2015 | 2014 | Change | 2015 | 2014 | Change | |
Sales | $ 1,767 | $ 1,733 | 2.0% | $ 5,131 | $ 5,121 | 0.2% |
Operating income | 275 | 274 | 0.4% | 787 | 833 | (5.5%) |
Operating margin rate | 15.6% | 15.8% | 15.3% | 16.3% |
Information Systems ($ millions) | ||||||
Third Quarter | Nine Months | |||||
2015 | 2014 | Change | 2015 | 2014 | Change | |
Sales | $ 1,472 | $ 1,511 | (2.6%) | $ 4,531 | $ 4,650 | (2.6%) |
Operating income | 146 | 150 | (2.7%) | 462 | 465 | (0.6%) |
Operating margin rate | 9.9% | 9.9% | 10.2% | 10.0% |
Technical Services ($ millions) | ||||||
Third Quarter | Nine Months | |||||
2015 | 2014 | Change | 2015 | 2014 | Change | |
Sales | $ 695 | $ 691 | 0.6% | $ 2,185 | $ 2,120 | 3.1% |
Operating income | 64 | 66 | (3.0%) | 199 | 202 | (1.5%) |
Operating margin rate | 9.2% | 9.6% | 9.1% | 9.5% |
SCHEDULE 1 | ||||
NORTHROP GRUMMAN CORPORATION | ||||
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME | ||||
(Unaudited) | ||||
Three Months Ended
September 30 |
Nine Months Ended
September 30 |
|||
$ in millions, except per share amounts | 2015 | 2014 | 2015 | 2014 |
Sales | ||||
Product | $ 3,615 | $ 3,494 | $ 10,553 | $ 10,466 |
Service | 2,364 | 2,490 | 7,279 | 7,405 |
Total sales | 5,979 | 5,984 | 17,832 | 17,871 |
Operating costs and expenses | ||||
Product | 2,633 | 2,614 | 7,743 | 7,815 |
Service | 1,889 | 2,021 | 5,763 | 5,910 |
General and administrative expenses | 663 | 580 | 1,939 | 1,712 |
Operating income | 794 | 769 | 2,387 | 2,434 |
Other (expense) income | ||||
Interest expense | (75) | (69) | (226) | (208) |
Other, net | 10 | (6) | 8 | 10 |
Earnings before income taxes | 729 | 694 | 2,169 | 2,236 |
Federal and foreign income tax expense | 213 | 221 | 638 | 673 |
Net earnings | $ 516 | $ 473 | $ 1,531 | $ 1,563 |
Basic earnings per share | $ 2.78 | $ 2.29 | $ 7.98 | $ 7.39 |
Weighted-average common shares outstanding, in millions | 185.8 | 206.2 | 191.8 | 211.6 |
Diluted earnings per share | $ 2.75 | $ 2.26 | $ 7.89 | $ 7.28 |
Weighted-average diluted shares outstanding, in millions | 187.9 | 209.2 | 194.0 | 214.8 |
Net earnings (from above) | $ 516 | $ 473 | $ 1,531 | $ 1,563 |
Other comprehensive income (loss) | ||||
Change in unamortized benefit plan costs, net of tax | 96 | 31 | 288 | 127 |
Change in cumulative translation adjustment | (15) | (26) | (31) | (24) |
Other, net | 1 | 3 | — | 3 |
Other comprehensive income, net of tax | 82 | 8 | 257 | 106 |
Comprehensive income | $ 598 | $ 481 | $ 1,788 | $ 1,669 |
SCHEDULE 2 | ||||
NORTHROP GRUMMAN CORPORATION | ||||
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION | ||||
(Unaudited) | ||||
September 30, | December 31, | |||
$ in millions | 2015 | 2014 | ||
Assets | ||||
Cash and cash equivalents | $ 1,292 | $ 3,863 | ||
Accounts receivable, net | 3,268 | 2,806 | ||
Inventoried costs, net | 856 | 742 | ||
Deferred tax assets | 336 | 404 | ||
Prepaid expenses and other current assets | 199 | 369 | ||
Total current assets | 5,951 | 8,184 | ||
Property, plant and equipment, net of accumulated depreciation of $4,804 in 2015 and $4,611 in 2014 | 3,005 | 2,991 | ||
Goodwill | 12,458 | 12,466 | ||
Non-current deferred tax assets | 1,352 | 1,622 | ||
Other non-current assets | 1,200 | 1,309 | ||
Total assets | $ 23,966 | $ 26,572 | ||
Liabilities | ||||
Trade accounts payable | $ 1,194 | $ 1,305 | ||
Accrued employee compensation | 1,208 | 1,441 | ||
Advance payments and amounts in excess of costs incurred | 1,299 | 1,713 | ||
Other current liabilities | 1,432 | 1,433 | ||
