News Release

Contact: Vic Beck (Media) 703-280-4456 (office) vic.beck@ngc.com

Todd Ernst (Investors) 703-280-4535 (office) todd.ernst@ngc.com

Northrop Grumman Reports Second Quarter 2021 Financial Results

  • Strong Performance Continues; 2021 Sales and Earnings Guidance Raised
  • Sales Increase 3 Percent to $9.2 Billion; Organic Sales1 Increase 10 Percent
  • Operating Margin Rate of 11.4 Percent, Segment Operating Margin Rate1 of 12.2 Percent
  • EPS Increase 7 Percent to $6.42; Year to Date EPS Increase 78 Percent to $19.89 and Transaction-Adjusted EPS1 Increase 16 Percent to $13.00
  • Company Raises 2021 Sales Guidance to $35.8 Billion to $36.2 Billion and Transaction- adjusted EPS1 Guidance to $24.40 to $24.80

FALLS CHURCH, Va. - July 29, 2021 - Northrop Grumman Corporation (NYSE: NOC) reported second quarter 2021 sales increased 3 percent to $9.2 billion from $8.9 billion in the second quarter of 2020. Second quarter 2021 net earnings increased 3 percent to $1.04 billion, or $6.42 per diluted share from $1.01 billion, or $6.01 per diluted share, in the second quarter of 2020.

"Northrop Grumman delivered outstanding second quarter results, reflecting the strength of our portfolio and its alignment to national security priorities, as well as our team's ability to perform on our commitments," said Kathy Warden, chairman, chief executive officer and president. "Based on the strength of our growth and performance year-to-date and our enhanced outlook for the year, we have increased our 2021 sales and EPS guidance."

  • Non-GAAPmeasure - see definitions at the end of this earnings release.

Northrop Grumman Corporation

2980 Fairview Park Drive • Falls Church, VA 22042-4511

news.northropgrumman.com

Transaction-adjusted Net Earnings and Transaction-adjusted EPS

Year to date 2021 net earnings benefited from a gain on the sale of the company's IT services business. Excluding the gain on sale of the business, associated federal and state income tax expenses, transaction costs, as well as the make-whole premium for early debt redemption, year to date transaction-adjusted net earnings1 increased 13 percent and transaction-adjusted EPS1 increased 16 percent. Second quarter 2021 net earnings do not include any transaction-related adjustments. Transaction-adjusted net earnings1 and transaction- adjusted EPS1 are measures the company uses to compare performance to prior periods and for EPS guidance.

The table below reconciles net earnings and diluted EPS to transaction-adjusted net earnings1 and transaction-adjusted EPS1:

Three Months Ended

Six Months Ended

June 30

June 30

$ in millions, except per share amounts

2021

2020

2021

2020

Transaction-adjusted net earnings

Net earnings

$

1,037

$

1,005

$

3,232

$

1,873

Gain on sale of business

-

-

(1,980)

-

State tax impact2

-

-

160

-

Transaction costs

-

-

32

-

Make-whole premium

-

-

54

-

Federal tax impact of items above3

-

-

614

-

Adjustment, net of tax

$

-

$

-

$

(1,120)

$

-

Transaction-adjusted net earnings1

$

1,037

$

1,005

$

2,112

$

1,873

Transaction-adjusted per share data

Diluted EPS

$

6.42

$

6.01

$

19.89

$

11.16

Gain on sale of business per share

-

-

(12.18)

-

State tax impact per share2

-

-

0.98

-

Transaction costs per share

-

-

0.20

-

Make-whole premium per share

-

-

0.33

-

Federal tax impact of line items above per share3

-

-

3.78

-

Adjustment, net of tax per share

$

-

$

-

$

(6.89)

$

-

Transaction-adjusted EPS1

$

6.42

$

6.01

$

13.00

$

11.16

  • Non-GAAPmeasure - see definitions at the end of this earnings release.
  • The state tax impact includes $62 million of incremental tax expense related to $1.2 billion of nondeductible goodwill in the divested business.
  • The federal tax impact was calculated by applying the 21 percent federal statutory rate to the adjustment items and also includes $250 million of incremental tax expense related to $1.2 billion of nondeductible goodwill in the divested business.

