Northrop Grumman(NOC) - 2024 Q1 - Quarterly Results

First Quarter 2024 Financial Results Financial Highlights Northrop Grumman reported a strong start to 2024 with a 9% increase in sales to $10.1 billion and a 15% rise in diluted earnings per share to $6.32 for the first quarter, returning $1.5 billion to shareholders and reaffirming full-year 2024 guidance Q1 2024 Key Financial Metrics | Metric | Q1 2024 | Q1 2023 | Change | | :--- | :--- | :--- | :--- | | Sales | $10.1 billion | $9.3 billion | +9% | | Net Earnings | $944 million | $842 million | +12% | | Diluted EPS | $6.32 | $5.50 | +15% | - Operating income increased by 13%, driven by strong performance and cost efficiencies[3] - The company returned $1.5 billion to shareholders through a combination of dividends and share repurchases[3] - Full-year 2024 company-level guidance has been reaffirmed[3] Consolidated Financial Performance Consolidated sales for Q1 2024 grew 9% to $10.1 billion, driven by growth across all four business sectors, particularly an 18% increase in Aeronautics Systems, with operating income rising 13% to $1.07 billion and net earnings increasing 12% to $944 million Q1 2024 Consolidated Operating Results ($ in millions) | Metric | Q1 2024 | Q1 2023 | Change | | :--- | :--- | :--- | :--- | | Total Sales | $10,133 | $9,301 | 9% | | Total Operating Income | $1,071 | $947 | 13% | | Operating Margin Rate | 10.6% | 10.2% | +40 bps | | Net Earnings | $944 | $842 | 12% | | Diluted EPS | $6.32 | $5.50 | 15% | - Sales growth was driven by higher sales at all four sectors, reflecting strong demand[5] - The increase in operating income and margin was primarily due to higher segment operating income and a benefit from the FAS/CAS operating adjustment[6] - Free cash flow usage was $(976) million, a 3% improvement from the prior year, mainly due to lower capital expenditures, with cash flow historically weighted towards the second half of the year[4][10] - The company received $6.5 billion in net new awards during the quarter, resulting in a total backlog of $78.9 billion[11] Segment Operating Results All four business segments reported sales growth in Q1 2024, with Aeronautics Systems leading at an 18% increase, and operating income also growing across all segments, Aeronautics showing the largest increase at 25% Aeronautics Systems Aeronautics Systems sales surged 18% to $3.0 billion, driven by higher volume in restricted programs and the F-35 program, with operating income growing 25% to $297 million and margin expanding 60 basis points to 10.0% Aeronautics Systems Q1 Performance ($ in millions) | Metric | Q1 2024 | Q1 2023 | Change | | :--- | :--- | :--- | :--- | | Sales | $2,969 | $2,515 | 18% | | Operating Income | $297 | $237 | 25% | | Operating Margin Rate | 10.0% | 9.4% | +60 bps | - Sales growth was primarily driven by higher volume on restricted programs and a $114 million increase on the F-35 program[14] - The operating margin rate increased due to higher net EAC adjustments from improved performance and cost efficiencies on programs like F-35 and F/A-18[15] Defense Systems Defense Systems sales increased 3% to $1.4 billion, led by the ramp-up of the SiAW program and higher volume in GMLRS and ammunition programs, with operating income rising 11% to $177 million and margin improving to 12.5% Defense Systems Q1 Performance ($ in millions) | Metric | Q1 2024 | Q1 2023 | Change | | :--- | :--- | :--- | :--- | | Sales | $1,412 | $1,376 | 3% | | Operating Income | $177 | $160 | 11% | | Operating Margin Rate | 12.5% | 11.6% | +90 bps | - Sales growth was attributed to the ramp-up on the Stand-in Attack Weapon (SiAW) program and higher volume on GMLRS and certain ammunition programs[17] Mission Systems Mission Systems sales grew 4% to $2.7 billion, primarily from higher restricted sales in advanced microelectronics, with operating income increasing 5% to $378 million and margin edging up to 14.2% Mission Systems Q1 Performance ($ in millions) | Metric | Q1 2024 | Q1 2023 | Change | | :--- | :--- | :--- | :--- | | Sales | $2,659 | $2,563 | 4% | | Operating Income | $378 | $360 | 5% | | Operating Margin Rate | 14.2% | 14.0% | +20 bps | - The sales increase was mainly due to higher restricted sales on advanced microelectronics programs[21] Space Systems Space Systems sales rose 9% to $3.7 billion, driven by growth in SDA T2TL programs, restricted programs, and hypersonics, with operating income increasing 6% to $332 million and margin slightly decreasing to 9.1% Space Systems Q1 Performance ($ in millions) | Metric | Q1 2024 | Q1 2023 | Change | | :--- | :--- | :--- | :--- | | Sales | $3,655 | $3,350 | 9% | | Operating Income | $332 | $313 | 6% | | Operating Margin Rate | 9.1% | 9.3% | -20 bps | - Sales growth was