Northrop Grumman [NOC] on Thursday reported lower sales and earnings in its second quarter due in part to labor shortages and difficulty getting materials, although it said the tight labor market is letting up and the company reaffirmed its top and bottom-line outlook for 2022.

In addition to a tight labor market, Northrop Grumman continues to face challenges related to the lingering COVID-19 virus, with workers being out sick a recurring problem.

“What we’ve seen more so and we talked about this toward the end of last year, particularly as it impacted the F-35 [fighter] line, is absenteeism that ebbs and flows with COVID has been a bigger challenge for us,” Kathy Warden, chairwoman, president and CEO of Northrop Grumman, said on the company’s earnings call with analysts. “So, we have the workforce we need but if they aren’t as productive because they aren’t able to be there consistently.”

Toward the end of the second quarter and continuing in to July, Northrop Grumman has begun to see fewer disruptions from COVID and an easing of the labor issues in general, Warden said. Hiring trends improved during the quarter and the company is “aggressively” working on hiring and retention efforts, she said.

Net income fell 9 percent to $946 million, $6.06 earnings per share (EPS), from just over $1 billion ($6.42 EPS) a year ago, four cents shy of analysts’ expectations. Sales slipped 4 percent to $8.8 billion from $9.2 billion a year ago. Free cash flow was minus $460 million.

The bottom-line was negatively impacted by unfavorable returns on marketable securities and lower pension income.

Despite the soft top and bottom-lines, Northrop Grumman nabbed $13 billion in orders in the quarter for a book-to-bill ratio of nearly 1.5 times sales, ahead of its expectations due to competitive wins and the timing of some large awards, including work on the F-35, Dave Keffer, Northrop Grumman’s chief financial officer, said on the call.

For all of 2022, Northrop Grumman now expects bookings to be about equal to sales, which is also better than the prior outlook, Keffer said.

At the end of the quarter total backlog stood at $80 billion, up 5 percent from $76 billion at the end of 2021.

Nearly half of the backlog, $38.9 billion, is within the Space Systems segment, which continues to be the company’s largest and fastest growing business area. The segment garnered $700 million in classified awards in the quarter and classified work makes up $11.3 billion of space backlog, Warden said.

In the quarter, Space Systems was the only operating segment to record growth, with sales up 8 percent to $3 billion and operating income also higher. Operating income was also up slightly in the Mission Systems segment.

Overall sales for the year are still forecast to be between $36.2 billion and $36.6 billion, although Keffer said that based on results in the first six months of 2022 and current trends, revenue will likely come in at the lower end of the range. Adjusted earnings are still expected to be between $24.50 and $25.10 EPS.

Baked into the guidance is the likelihood that the federal government begins fiscal year 2023 in October under a continuing budget resolution, Warden said.

Northrop Grumman didn’t provide detailed guidance for 2023, but the company believes sales will accelerate with growth in the mid-single digit percentage range, she said.

Russia’s invasion of Ukraine has led to a “fairly enduring” shift within Europe in “recognizing the threat environment is real,” Warden said. It will be 18 to 24 months, though, before new international defense demand has a material impact on the defense industry’s finances, she said.