Group 1: Market Overview - The U.S. stock market closed mixed, with the Dow Jones Industrial Average reaching a record high, driven by blue-chip earnings [1] - The Dow rose by 218.16 points, or 0.47%, closing at 46,924.74 points; the S&P 500 was nearly flat, up 0.22% to 6,735.35 points; while the Nasdaq Composite fell by 36.88 points, or 0.16%, to 22,953.67 points [1] - Technology stocks showed mixed performance, with Apple hitting a record closing high at $262.77, giving it a market capitalization of $3.9 trillion [1] Group 2: Earnings Reports - The third-quarter earnings season is peaking, with several blue-chip companies exceeding expectations [3] - General Motors' stock surged by 14.9% after raising its full-year guidance and alleviating tariff concerns; Coca-Cola rose by 4.1% due to strong consumer demand and improved margins; 3M increased by 7.7% supported by high-margin product mix and cost control [3] - 78 companies in the S&P 500 have reported earnings, with 87% surpassing market expectations; overall earnings are projected to grow by 9.2% year-on-year, up from an earlier estimate of 8.8% [3] Group 3: Netflix Performance - Netflix reported a third-quarter earnings per share of $5.87, below the market expectation of $6.97, leading to a post-earnings drop of over 6% in its stock price [1][2] - The company's revenue for the quarter was $11.51 billion, in line with analyst expectations, but its operating margin was impacted by ongoing disputes with Brazilian tax authorities [2] - For the fourth quarter, Netflix anticipates revenue of $11.96 billion, slightly above the market forecast of $11.9 billion [2] Group 4: Commodity Prices - International gold and silver prices experienced significant declines, with spot gold dropping by 5.18% to $4,130.41 per ounce, marking the largest single-day drop since April 2013 [4] - Spot silver fell by 7.16% to $48.705 per ounce, also recording its largest drop since 2021 [4] - COMEX gold futures for the current month fell by $250.30, or 5.74%, to $4,109.10 per ounce [4] Group 5: Oil Prices - International oil prices saw slight increases, with WTI crude oil closing at $57.82 per barrel, up 0.52%; Brent crude oil rose by 0.51% to $61.32 per barrel [5]

Earnings Overview - Earnings season is gaining momentum with major companies like Tesla, Netflix, General Motors, and Ford reporting results this week [1][3] - As of October 17, 12% of S&P 500 companies have reported, with analysts expecting an 8.5% increase in earnings per share for Q3, marking the ninth consecutive quarter of positive growth but a slowdown from 12% in Q2 [1][2] Company-Specific Highlights - **Netflix**: Stock fell after missing earnings estimates, with operating profit impacted [8] - **Intuitive Surgical**: Beat earnings estimates with strong demand for surgical robots, resulting in a 15% stock increase [9] - **Texas Instruments**: Stock dropped 7% due to a weaker-than-expected Q4 outlook, projecting sales of $4.22 billion to $4.58 billion, below analyst estimates [10][11] - **Capital One**: Reported a 23% increase in net revenue to $15.4 billion, exceeding expectations, with earnings per share at $4.83 [13][14] - **Philip Morris**: Stock fell 8% after reporting a 3.2% decline in cigarette shipments, although smokeless product sales increased by 16.6% [15][16][17] - **3M**: Stock rose less than 1% after raising its annual earnings outlook, reporting Q3 sales of $6.3 billion, slightly above estimates [18][19] - **Halliburton**: Revenue increased despite falling oil prices, with adjusted earnings of $0.58 per share beating estimates [20][21] - **GE Aerospace**: Stock rose over 2.5% after reporting a 26% revenue increase to $11.3 billion and raising full-year guidance [23][24] - **Northrop Grumman**: Raised its 2025 profit forecast due to increased demand from geopolitical conflicts [28] - **Elevance**: Stock rose 6% after beating quarterly profit estimates [29] Market Trends - Bank of America noted that 76% of S&P 500 companies reporting so far have exceeded earnings expectations, higher than the average of 68% [36][37] - The upcoming week will see a significant number of companies reporting, with 44% of S&P 500 companies expected to release earnings [38]

[PART I – FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%20%E2%80%93%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents the unaudited condensed consolidated financial statements, including statements of earnings and comprehensive income, financial position, cash flows, and changes in shareholders' equity, along with detailed notes explaining significant accounting policies, earnings per share, share repurchases, dividends, inventoried costs, income taxes, fair value of financial instruments, investigations, commitments, retirement benefits, stock compensation, and segment information. It concludes with the report of the independent registered public accounting firm [Condensed Consolidated Statements of Earnings and Comprehensive Income](index=3&type=section&id=Condensed%20Consolidated%20Statements%20of%20Earnings%20and%20Comprehensive%20Income) This statement provides a detailed overview of the company's financial performance, including sales, operating income, net earnings, and earnings per share Condensed Consolidated Statements of Earnings and Comprehensive Income | Metric | Three Months Ended Sep 30, 2025 ($M) | Three Months Ended Sep 30, 2024 ($M) | Nine Months Ended Sep 30, 2025 ($M) | Nine Months Ended Sep 30, 2024 ($M) | | :-------------------------------- | :----------------------------------- | :----------------------------------- | :---------------------------------- | :---------------------------------- | | Sales | 10,423 | 9,996 | 30,242 | 30,347 | | Operating income | 1,242 | 1,120 | 3,240 | 3,281 | | Net earnings | 1,100 | 1,026 | 2,755 | 2,910 | | Basic earnings per share | 7.69 | 7.02 | 19.16 | 19.73 | | Diluted earnings per share | 7.67 | 7.00 | 19.12 | 19.69 | [Condensed Consolidated Statements of Financial Position](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Financial%20Position) This statement presents the company's assets, liabilities, and shareholders' equity at specific points in time, reflecting its financial health Condensed Consolidated Statements of Financial Position | Metric | September 30, 2025 ($M) | December 31, 2024 ($M) | | :-------------------------------- | :---------------------- | :--------------------- | | Total current assets | 14,105 | 14,274 | | Total assets | 49,300 | 49,359 | | Total current liabilities | 12,718 | 14,128 | | Total liabilities | 33,312 | 34,069 | | Total shareholders' equity | 15,988 | 15,290 | [Condensed Consolidated Statements of Cash Flows](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This statement details the cash inflows and outflows from operating, investing, and financing activities, illustrating changes in liquidity Condensed Consolidated Statements of Cash Flows | Metric | Nine Months Ended Sep 30, 2025 ($M) | Nine Months Ended Sep 30, 2024 ($M) | Change (%) | | :-------------------------------- | :---------------------------------- | :---------------------------------- | :--------- | | Net cash provided by operating activities | 860 | 1,810 | (52.5)% | | Net cash used in investing activities | (491) | (951) | (48.4)% | | Net cash used in financing activities | (2,765) | (642) | 330.7% | | Cash