primarily driven by a $117 million increase on the Space Development Agency (SDA) Tranche 2 Transport Layer (T2TL) programs and higher volume on restricted and hypersonics programs[24] 2024 Guidance Northrop Grumman reaffirmed its full-year 2024 financial guidance, originally issued on January 25, 2024, expecting sales between $40.8 billion and $41.2 billion and MTM-adjusted EPS in the range of $24.45 to $24.85 Reaffirmed 2024 Full-Year Guidance | Metric | Guidance Range | | :--- | :--- | | Sales | $40,800M - $41,200M | | Segment Operating Income | $4,475M - $4,550M | | MTM-adjusted EPS | $24.45 - $24.85 | | Free Cash Flow | $2,250M - $2,650M | - The guidance reflects the company's judgment based on information available at the time of the release and considers factors like the global macroeconomic environment, government budgets, and inflationary pressures[27] Financial Statements (Schedules) The release includes unaudited condensed consolidated financial statements for the first quarter ended March 31, 2024, providing detailed information on the company's earnings, financial position, cash flows, backlog, and supplemental per-share data Statements of Earnings and Comprehensive Income (Schedule 1) This schedule details the company's revenues and expenses, leading to a net earnings of $944 million for Q1 2024, compared to $842 million in Q1 2023, breaking down sales into Product ($8.1 billion) and Service ($2.0 billion) categories - Provides a detailed breakdown of sales, operating costs, other income/expenses, and taxes to arrive at net earnings and comprehensive income[45] Statements of Financial Position (Schedule 2) This schedule presents the company's balance sheet as of March 31, 2024, with total assets at $47.8 billion, total liabilities at $33.6 billion, and total shareholders' equity at $14.2 billion - Details the company's assets, liabilities, and shareholders' equity, showing an increase in total assets from $46.5 billion at year-end 2023 to $47.8 billion[48] Statements of Cash Flows (Schedule 3) This schedule outlines the cash movements from operating, investing, and financing activities, with net cash used in operating activities at $(706) million, $1.19 billion spent on common stock repurchases, and $283 million paid in dividends - Shows a net cash usage of $(706) million from operations, $(269) million from investing, and a net cash provision of $927 million from financing activities[52] Total Backlog (Schedule 4) This schedule details the company's total backlog, which stood at $78.9 billion as of March 31, 2024, comprised of $35.5 billion in funded backlog and $43.4 billion in unfunded backlog, with Space Systems holding the largest portion at $36.5 billion Total Backlog by Segment ($ in millions) | Segment | Total Backlog | | :--- | :--- | | Aeronautics Systems | $18,962 | | Defense Systems | $7,751 | | Mission Systems | $15,736 | | Space Systems | $36,471 | | Total | $78,920 | Supplemental Per Share Information (Schedule 5) This schedule provides a reconciliation of the per-share impact of non-GAAP adjustments, with the total net FAS/CAS pension adjustment having a positive impact of $0.87 per share and intangible asset amortization a negative impact of $(0.13) per share for Q1 2024 - Details the per-share impact of the total net FAS/CAS pension adjustment ($0.87) and intangible asset amortization and PP&E step-up depreciation ($(0.13))[59] Forward-Looking Statements and Risk Factors This section contains standard cautionary language regarding forward-looking statements, warning that actual results could differ materially from expectations due to various risks and uncertainties, including dependence on U.S. government spending, macroeconomic pressures, competition, and legal or regulatory changes - The release contains forward-looking statements that are not guarantees of future performance and involve risks and uncertainties[36][37] - Key risks include dependence on U.S. government appropriations, contract cost growth, competition, supply chain challenges, and the ability to attract and retain a qualified workforce[38][39] Non-GAAP Financial Measures This section defines the non-GAAP financial measures used in the report, including MTM-adjusted EPS, segment operating income and margin rate, and free cash flow, which the company believes are useful for investors in evaluating underlying financial performance and operational trends - Defines MTM-adjusted EPS as diluted EPS excluding the impact of mark-to-market pension adjustments[62] - Defines Segment operating income as the combined operating income of the four segments, excluding certain unallocated corporate items[63] - Defines Free cash flow as net cash from operating activities less capital expenditures[64]