Northrop Grumman [NOC] on Wednesday reported a solid increase in sales in the first quarter on increases across its operating sectors, although net income barely edged up as a pension benefit more than offset lower operating earnings, higher taxes, and the impacts from negative returns on marketable securities due to market volatility.

The company lowered its estimates for sales and adjusted earnings for the rest of 2020 due to the ongoing COVID-19 pandemic, with most of the impacts expected to be felt in the second quarter.

Net income in the quarter inched up a percent to $868 million, $5.15 earnings per share (EPS), from $863 million ($5.06 EPS) a year ago, well below consensus estimates of $5.50 EPS. The company’s earnings in the first quarter suffered a $56 million (33 cents EPS) hit due to negative returns on marketable securities.

Sales increased 5 percent to $8.6 billion from $8.2 billion.

At the operating level, sales increased at all four segments driven by classified work at Space Systems, the Next Generation Overhead Persistent Infrared satellite program, the Arctic Satellite Broadband Mission program, classified programs at Mission Systems, radar for the F-35 and F-16 fighter programs, higher volume on the Guided Multiple Launch Rocket System, Advanced Anti-Radiation Guided Missile and other missile products, an international training program, a Special Electronic Mission Aircraft, classified work in Aeronautics Systems, which is likely the B-21 Stealth bomber, and the Global Hawk unmanned aircraft system.

Classified work continues to outpace the company’s overall growth and will continue to do so, Kathy Warden, Northrop Grumman’s chairman, president and CEO, said on an earnings call. Classified orders in the quarter were 1.3 times sales, driven by bookings in Space Systems, and classified sales are 28 percent of the company’s business and the expectation is to go “even higher,” she said.

Business segment operating profit was down a percent overall as declines at Aeronautics and Defense Systems more than offset increases at Mission and Space Systems. The declines were attributed to performance adjustments on UAS, timing of F-35 risk retirements, manned aircraft contract mix, and favorable adjustments on certain small caliber ammunition programs that boosted profit a year ago.

Segment operating margin declined 70 basis points to 11.1 percent.

For 2020, sales are now expected to range between $35 billion and $35.4 billion, about a percent lower than prior guidance of between $35.3 billion and $35.8 billion. The projected decline is related to the Aeronautics business and impacts from the COVID-19 impacts specific to aerostructures work for commercial planes, supply chain risks, employee absenteeism and productivity impacts, Dave Keffer, Northrop Grumman’s chief financial officer, said on the call.

Commercial aerostructures make up about 1 percent of the company’s overall sales, he said.

The lower expected sales combined with higher interest expense and the first quarter hit from market volatility led Northrop Grumman to decrease its adjusted earnings guidance for the year by 95 cents EPS to between $21.80 to $22.20.

Overall, the supply chain risks to the company haven’t been significant, Warden said, adding that providing advance payments to some suppliers has helped them with their liquidity. Northrop Grumman has been advancing $30 million per week, mainly to its small and medium-size suppliers to help them through the pandemic, she said. The company expects these payments to exceed $200 million.

Northrop Grumman is also passing through to its suppliers higher Defense Department progress payments, she said.

Warden said that if the Air Force decides to accelerate award of the Ground Based Strategic Deterrent (GBSD) missile program to the company this year it will likely be by a “month or two” and won’t materially impact the 2020 outlook.

Northrop Grumman is “working with the Air Force and negotiating the contract now” and has been preparing should the service accelerate the award, Warden said. Getting started earlier on development of GBSD “de-risks the program to some extent and allows us to be more confident in meeting those milestones along the path to the 2029 IOC date for the program,” she said. IOC refers to initial operating capability.

The order tally in the quarter was $7.9 billion and total backlog at the end of March stood at $64.2 billion, down a percent from $64.8 billion at the end of 2019. Free cash flow in the quarter was $1.3 billion.