and cash equivalents, end of period | 1,957 | 3,326 | (41.1)% | [Condensed Consolidated Statements of Changes in Shareholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Shareholders'%20Equity) This statement outlines the changes in the company's equity accounts, including total shareholders' equity and cash dividends declared per share Condensed Consolidated Statements of Changes in Shareholders' Equity | Metric | Three Months Ended Sep 30, 2025 ($M) | Three Months Ended Sep 30, 2024 ($M) | Nine Months Ended Sep 30, 2025 ($M) | Nine Months Ended Sep 30, 2024 ($M) | | :-------------------------------- | :----------------------------------- | :----------------------------------- | :---------------------------------- | :---------------------------------- | | Total shareholders' equity | 15,988 | 14,748 | 15,988 | 14,748 | | Cash dividends declared per share | 2.31 | 2.06 | 6.68 | 5.99 | [Notes to Condensed Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and supplementary information for the condensed consolidated financial statements [1. Summary of Significant Accounting Policies](index=7&type=section&id=1.%20Summary%20of%20Significant%20Accounting%20Policies) This note outlines the company's accounting principles, including consolidation, revenue recognition, and the impact of estimates. It details recent business realignments, the divestiture of the training services business, and significant EAC adjustments, particularly for the B-21 program. It also provides backlog information and discusses recent accounting standards updates - The company realigned its Strategic Deterrent Systems (SDS) division from Space Systems to Defense Systems effective July 1, 2024, and the Strike and Surveillance Aircraft Solutions (SSAS) business unit from Defense Systems to Aeronautics Systems effective January 1, 2025[16](index=16&type=chunk) - On May 24, 2025, the company completed the sale of its Immersive Mission Solutions (IMS) operating unit (training services business) for **$333 million in cash**, recording a pre-tax gain on sale of **$231 million**[17](index=17&type=chunk) - An additional **$477 million loss** was recognized in the first quarter of 2025 across the five low-rate initial production (LRIP) options on the B-21 program, bringing the remaining loss accrual to **$1.6 billion** as of September 30, 2025[25](index=25&type=chunk) Net Estimate-at-Completion (EAC) Adjustments (Operating Income Impact) | Period | 2025 ($M) | 2024 ($M) | | :----- | :-------- | :-------- | | Q3 | 81 | 136 | | YTD | 107 | 268 | - Company backlog as of September 30, 2025, was **$91.4 billion**, reflecting a **$150 million reduction** due to the training services divestiture, with approximately **40%** expected to be recognized as revenue over the next 12 months[29](index=29&type=chunk) - The company is evaluating the disclosure impact of ASU 2023-09 (Income Taxes) and ASU 2024-03 (Disaggregation of Income Statement Expenses), and the potential impact of ASU 2025-06 (Internal-Use Software) on its consolidated financial position, results of operations, and cash flows[36](index=36&type=chunk)[37](index=37&type=chunk)[38](index=38&type=chunk) [2. Earnings Per Share, Share Repurchases and Dividends on Common Stock](index=9&type=section&id=2.%20Earnings%20Per%20Share,%20Share%20Repurchases%20and%20Dividends%20on%20Common%20Stock) This note details the calculation of basic and diluted earnings per share, summarizes the company's share repurchase programs, and reports on dividend declarations, including a recent increase in the quarterly common stock dividend Diluted Earnings Per Share | Period | 2025 ($) | 2024 ($) | | :----- | :------- | :------- | | Q3 | 7.67 | 7.00 | | YTD | 19.12 | 19.69 | - The 2023 Repurchase Program (**$2.5 billion authorized**) was completed in September 2025, with **5.2 million shares** repurchased at an average price of **$482.41**; the 2024 Repurchase Program (**$3.0 billion authorized**) commenced in September 2025, with **$2.99 billion** remaining under authorization[43](index=43&type=chunk)[44](index=44&type=chunk)[46](index=46&type=chunk) - In May 2025, the company increased its quarterly common stock dividend by **12% to $2.31 per share** from the previous **$2.06 per share**[47](index=47&type=chunk) [3. Inventoried Costs, Net](index=11&type=section&id=3.%20Inventoried%20Costs,%20Net) This note provides a breakdown of the company's inventoried costs, net, categorized into raw materials, work in process, and finished goods, as of September 30, 2025, and December 31, 2024 Inventoried Costs, Net | Category | September 30, 2025 ($M) | December 31, 2024 ($M) | | :--------------- | :---------------------- | :--------------------- | | Raw materials | 340 | 293 | | Work in process | 1,203 | 1,118 | | Finished goods | 72 | 44 | | **Total** | **1,615** | **1,455** | [4. Income Taxes](index=11&type=section&id=4.%20Income%20Taxes) This note details the company's income tax expense and effective tax rates, highlighting the impact of the One Big Beautiful Bill Act (OBBBA) on research and development expenditures and tax reserves. It also discusses changes in taxes receivable and unrecognized tax benefits - The One Big Beautiful Bill Act (OBBBA) was enacted on July 4, 2025, reinstating full expensing of R&D expenditures (IRC Section 174) beginning in 2025, extending bonus depreciation, and revising international tax regimes, with effects recognized in Q3 2025 financial statements[49](index=49&type=chunk)[131](index=131&type=chunk) Effective Income Tax Rate (ETR) | Period | 2025 ETR | 2024 ETR | Change (pp) | | :----- | :------- | :------- | :---------- | | Q3 | 16.9% | 13.6% | +3.3 | | YTD | 17.2% | 16.0% | +1.2 | - Third quarter 2025 ETR increased primarily due to a prior year net reduction in tax reserves (federal court decision in 2024) and a reduction in research credits in the current year due to OBBBA, partially offset by lower interest expense on unrecognized tax benefits[51](index=51&type=chunk) - Taxes receivable increased to **$786 million** as of September 30, 2025, from **$517 million** as of December 31, 2024, with OBBBA contributing a **$346 million increase**[53](index=53&type=chunk) - Unrecognized tax benefits increased by approximately **$180 million** in 2025, mainly due to state apportionment matters and research credits, with a reasonable possibility of an additional **$90 million increase** within the next 12 months[54](index=54&type=chunk) [5. Fair Value of Financial Instruments](index=12&type=section&id=5.%20Fair%20Value%20of%20Financial%20Instruments) This note details the fair value measurement of the company's financial instruments, including marketable securities and derivatives, and provides information on long-term debt issuances and repayments Marketable Securities at Fair Value | Category | September 30, 2025 ($M) | December 31, 2024 ($M) | | :-------------------------------- | :---------------------- | :--------------------- | | Level 1 | 496 | 325 | | Level 3 | 14 | 14 | | Valued using NAV | 6 | 8 | | **Total marketable securities** | **516** | **347** | - Unrealized gains and losses from marketable securities were **$82 million** for the three months ended September 30, 2025, and **$92 million** for the nine months ended September 30, 2025[59](index=59&type=chunk) - The estimated fair value of the company's long-term debt was **$15.1 billion** as of September 30, 2025, compared to **$15.3 billion** as of December 31, 2024[62](index=62&type=chunk) - In May 2025, the company issued **$1.0 billion** of unsecured senior notes for general corporate purposes; in January 2025, **$1.5 billion** of 2.93% unsecured senior notes were repaid upon maturity[64](index=64&type=chunk)[65](index=65&type=chunk) [6. Investigations, Claims and Litigation](index=13&type=section&id=6.