Total current liabilities | 5,133 | 5,892 | ||
Long-term debt, net of current portion | 6,417 | 5,925 | ||
Pension and other post-retirement benefit plan liabilities | 5,778 | 6,555 | ||
Other non-current liabilities | 941 | 965 | ||
Total liabilities | 18,269 | 19,337 | ||
Shareholders' equity | ||||
Preferred stock, $1 par value; 10,000,000 shares authorized; no shares issued and outstanding | — | — | ||
Common stock, $1 par value; 800,000,000 shares authorized; issued and outstanding: 2015—182,822,662 and 2014—198,930,240 | 183 | 199 | ||
Paid-in capital | — | — | ||
Retained earnings | 10,613 | 12,392 | ||
Accumulated other comprehensive loss | (5,099) | (5,356) | ||
Total shareholders' equity | 5,697 | 7,235 | ||
Total liabilities and shareholders' equity | $ 23,966 | $ 26,572 |
SCHEDULE 3 | ||||
NORTHROP GRUMMAN CORPORATION | ||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||
(Unaudited) | ||||
Nine Months Ended
September 30 |
||||
$ in millions | 2015 | 2014 | ||
Operating activities | ||||
Net earnings | $ 1,531 | $ 1,563 | ||
Adjustments to reconcile to net cash provided by operating activities: | ||||
Depreciation and amortization | 329 | 322 | ||
Stock-based compensation | 70 | 93 | ||
Excess tax benefits from stock-based compensation | (111) | (75) | ||
Deferred income taxes | 165 | 76 | ||
Changes in assets and liabilities: | ||||
Accounts receivable, net | (463) | (531) | ||
Inventoried costs, net | (130) | 43 | ||
Prepaid expenses and other assets | 27 | (30) | ||
Accounts payable and other liabilities | (958) | (514) | ||
Income taxes payable | 403 | 201 | ||
Retiree benefits | (318) | 5 | ||
Other, net | (16) | (50) | ||
Net cash provided by operating activities | $ 529 | $ 1,103 | ||
Investing activities | ||||
Capital expenditures | (334) | (285) | ||
Other investing activities, net | 36 | (72) | ||
Net cash used in investing activities | (298) | (357) | ||
Financing activities | ||||
Common stock repurchases | (2,864) | (2,058) | ||
Net proceeds from issuance of long-term debt | 600 | — | ||
Cash dividends paid | (458) | (423) | ||
Other financing activities, net | (80) | (13) | ||
Net cash used in financing activities | (2,802) | (2,494) | ||
Decrease in cash and cash equivalents | (2,571) | (1,748) | ||
Cash and cash equivalents, beginning of year | 3,863 | 5,150 | ||
Cash and cash equivalents, end of period | $ 1,292 | $ 3,402 |
SCHEDULE 4 | ||||
NORTHROP GRUMMAN CORPORATION | ||||
TOTAL BACKLOG AND CONTRACT AWARDS | ||||
(Unaudited) | ||||
September 30, 2015 |
December 31,
2014 |
|||
$ in millions |
FUNDED 1 |
UNFUNDED 2 |
TOTAL
BACKLOG |
TOTAL
BACKLOG |
Aerospace Systems | $ 8,742 | $ 8,999 | $ 17,741 | $ 20,063 |
Electronic Systems | 7,471 | 2,101 | 9,572 | 9,715 |
Information Systems | 3,185 | 2,794 | 5,979 | 6,115 |
Technical Services | 2,393 | 205 | 2,598 | 2,306 |
Total | $ 21,791 | $ 14,099 | $ 35,890 | $ 38,199 |
1 Funded backlog represents firm orders for which funding is authorized and appropriated. | ||||
2 Unfunded backlog represents firm orders for which as of the reporting date, funding is not authorized and appropriated. Unfunded backlog excludes unexercised contract options and indefinite delivery, indefinite quantity (IDIQ) contracts until the time the option or IDIQ task order is exercised or awarded. | ||||
New Awards — Total backlog as of Sept. 30, 2015, includes $4.8 billion and $15.5 billion of estimated contract awards in the three and nine months ended Sept. 30, 2015, respectively. |