Northrop Grumman Corporation

2980 Fairview Park Drive • Falls Church, VA 22042-4511

news.northropgrumman.com

Northrop Grumman Reports Second Quarter 2021 Financial Results

3

Consolidated Operating Results and Cash Flows

Three Months Ended

Six Months Ended

$ in millions, except per share amounts

June 30

Change

June 30

Change

2021

2020

2021

2020

Sales

Aeronautics Systems

$

2,913

$

2,925

-%

$ 5,903

$ 5,768

2%

Defense Systems

1,427

1,886

(24%)

2,989

3,767

(21%)

Mission Systems

2,588

2,446

6%

5,177

4,793

8%

Space Systems

2,748

2,048

34%

5,269

3,996

32%

Intersegment eliminations

(525)

(421)

(1,030)

(820)

Total sales

9,151

8,884

3%

18,308

17,504

5%

Operating income

Aeronautics Systems

300

310

(3%)

608

573

6%

Defense Systems

177

217

(18%)

354

415

(15%)

Mission Systems

408

347

18%

805

700

15%

Space Systems

301

209

44%

577

411

40%

Intersegment eliminations

(69)

(52)

(132)

(101)

Segment operating income1

1,117

1,031

8%

2,212

1,998

11%

Segment operating margin rate1

12.2%

11.6%

60 bps

12.1%

11.4%

70 bps

FAS/CAS operating adjustment

18

103

(83%)

37

208

(82%)

Unallocated corporate income (expense):

Gain on sale of business

-

-

NM

1,980

-

NM

IT services divestiture - unallowable

-

-

NM

(192)

-

NM

state taxes and transaction costs

Intangible asset amortization and PP&E

(64)

(77)

(17%)

(129)

(159)

(19%)

step-up depreciation

Other unallocated corporate expense

(27)

(63)

(57%)

(42)

(119)

(65%)

Unallocated corporate (expense) income

(91)

(140)

(35%)

1,617

(278)

NM

Total operating income

$

1,044

$

994

5%

$ 3,866

$ 1,928

101%

Operating margin rate

11.4%

11.2%

20 bps

21.1%

11.0%

1,010 bps

Interest expense

(136)

(154)

(12%)

(291)

(279)

4%

Non-operating FAS pension benefit

367

303

21%

734

605

21%

Other, net

27

60

(55%)

9

2

350%

Earnings before income taxes

1,302

1,203

8%

4,318

2,256

91%

Federal and foreign income tax expense

265

198

34%

1,086

383

184%

Effective income tax rate

20.4%

16.5%

390 bps

25.2%

17.0%

820 bps

Net earnings

$

1,037

$

1,005

3%

$ 3,232

$ 1,873

73%

Diluted earnings per share

6.42

6.01

7%

19.89

11.16

78%

Weighted-average diluted shares

161.5

167.3

(3%)

162.5

167.9

(3%)

outstanding, in millions

Net cash provided by operating activities

$

1,028

$

2,337

(56%)

$

962

$ 1,344

(28%)

Capital expenditures

(230)

(269)

(14%)

(435)

(541)

(20%)

Proceeds from sale of equipment to a

56

-

NM

56

-

NM

customer

Adjusted free cash flow1

$

854

$

2,068

(59%)

$

583

$

803

(27%)

IT services divestiture transaction costs

-

-

NM

39

-

NM

IT services divestiture federal and state taxes

390

-

NM

390

-

NM

Transaction-adjusted free cash flow1

$

1,244

$

2,068

(40%)

$ 1,012

$

803

26%

  • Non-GAAPmeasure - see definitions at the end of this earnings release.

Northrop Grumman Corporation

2980 Fairview Park Drive • Falls Church, VA 22042-4511

news.northropgrumman.com

Northrop Grumman Reports Second Quarter 2021 Financial Results

4

Sales

Second quarter 2021 sales increased $267 million, or 3 percent, primarily due to higher sales at Space Systems and Mission Systems, partially offset by lower sales at Defense Systems principally due to the impact of the IT services divestiture. Second quarter 2021 organic sales1 (total sales excluding sales attributable to the company's IT services divestiture) increased $852 million, or 10 percent.

Operating Income and Margin Rate

Second quarter 2021 operating income increased $50 million, or 5 percent, due to higher segment operating income and lower unallocated corporate expense, partially offset by a lower FAS/CAS operating adjustment. Second quarter 2021 operating margin rate increased to 11.4 percent reflecting a higher segment operating margin rate in addition to the items above.