%20Investigations,%20Claims%20and%20Litigation) This note outlines the company's involvement in various legal proceedings, including environmental remediation at Bethpage, New York, and government investigations concerning Cost Accounting Standards (CAS) pension expense assumptions. The outcomes and potential liabilities for these matters are currently unpredictable - The company continues to incur substantial remediation costs related to historic operations at former U.S. Navy and Grumman facilities in Bethpage, New York, and is involved in lawsuits alleging personal injury and property damage, with potential outcomes and liability ranges not currently estimable[66](index=66&type=chunk) - The U.S. Department of Justice (DOJ) issued a criminal subpoena and civil investigative demand regarding the interest rate assumptions used to determine the company's U.S. Government Cost Accounting Standards (CAS) pension expense; the outcome of these matters cannot be predicted[67](index=67&type=chunk) [7. Commitments and Contingencies](index=14&type=section&id=7.%20Commitments%20and%20Contingencies) This note details the company's commitments and contingencies, including U.S. government cost claims, environmental remediation accruals, and financial arrangements such as commercial paper and credit facilities. It highlights a dispute with DCMA regarding CAS pension expense assumptions - The Defense Contract Management Agency (DCMA) determined noncompliance with Cost Accounting Standards (CAS) regarding interest rate assumptions used for pension expense during 2013-2019, with potential material effects on financial position, results of operations, and/or cash flows, though a range of potential loss is not currently estimable[72](index=72&type=chunk) Environmental Remediation Costs | Category | September 30, 2025 ($M) | December 31, 2024 ($M) | | :------------------------------------------- | :---------------------- | :--------------------- | | Accrued Costs | 567 | 546 | | Reasonably Possible Future Costs in Excess of Accrued Costs | 387 | 377 | | Deferred Costs (expected to be recoverable) | 522 | 507 | - The company increased its commercial paper program capacity from **$2.5 billion to $3.0 billion** in September 2025, with no outstanding borrowings as of September 30, 2025[75](index=75&type=chunk) - A new five-year senior unsecured revolving credit facility of **$3.0 billion** was entered into in September 2025, replacing a prior **$2.5 billion facility**, with no outstanding borrowings as of September 30, 2025[76](index=76&type=chunk) [8. Retirement Benefits](index=15&type=section&id=8.%20Retirement%20Benefits) This note provides a summary of the costs associated with the company's pension and other postretirement benefit (OPB) plans, as well as employer contributions to these plans and defined contribution plans Net Periodic Benefit Cost (Benefit) | Plan Type | Period | 2025 ($M) | 2024 ($M) | | :-------- | :----- | :-------- | :-------- | | Pension | Q3 | (81) | (108) | | OPB | Q3 | (6) | (5) | | Pension | YTD | (240) | (324) | | OPB | YTD | (16) | (15) | Employer Contributions to Retirement Plans | Plan Type | Period | 2025 ($M) | 2024 ($M) | | :------------------------ | :----- | :-------- | :-------- | | Defined benefit pension plans | Q3 | 25 | 17 | | OPB plans | Q3 | 7 | 7 | | Defined contribution plans | Q3 | 133 | 136 | | Defined benefit pension plans | YTD | 67 | 66 | | OPB plans | YTD | 27 | 27 | | Defined contribution plans | YTD | 517 | 517 | [9. Stock Compensation Plans and Other Compensation Arrangements](index=16&type=section&id=9.%20Stock%20Compensation%20Plans%20and%20Other%20Compensation%20Arrangements) This note outlines the types and aggregate fair values of stock awards (RSRs and RPSRs) and the minimum and maximum payout amounts for cash awards (CUs and CPUs) granted to employees under the company's long-term incentive plans Stock Awards Granted (Nine Months Ended September 30) | Award Type | 2025 (M shares) | 2024 (M shares) | | :--------- | :-------------- | :-------------- | | RSRs granted | 0.1 | 0.1 | | RPSRs granted | 0.1 | 0.2 | | **Grant date aggregate fair value** | **$104M** | **$109M** | Cash Awards (Nine Months Ended September 30) | Metric | 2025 ($M) | 2024 ($M) | | :------------------------ | :-------- | :-------- | | Minimum aggregate payout amount | 35 | 35 | | Maximum aggregate payout amount | 199 | 200 | [10. Segment Information](index=17&type=section&id=10.%20Segment%20Information) This note provides detailed financial performance for each of the company's four reportable segments: Aeronautics Systems, Defense Systems, Mission Systems, and Space Systems. It includes sales, operating costs, operating income, and disaggregation of revenue by customer type, contract type, and geographic region, along with capital expenditures and depreciation/amortization Segment Sales and Operating Income (Q3 2025 vs Q3 2024) | Segment | Sales 2025 ($M) | Sales 2024 ($M) | Sales Change (%) | Op Income 2025 ($M) | Op Income 2024 ($M) | Op Income Change (%) | | :------------------ | :-------------- | :-------------- | :--------------- | :------------------ | :------------------ | :------------------- | | Aeronautics Systems | 3,142 | 2,961 | 6% | 305 | 309 | (1)% | | Defense Systems | 2,059 | 1,800 | 14% | 234 | 160 | 46% | | Mission Systems | 3,093 | 2,823 | 10% | 515 | 390 | 32% | | Space Systems | 2,698 | 2,870 | (6)% | 298 | 345 | (14)% | | **Total Segment** | **10,423** | **9,996** | **4%** | **1,277** | **1,146** | **11%** | Segment Sales and Operating Income (YTD 2025 vs YTD 2024) | Segment | Sales 2025 ($M) | Sales 2024 ($M) | Sales Change (%) | Op Income 2025 ($M) | Op Income 2024 ($M) | Op Income Change (%) | | :------------------ | :-------------- | :-------------- | :--------------- | :------------------ | :------------------ | :------------------- | | Aeronautics Systems | 9,070 | 9,065 | 0% | 443 | 927 | (52)% | | Defense Systems | 5,855 | 5,396 | 9% | 666 | 507 | 31% | | Mission Systems | 9,057 | 8,255 | 10% | 1,317 | 1,129 | 17% | | Space Systems | 7,912 | 9,021 | (12)% | 861 | 979 | (12)% | | **Total Segment** | **30,242** | **30,347** | **0%** | **3,064** | **3,351** | **(9)%** | Sales by Customer Type (Nine Months Ended September 30, 2025) | Customer Type | Sales ($M) | % of Total Sales | | :-------------- | :--------- | :--------------- | | U.S. government | 25,423 | 84% | | International | 4,290 | 14% | | Other customers | 529 | 2% | Capital Expenditures (Nine Months Ended September 30) | Segment | 2025 ($M) | 2024 ($M) | Change (%) | | :------------------ | :-------- | :-------- | :--------- | | Aeronautics Systems | 250 | 339 | (26)% | | Defense Systems | 44 | 46 | (4)% | | Mission Systems | 152 | 143 | 6% | | Space Systems | 251 | 401 | (37)% | | Corporate | 91 | 22 | 314% | | **Total** | **788** | **951** | **(17)%** | [Report of Independent Registered Public Accounting