Northrop Grumman [NOC] on Wednesday reported a strong second quarter on higher earnings and sales and strong order flow also drove a substantial increase in the company’s backlog.
Net income increased 9 percent to $861 million, $5.06 earnings per share (EPS), from $789 million ($4.50 EPS) a year ago, beating consensus estimates by 38 cents per share. Sales increased 19 percent to $8.5 billion from $7.1 billion.
The primary driver behind the higher sales was the contribution from the former Orbital ATK, which Northrop Grumman acquired last June. Organic sales, were up 4 percent, driven by infrared countermeasures, airborne radar, classified programs, space payloads and mission programs at the Mission Systems segment and F-35 production and a civil space program at the Aerospace Systems segment.
The company’s classified work, as a percent of revenue, is growing across its businesses, Kathy Warden, Northrop Grumman’s president and CEO, said on a call with analysts. The company booked $843 million in classified space work during and $4.5 billion in the first quarter, she said.
Overall, orders in the second quartered totaled $13.5 billion, fueling an increase in backlog to $63 billion from $57.3 billion at the end of the first quarter.
Income at the operating segment level was robust, with all four of the company’s segments contributing, led by the Orbital ATK acquisition, but also due to improved performance on classified programs, improved performance in services work, the absence of a charge for information technology work that dented earnings a year ago under a state and local services contract, and higher sales at Aerospace Systems.
Segment operating margins rose 70 basis points to 11.6 percent.
Based on performance so far this year combined with the outlook for the rest of 2019, Northrop Grumman boosted its adjusted earnings guidance for the year to between $19.30 and $19.55 per share from the prior outlook of between $18.90 to $19.30 per share. The forecast for sales remains around $34 billion.
Warden said that within the Aerospace Systems segment, space business is expected to be the leading growth driver given government budget increases. It will also be “one of the fastest growing segments in the company over time,” she said of the space division.
The outlook for the Aerospace Systems segment remains positive overall with growth expected in programs like the E-2D Hawkeye airborne warning aircraft, F-35, and unmanned aircraft, particularly given the ramp up in the Triton program for the Navy and international sales, Warden said.
Free cash flow in the quarter was $1.4 billion.