Segment Operating Income and Margin Rate

Second quarter 2021 segment operating income increased $86 million, or 8 percent, due to higher sales and a higher segment operating margin rate. Higher operating income at Space Systems and Mission Systems was partially offset by lower operating income at Defense Systems, principally due to the impact of the IT services divestiture, and Aeronautics Systems. Second quarter 2020 segment operating income from the IT services business was $60 million. Segment operating margin rate increased to 12.2 percent from 11.6 percent due to higher operating margin rates at Mission Systems, Defense Systems and Space Systems, partially offset by a lower operating margin rate at Aeronautics Systems.

Federal and Foreign Income Taxes

The second quarter 2021 effective tax rate increased to 20.4 percent from 16.5 percent in the prior year period primarily due to a change made in tax revenue recognition on certain long-term contracts, which increased taxable income in years prior to the 2017 Tax Cuts and Jobs Act at a rate above the current statutory rate.

Cash Flows

Second quarter cash provided by operating activities decreased $1.3 billion from the prior year period due to changes in trade working capital and $390 million of federal and state taxes paid related to the IT services divestiture. The prior year period benefited from CARES Act payroll tax deferrals and the increased Department of Defense (DoD) progress payment rates. Year to date 2021 cash provided by operating activities decreased $382 million principally due to the $390 million of federal and state taxes paid related to the IT services divestiture.

Second quarter 2021 transaction-adjusted free cash flow1 decreased $824 million principally due to changes in trade working capital. Year to date 2021 transaction-adjusted free cash flow1 increased $209 million due to improved trade working capital.

Awards and Backlog

Second quarter and year to date 2021 net awards totaled $6.5 billion and $15.4 billion,

respectively, and backlog totaled $76.6 billion. Significant second quarter new awards include $1.7 billion for restricted programs, $0.4 billion for F-35, $0.3 billion for GMLRS, $0.3 billion for E-2 and $0.2 billion for Global Hawk.

  • Non-GAAPmeasure - see definitions at the end of this earnings release.

Northrop Grumman Corporation

2980 Fairview Park Drive • Falls Church, VA 22042-4511

news.northropgrumman.com

Northrop Grumman Reports Second Quarter 2021 Financial Results

5

Segment Operating Results

AERONAUTICS SYSTEMS

Three Months Ended

%

Six Months Ended

%

June 30

June 30

$ in millions

2021

2020

Change

2021

2020

Change

Sales

$ 2,913

$ 2,925

- %

$ 5,903

$ 5,768

2 %

Operating income

300

310

(3)%

608

573

6 %

Operating margin rate

10.3 %

10.6 %

10.3 %

9.9 %

Sales

Second quarter 2021 sales were comparable to the prior year period. Higher restricted and E-2 production volume was offset by a reduction in A350 production activity and lower volume on the B-2 Defensive Management Systems Modernization program as well as certain Global Hawk programs as they near completion.

Operating Income

Second quarter 2021 operating income decreased $10 million, or 3 percent, due to a lower operating margin rate. Operating margin rate decreased to 10.3 percent from 10.6 percent principally due to a $21 million benefit recognized in the prior period in connection with the resolution of a government accounting matter, partially offset by higher net favorable EAC adjustments.

DEFENSE SYSTEMS

Three Months Ended

%

Six Months Ended

%

June 30

June 30

$ in millions

2021

2020

Change

2021

2020

Change

Sales

$ 1,427

$ 1,886

(24)%

$ 2,989

$ 3,767

(21)%

Operating income

177

217

(18)%

354

415

(15)%

Operating margin rate

12.4 %

11.5 %

11.8 %

11.0 %

Sales

Second quarter 2021 sales decreased $459 million, or 24 percent, primarily due to a $416 million reduction in sales related to the IT services divestiture. Second quarter 2021 organic sales1 decreased $43 million, or 3 percent, principally due to the close-out of the contract at the Army's Lake City ammunition plant, partially offset by higher volume on the Guided Missile Launch Rocket System program, Republic of Korea Global Hawk Contractor Logistics Support program and production ramp-up on advanced fuze programs.

Operating Income

Second quarter 2021 operating income decreased $40 million, or 18 percent, primarily due to the impact of the IT services divestiture. Operating margin rate increased to 12.4 percent from

11.5 percent and reflects improved performance at Battle Management and Missile Systems due, in part, to changes in mix as a result of recent contract completions.

  • Non-GAAPmeasure - see definitions at the end of this earnings release.

Northrop Grumman Corporation

2980 Fairview Park Drive • Falls Church, VA 22042-4511

news.northropgrumman.com

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Northrop Grumman Corporation published this content on 29 July 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 29 July 2021 10:36:05 UTC.