Firm](index=21&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) This report presents the independent auditor's opinion on the fairness of the interim financial information and the consolidated financial statements - Deloitte & Touche LLP, the independent registered public accounting firm, concluded that no material modifications are needed for the accompanying interim financial information to be in conformity with GAAP[92](index=92&type=chunk) - An unqualified opinion was previously expressed on the consolidated financial statements as of December 31, 2024, and the information in the condensed consolidated statement of financial position as of that date is fairly stated[93](index=93&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=24&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and operating results, covering an overview of the business, consolidated and segment operating results, product and service analysis, backlog, liquidity, capital resources, critical accounting policies, and forward-looking statements. It highlights the impact of the global security and economic environments, U.S. political and budget dynamics, and key program updates [Overview](index=24&type=section&id=Overview) This section provides a high-level summary of key business events, market conditions, and significant program updates impacting the company's financial performance - The company completed the sale of its training services business on May 24, 2025, for **$333 million in cash**, recording a pre-tax gain of **$231 million**[100](index=100&type=chunk) - The global security environment, marked by heightened tensions in Ukraine, the Middle East, and the Pacific region, is increasing demand for defense products and services[101](index=101&type=chunk)[102](index=102&type=chunk) - The U.S. government enacted the Full-Year Continuing Appropriations and Extensions Act, 2025, increasing defense spending by **$6 billion** for FY 2025, and the FY 2026 budget request includes approximately **$962 billion** for the Department of War, an **11.8% increase**[108](index=108&type=chunk)[109](index=109&type=chunk) - A U.S. government shutdown, ongoing since October 1, 2025, could lead to program disruptions, delayed payments, and material adverse effects on the company's financials[110](index=110&type=chunk)[111](index=111&type=chunk) - The B-21 program recognized an additional **$477 million loss provision** in Q1 2025, with a **$122 million unfavorable EAC adjustment** in Q3 2025 largely offset by a contract restructure[27](index=27&type=chunk)[115](index=115&type=chunk) - The Sentinel program was certified for continuation by the Department of War in July 2024 after a Nunn-McCurdy breach review and recognized a **$76 million favorable EAC adjustment** in Q2 2025 due to expectations for achieving contract incentives[27](index=27&type=chunk)[119](index=119&type=chunk)[120](index=120&type=chunk) [Consolidated Operating Results](index=25&type=section&id=Consolidated%20Operating%20Results) This section analyzes the company's overall sales, operating income, net earnings, and diluted earnings per share, highlighting key drivers and changes Consolidated Sales Performance | Metric | Q3 2025 ($M) | Q3 2024 ($M) | Q3 Change (%) | YTD 2025 ($M) | YTD 2024 ($M) | YTD Change (%) | | :------------ | :----------- | :----------- | :------------ | :------------ | :------------ | :------------- | | Total Sales | 10,423 | 9,996 | 4% | 30,242 | 30,347 | 0% | | Organic Sales | 10,423 | 9,926 | 5% | 30,130 | 30,121 | 0% | Consolidated Operating Income and Margin Rate | Metric | Q3 2025 ($M) | Q3 2024 ($M) | Q3 Change (%) | YTD 2025 ($M) | YTD 2024 ($M) | YTD Change (%) | | :------------------ | :----------- | :----------- | :------------ | :------------ | :------------ | :------------- | | Operating Income | 1,242 | 1,120 | 11% | 3,240 | 3,281 | (1)% | | Operating Margin Rate | 11.9% | 11.2% | +0.7pp | 10.7% | 10.8% | (0.1)pp | - Year-to-date 2025 operating income decreased **1%** due to a **$287 million decrease** in segment operating income (primarily from the B-21 loss provision) and a **$128 million increase** in non-divestiture-related unallocated corporate expense, partially offset by a **$231 million pre-tax gain** on the training services divestiture[129](index=129&type=chunk) Consolidated Net Earnings and Diluted EPS | Metric | Q3 2025 ($M) | Q3 2024 ($M) | Q3 Change (%) | YTD 2025 ($M) | YTD 2024 ($M) | YTD Change (%) | | :---------- | :----------- | :----------- | :------------ | :------------ | :------------ | :------------- | | Net Earnings| 1,100 | 1,026 | 7% | 2,755 | 2,910 | (5)% | | Diluted EPS | 7.67 | 7.00 | 10% | 19.12 | 19.69 | (3)% | - Year-to-date 2025 net earnings decreased **5%** primarily due to a **$100 million reduction** in non-operating FAS pension benefit, lower interest income on short-term investments, and the decrease in operating income, partially offset by a **$78 million increase** in returns on marketable securities[136](index=136&type=chunk) [Segment Operating Results](index=29&type=section&id=Segment%20Operating%20Results) This section analyzes the financial performance of each reportable segment, detailing sales, operating income, and key drivers of change Segment Operating Income and Margin Rate (Q3 vs. Prior Year) | Metric | Q3 2025 ($M) | Q3 2024 ($M) | Change (%) | | :------------------------ | :----------- | :----------- | :--------- | | Segment Operating Income | 1,277 | 1,146 | 11% | | Segment Operating Margin Rate | 12.3% | 11.5% | +0.8pp | Segment Operating Income and Margin Rate (YTD vs. Prior Year) | Metric | YTD 2025 ($M) | YTD 2024 ($M) | Change (%) | | :------------------------ | :------------ | :------------ | :--------- | | Segment Operating Income | 3,064 | 3,351 | (9)% | | Segment Operating Margin Rate | 10.1% | 11.0% | (0.9)pp | - Year-to-date 2025 segment operating income decreased **9%** primarily due to lower operating income at Aeronautics Systems (driven by a **$477 million B-21 loss provision** in Q1 2025) and Space Systems, partially offset by higher operating income at Mission Systems and Defense Systems[145](index=145&type=chunk) Net EAC Adjustments by Segment (YTD) | Segment | 2025 ($M) | 2024 ($M) | | :------------------ | :-------- | :-------- | | Aeronautics Systems | (225) | 165 | | Defense Systems | 141 | 45 | | Mission Systems | 163 | 11 | | Space Systems | 37 | 50 | | Eliminations | (9) | (3) | | **Net EAC adjustments** | **107** | **268** | - Aeronautics Systems' year-to-date 2025 operating income decreased **52% to $443 million**, primarily due to the **$477 million loss provision** recorded on the B-21 program in the first quarter of 2025[153](index=153&type=chunk) - Defense Systems' year-to-date 2025 operating income increased **31% to $666 million**, driven by higher sales and operating margin rate, including a **$76 million favorable EAC adjustment** on the Sentinel program during Q2 2025[158](index=158&type=chunk) - Mission Systems' year-to-date 2025 operating income increased **17% to $1,317 million**, primarily due to higher sales and a higher operating margin rate, including a **$68 million favorable EAC adjustment** in the restricted advanced microelectronics portfolio[163](index=163&type=chunk) - Space Systems' year-to-date 2025 sales decreased **12% to $7,912 million**, primarily due to the wind-down of work on restricted space and Next Generation Interceptor (NGI) programs, which reduced sales by **$635 million**[166](index=166&type=chunk) [Product and Service Analysis](index=34&type=section&id=Product%20and%20Service%20Analysis) This section provides a detailed breakdown of the company's sales and costs by product and service categories, highlighting key drivers of change Product Sales and Costs (Q3 vs. Prior Year) | Metric | Q3 2025 ($M) | Q3 2024 ($M) | Change (%) | | :------------ | :----------- | :----------- | :--------- | | Product Sales | 8,369 | 7,939 | 5% | | Product Costs | 7,396 | 7,049 | 5% | - Third quarter 2025 product sales increased **5%** due to higher volume on military ammunition, IBCS, Sentinel, restricted advanced microelectronics, marine systems, international ground-based radar, TACAMO, and F-35 programs[170](index=170&type=chunk) Service Sales and Costs (YTD vs. Prior Year) | Metric | YTD 2025 ($M) | YTD 2024 ($M) | Change (%) | | :------------ | :------------ | :------------ | :--------- | | Service Sales | 6,094 | 6,230 | (2)% | | Service Costs | 5,284 | 5,446 | (3)% | - Year-to-date 2025 service sales decreased **2%** primarily due to lower service volume at Defense Systems (training services divestiture) and lower restricted sales at Aeronautics Systems[175](index=175&type=chunk) [Backlog](index=33&type=section&id=Backlog) This section provides an overview of the company's total backlog, including funded and unfunded components, and details significant new contract awards Total Backlog | Metric | September 30, 2025 ($M) | December 31, 2024 ($M) | Change (%) | | :------------ | :---------------------- | :--------------------- | :--------- | | Funded | 38,966 | | | | Unfunded | 52,482 | | | | **Total backlog** | **91,448** | **91,468** | 0% | - Third quarter and year-to-date 2025 net awards totaled **$12.2 billion** and **$30.4 billion**, respectively, with significant Q3 new awards including **$4.5 billion** for restricted programs, **$1.8 billion** for Ground-Based Midcourse Defense Weapon System (GWS), **$0.5 billion** for F-35, and **$0.4 billion** for Virginia Class submarines[176](index=176&type=chunk) [Liquidity and Capital Resources](index=35&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's cash position, operating cash flow, investing activities, and financing activities, assessing its ability to meet short-term and long-term obligations - As of September 30, 2025, the company had **$2.0 billion** in cash and cash equivalents and expects sufficient liquidity from operating activities, supplemented by borrowings if needed[178](index=178&type=chunk) Operating Cash Flow (YTD vs. Prior Year) | Metric | YTD 2025 ($M) | YTD 2024 ($M) | Change (%) | | :----------------------------------- | :------------ | :------------ | :--------- | | Net cash provided by operating activities | 860 | 1,810 | (52)% | - The decrease in operating cash flow was primarily due to **$1.0 billion higher net cash taxes** (partially from a prior year federal tax refund) and increased trade working capital[181](index=181&type=chunk) Free Cash Flow (YTD vs. Prior Year) | Metric | YTD 2025 ($M) | YTD 2024 ($M) | Change (%) | | :------------ | :------------ | :------------ | :--------- | | Free Cash Flow| 72 | 859 | (92)% | - Net cash used in investing activities decreased **48%** year-over-year, primarily due to **$333 million in proceeds** from the sale of the training services business and lower capital expenditures[184](index=184&type=chunk) - Net cash used in financing activities increased **331%** year-over-year, primarily due to a **$3.0 billion net decrease** in cash from long-term debt, partially offset by a **$905 million decrease** in share repurchases[185](index=185&type=chunk) [Critical Accounting Policies, Estimates and Judgments](index=35&type=section&id=Critical%20Accounting%20Policies,%20Estimates%20and%20Judgments) This section confirms that there have been no material changes to the company's critical accounting policies and estimates since its last annual report - There have been no material changes to the company's critical accounting policies and estimates from those discussed in its 2024 Annual Report on Form 10-K[187](index=187&type=chunk) [Accounting Standards Updates](index=35&type=section&id=Accounting%20Standards%20Updates) This section directs readers to Note 1 for further information regarding recent accounting standards updates - Refer to Note 1 to the financial statements for further information on accounting standards updates[188](index=188&type=chunk) [Forward-Looking Statements and Projections](index=35&type=section&id=Forward-Looking%20Statements%20and%20Projections) This section discusses the inherent risks and uncertainties associated with forward-looking statements and the company's policy on updating such projections - Forward-looking statements are based on assumptions and expectations but inherently involve a wide range of risks and uncertainties that are difficult to predict[189](index=189&type=chunk) - Key risks include dependence on the U.S. government, delays or reductions in appropriations (e.g., government shutdown), contract cost growth, macroeconomic pressures, investigations, regulatory changes, and cyber threats[190](index=190&type=chunk)[194](index=194&type=chunk) - The company undertakes no obligation to publicly update or revise any forward-looking statements, except as required by applicable law[192](index=192&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=36&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section states that there have been no material changes to the company's market risks since the 2024 Annual Report on Form 10-K - There have been no material changes to the company's market risks from those discussed in its 2024 Annual Report on Form 10-K[193](index=193&type=chunk) [Item 4. Controls and Procedures](index=37&type=section&id=Item%204.%20Controls%20and%20Procedures) This section confirms that the company's disclosure controls and procedures were evaluated as effective as of September 30, 2025, and reports no material changes in internal control over financial reporting during the quarter - The company's principal executive officer and principal financial officer concluded that disclosure controls and procedures were effective as of September 30, 2025[195](index=195&type=chunk) - No changes occurred in the company's internal control over financial reporting during the three months ended September 30, 2025, that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[196](index=196&type=chunk) [PART II – OTHER INFORMATION](index=40&type=section&id=PART%20II%20%E2%80%93%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=40&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to Notes 6 and 7 for details on legal proceedings, investigations, and claims, emphasizing potential administrative, civil, or criminal sanctions and the inherent uncertainty of outcomes. It also specifies the disclosure threshold for environmental proceedings - Information about certain legal proceedings is provided in Notes 6 and 7 to the financial statements[198](index=198&type=chunk) - Legal proceedings could result in administrative, civil, or criminal fines, penalties, damages, non-monetary relief, or other liabilities, including suspension or debarment from future government contracts[199](index=199&type=chunk) - Environmental proceedings with a governmental entity as a party are disclosed if the company reasonably believes such proceeding would result in monetary sanctions of **$1.0 million or more**[200](index=200&type=chunk) [Item 1A. Risk Factors](index=40&type=page&id=Item%201A.%20Risk%20Factors) This section directs readers to the company's 2024 Annual Report on Form 10-K for a comprehensive discussion of its risk factors - For a discussion of the company's risk factors, refer to the section entitled 'Risk Factors' in its 2024 Annual Report on Form 10-K[201](index=201&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=40&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section summarizes the company's common stock repurchases during the third quarter of 2025, detailing the number of shares purchased, average price paid, and remaining authorized funds under publicly announced programs Common Stock Repurchases (Three Months Ended September 30, 2025) | Period | Total Number of Shares Purchased | Average Price Paid per Share ($) | Approximate Dollar Value of Shares that May Yet Be Purchased ($M) | | :---------------------------- | :------------------------------- | :------------------------------- | :---------------------------------------------------------------- | | June 28, 2025 - July 25, 2025 | 131,870 | 520.37 | 3,198 | | July 26, 2025 - August 22, 2025 | 158,515 | 581.62 | 3,106 | | August 23, 2025 - September 26, 2025 | 196,899 | 580.88 | 2,992 | | **Total** | **487,284** | **564.74** | **2,992** | - Share repurchases occur from time to time, subject to market and regulatory conditions, and common stock is retired upon repurchase[203](index=203&type=chunk) [Item 5. Other Information](index=41&type=section&id=Item%205.%20Other%20Information) This section discloses Rule 10b5-1 and non-Rule 10b5-1 trading arrangements entered into by directors and officers during the quarter ended September 30, 2025 Director/Officer Trading Arrangements (Quarter Ended September 30, 2025) | Name (Title) | Type of Trading Arrangement | Date of Adoption | Expiration Date of Trading Arrangement | Aggregate Number of Securities to Be Purchased or Sold | | :-------------------------------- | :-------------------------- | :--------------- | :------------------------------------- | :----------------------------------------------------- | | Kathy J. Warden (Chair, CEO, President) | Rule 10b5-1 | September 2, 2025 | February 2, 2026 | Sale of 10,000 shares of common stock | | Mark A. Welsh III (Director) | Rule 10b5-1 | | August 7, 2026 | Sale of 382 shares of common stock | [Item 6. Exhibits](index=42&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including interactive data files, credit agreements, and various certifications required by the Sarbanes-Oxley Act - Key exhibits filed include the Cover Page Interactive Data File (104), Credit Agreement (10.1), Letter from Independent Registered Public Accounting Firm (15), and Certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act (31.1, 31.2, 32.1, 32.2)[209](index=209&type=chunk) [Signatures](index=43&type=section&id=Signatures) This section contains the official signatures for the Form 10-Q, confirming its submission on behalf of Northrop Grumman Corporation - The report was signed on behalf of Northrop Grumman Corporation by Michael A. Hardesty, Corporate Vice President, Controller and Chief Accounting Officer, on October 20, 2025[212](index=212&type=chunk)

Summary of Key Points Core Viewpoint - The earnings reports of Lockheed Martin Corp (LMT), Northrop Grumman Corp (NOC), and RTX Corp (RTX) reveal mixed results, with RTX outperforming its peers while LMT and NOC face challenges despite some positive indicators. Group 1: Lockheed Martin Corp (LMT) - LMT's stock is down 2.7% to $491.89 despite an optimistic full-year profit forecast and strong demand, alongside better-than-expected third-quarter earnings and revenue [1] - The stock shows a year-over-year deficit of 19.9%, but support at the $480 level appears to be holding [1] Group 2: Northrop Grumman Corp (NOC) - NOC's shares are down 1.2% at $594.92, impacted by a revenue miss in the third quarter and lowered sales guidance, overshadowing an earnings beat and full-year profit increase [2] - The stock is experiencing its fourth loss in five sessions, retreating from a record high of $640.90 on October 9 to its lowest level since September, yet still maintains a year-over-year gain of 27% [2] Group 3: RTX Corp (RTX) - RTX is performing well, up 8% to $173.52 after exceeding both top- and bottom-line estimates for the third quarter and raising its full-year outlook due to strong jet-engine demand [3] - The stock reached a record high of $178.76 and currently shows a significant year-over-year gain of 50.3% for 2025 [3] Group 4: Options Activity - All three companies are experiencing typical options activity, with LMT and NOC seeing double the usual intraday options volume, while RTX is seeing triple the usual amount [4] - The most active options for LMT and RTX are the weekly 10/24 505- and 180-strike calls, while NOC's leading contract is the November 90 call [4]

Core Insights - Northrop Grumman Corporation (NOC) reported third-quarter 2025 adjusted earnings of $7.67 per share, exceeding the Zacks Consensus Estimate of $6.49 by 18.2% and increasing 9.6% from $7 in the prior-year quarter [1] - Total sales for the third quarter were $10.42 billion, missing the Zacks Consensus Estimate of $10.72 billion by 2.8%, but rising 4.3% from $10 billion reported in the year-ago quarter [2] - The company's total backlog reached $91.45 billion at the end of the third quarter, up from $89.74 billion at the end of the second quarter of 2025 [3] Segment Performance - **Aeronautics Systems**: Sales increased 6.1% year over year to $3.14 billion, driven by a $110 million increase from the E-130J TACAMO program and a $105 million rise in the F-35 program. Operating income was $305 million, down from $309 million in the prior year, with a margin decline of 70 basis points to 9.7% [4] - **Mission Systems**: Sales jumped 9.6% to $3.09 billion, driven by increased sales from advanced microelectronics programs and international radar programs. Operating income rose 32.1% to $515 million, with an operating margin expansion of 290 basis points to 16.7% [5] - **Defense Systems**: Sales increased 14.4% year over year to $2.06 billion, supported by higher volumes in armament programs and new awards. Operating income improved 46.3% to $234 million, with a margin expansion of 250 basis points to 11.4% [6] - **Space Systems**: Sales declined 6% to $2.7 billion due to winding down of certain programs. Operating income decreased 13.6% to $298 million, with a margin decline of 100 basis points to 11% [7] Financial Overview - Total operating income for the quarter was $1.24 billion, up from $1.12 billion in the prior-year quarter, attributed to higher income in Mission and Defense Systems [9] - Cash and cash equivalents as of September 30, 2025, totaled $1.96 billion, down from $4.35 billion at the end of 2024. Long-term debt increased to $15.16 billion from $14.69 billion [10] - Net cash provided by operating activities was $0.86 billion for the first nine months of 2025, compared to $1.81 billion in the same period last year [10] Guidance - Northrop Grumman revised its revenue guidance for 2025 to a range of $41.70-$41.90 billion, lower than the previous range of $42.05-$42.25 billion. The Zacks Consensus Estimate for sales is $42.17 billion, above the new guidance [11] - The company raised its adjusted earnings guidance to a range of $25.65-$26.05 per share, higher than the previous range of $25.00-$25.40. The Zacks Consensus Estimate for earnings is $25.38 per share, below the new guidance [12]

Core Insights - The company is transitioning its test program to integrate weapons and mission systems, with multiple B-21 aircraft undergoing ground tests to validate performance and minimize risks [1] - Despite strong growth in the quarter, the company is revising its full-year revenue guidance down due to delays in certain awards and programs, while still achieving a 10% year-over-year increase in earnings per share [2][3] - The company achieved mid-single-digit growth with a 5% organic growth rate and a 32% international growth rate, indicating strong demand across various segments [3] - The disciplined execution of the business strategy positions the company well amidst growing global defense demand, with a focus on technology leadership and innovation [4] - A multibillion-dollar extension on the ground-based Midcourse Defense Weapon Systems contract has been received, extending performance through 2030 [5] - The Integrated Battle Command System (IBCS) has successfully completed live fire tests and is now 32 for 32 in successful flight tests, showcasing its operational readiness [6] - The company has invested over $2 billion in infrastructure and digital ecosystem development, yielding significant results in production capabilities [10][11] - The geopolitical environment has led to increased defense spending among allied nations, presenting substantial opportunities for the company [13] - The company expects mid-single-digit organic sales growth in 2026, supported by growth across all segments [15] - The company is actively discussing with the Air Force to accelerate the B-21 production rate, which could lead to increased investment and improved returns [36][61] Financial Performance - Third-quarter sales reached $10.4 billion, up 4% year-over-year, with expectations for further acceleration in Q4 [18] - Segment operating margin increased to 12.3% in Q3, contributing to an 11% year-over-year increase in segment operating income [20][22] - Free cash flow for the third quarter was $1.3 billion, with expectations for the largest cash generation in Q4, leading to a projected annual free cash flow growth of 22% [26] - The company is adjusting its full-year sales outlook to a range of $41.7 billion to $41.9 billion, reflecting approximately 8% growth in Q4 [24] - Earnings per share guidance has been increased to a range of $25.65 to $26.05, driven by lower corporate unallocated expenses and favorable pension income [25] Strategic Initiatives - The company is focusing on expanding its capacity for tactical solid rocket motors and has already doubled its capacity [52] - Investments in microelectronics and partnerships with allies are being pursued to enhance domestic production capabilities [53][54] - The company is developing the Lumberjack program for counter UAS, which is expected to have both domestic and international market potential [54] - The company is actively working on the Sentinel program, with significant progress made in qualification tests and design reviews [75]

Core Viewpoint - Defense and aerospace companies have raised their outlooks for the year due to stronger demand despite economic uncertainties and tariffs Group 1: Company Performance - GE Aerospace raised its full-year adjusted revenue growth outlook from "mid-teens" to "high-teens" and increased its free cash flow forecast to a range of $7.1 billion to $7.3 billion [2] - RTX reported a 12% rise in total revenue to $22.48 billion in the third quarter and raised its adjusted earnings outlook to a range of $6.10 to $6.20 [4][5] - Northrop Grumman posted earnings of $7.67 per share, exceeding Wall Street's estimate, and raised its full-year adjusted earnings per share guidance by 65 cents to a range of $25.65 to $26.05 [7] - Lockheed Martin reported earnings of $6.95 per share on revenues of $18.61 billion, beating analyst expectations, and increased its revenue outlook to between $74.25 billion and $74.75 billion [8][9] Group 2: Market Trends and Demand - Companies are experiencing "unprecedented demand" from customers both in the U.S. and globally, prompting significant increases in production capacity [9][10] - RTX cited its ability to manage tariff impacts and macroeconomic uncertainties as positive indicators for growth [5] - Northrop Grumman and Lockheed Martin both highlighted strong performance in their defense sectors, with Northrop's defense systems sales surging 14% year over year [7]

Financial Data and Key Metrics Changes - The company reported third quarter sales of $10.4 billion, representing a 4% increase compared to the prior year and a 5% increase on an organic basis [17] - Segment operating margin increased to 12.3% in Q3, driving a 10% year-over-year increase in earnings per share, which reached $7.67 [5][21] - Free cash flow increased by 72% year-over-year, with Q3 free cash flow of $1.3 billion [6][23] Business Line Data and Key Metrics Changes - Aeronautics generated sales of $3.1 billion, up 6% year-over-year, driven by higher volume on the F-35 program [17] - Defense Systems (DS) sales accelerated to nearly $2.1 billion, growing by 14% year-over-year and 19% organically [17][18] - Mission Systems (MS) achieved double-digit sales growth, with operating income increasing by 32% and segment operating margin rising to 16.7% [20] - Space Systems sales grew sequentially to $2.7 billion, although down mid-single digits year-over-year due to previous program headwinds [18] Market Data and Key Metrics Changes - International sales grew by 20% year-to-date, with a book-to-bill ratio of 1.4 at the beginning of the year [14][74] - The company achieved an exceptionally strong book-to-bill ratio of 1.17 in the quarter [5] Company Strategy and Development Direction - The company is focused on disciplined execution of its business strategy, prioritizing technology leadership and innovation to build a strong backlog of future business [4] - Investments in capacity and capability over the last six years are aimed at meeting urgent customer priorities and enhancing operational performance [5][10] - The company is exploring creative ways to accelerate program delivery and is committed to investing in American factories and workers [10][12] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in sustained growth due to strong bipartisan support for national security priorities and robust levels of investment [15] - The company anticipates mid-single-digit organic sales growth in 2026, supported by growth across all segments [15][26] - Management noted that the ongoing U.S. government shutdown may impact program award timing but does not expect significant financial repercussions [14][45] Other Important Information - The company has invested over $2 billion in its digital ecosystem, which is expected to yield significant improvements in product design and production [10][11] - The company is actively engaged in discussions with the Air Force regarding the acceleration of the B-21 production rate [42] Q&A Session Summary Question: Can you provide more color on FPXX and B-21 acceleration for 2026 outlook? - Management indicated that neither FPXX nor B-21 acceleration is included in the 2026 outlook, but both could provide upside to revenue in the long term [32][34] Question: Can you discuss your sourcing strategy for rare earths and supply chain risks? - Management highlighted that the company has mitigated dependency on rare earths through domestic foundries and is working with the U.S. government to establish additional supply sources [35] Question: What is the status of the B-21 production rate increase? - Management confirmed active discussions with the customer regarding the acceleration of the B-21 production rate, with clarity expected in the coming months [42][43] Question: How is the IBCS program performing and its growth potential? - Management expressed optimism about IBCS growth opportunities, particularly in international markets, with expectations for significant double-digit growth in 2026 [64] Question: What are the implications of the government shutdown on your operations? - Management stated that while the shutdown has caused some delays, they do not anticipate significant impacts on financial results if resolved soon [45][54] Question: Can you provide an update on the Lumberjack program? - Management described Lumberjack as a ground-launched counter-UAS opportunity with potential domestic and international markets, currently in development [80]

Core Insights - Northrop Grumman reported $10.42 billion in revenue for Q3 2025, a year-over-year increase of 4.3%, with an EPS of $7.67 compared to $7.00 a year ago, indicating an EPS surprise of +18.18% against a consensus estimate of $6.49 [1][3] Revenue Performance - The revenue of $10.42 billion was a surprise of -2.78% compared to the Zacks Consensus Estimate of $10.72 billion [1] - Sales in various segments showed mixed results: - Intersegment eliminations: $-569 million, a year-over-year change of -13.7% [4] - Mission Systems: $3.09 billion, a +9.6% change year-over-year [4] - Space Systems: $2.7 billion, a -6% change year-over-year [4] - Defense Systems: $2.06 billion, a -1.2% change year-over-year [4] - Aeronautics Systems: $3.14 billion, a +9.2% change year-over-year [4] Operating Income Analysis - Operating income/loss figures varied across segments: - Intersegment eliminations: $-75 million, slightly worse than the average estimate of $-71.19 million [4] - Defense Systems: $234 million, close to the average estimate of $236.83 million [4] - Mission Systems: $515 million, exceeding the average estimate of $458.41 million [4] - Space Systems: $298 million, below the average estimate of $306.1 million [4] - Aeronautics Systems: $305 million, slightly below the average estimate of $310.97 million [4] - Segment operating income adjustments included: - Unallocated corporate expenses: $-102 million, worse than the average estimate of $-99.96 million [4] - FAS/CAS operating adjustment: $67 million, better than the average estimate of $63.92 million [4] Stock Performance - Northrop Grumman shares returned +4.5% over the past month, outperforming the Zacks S&P 500 composite's +1.2% change [3] - The stock currently holds a Zacks Rank 3 (Hold), suggesting it may perform in line with the broader market in the near term [3]

Financial Data and Key Metrics Changes - Third quarter sales reached $10.4 billion, a 4% increase compared to the prior year, and a 5% increase on an organic basis [22] - Segment operating margin increased to 12.3%, driving a 10% year-over-year increase in earnings per share [7][25] - Free cash flow increased by 72% year-over-year, with third quarter free cash flow of $1.3 billion [7][30] Business Line Data and Key Metrics Changes - Aeronautics generated sales of $3.1 billion, up 6% year-over-year, driven by the ramp on Takimo and higher volume on the F-35 program [23] - Defense Systems (DS) sales accelerated to nearly $2.1 billion, growing 14% year-over-year and 19% organically [23] - Mission Systems achieved double-digit sales growth, while Space Systems sales grew sequentially to $2.7 billion, although down mid-single digits year-over-year due to program wind-downs [24] Market Data and Key Metrics Changes - International sales grew by 20% year-to-date, with a book-to-bill ratio of 1.4 at the beginning of the year [17][81] - The company expects mid-single-digit organic sales growth in 2026, supported by growth across all four segments [19] Company Strategy and Development Direction - The company is focused on disciplined execution of its technology-focused business strategy, investing over 4% of sales in capital expenditures to meet demand for next-generation capabilities [13][21] - Significant investments have been made in digital technologies and solid rocket motor capacity to enhance competitiveness and broaden market presence [12][14] - The company is exploring creative ways to bring solutions to market faster, particularly in areas like AI and multifunction sensors [15] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in sustained growth due to strong bipartisan support for national security and robust defense spending [18][19] - The ongoing U.S. government shutdown is not expected to significantly impact financial results, although it may delay program awards [18][61] - The company anticipates a strong demand environment, with continued investments in capacity and capabilities to meet future needs [21][95] Other Important Information - The company received a multi-billion dollar extension on the Ground-based Midcourse Defense Weapon Systems contract, extending performance through 2030 [9] - The IBCS program has successfully completed live-fire testing and is expected to drive double-digit growth in 2026 [10][74] Q&A Session Summary Question: Can you provide more color on FAXX and B-21 acceleration for 2026 outlook? - Management noted that neither FAXX nor B-21 acceleration is included in the 2026 outlook, but both could provide upside to revenue in the long term [40][42] Question: Can you discuss your supply chain strategy regarding rare earths? - The company has mitigated dependency on rare earths through domestic foundries and is working with the U.S. government to establish additional sources [44][45] Question: What is the status of the B-21 production rate increase? - Active discussions are ongoing with the customer to enable acceleration of the production rate, but outcomes are uncertain due to the government shutdown [51][52] Question: What is the impact of program award delays? - Delays are attributed to the new administration's resource allocation and the government shutdown affecting decision-making processes [54] Question: Can you elaborate on IBCS growth opportunities? - IBCS is expected to be a significant growth driver, with over a dozen countries expressing interest in the program [72][74] Question: What are the plans for missile production capacity increases? - The company has already invested in expanding capacity and is breaking ground on new facilities to meet anticipated demand growth [85] Question: Can you provide an update on the Sentinel program? - The timing for Initial Operational Capability (IOC) has moved back, but the restructuring may open up opportunities for expanded work scope [130]