Northrop Grumman [NOC] on Thursday posted mixed financial results in its third quarter with sales up but earnings down.

Still, the company increased its adjusted earnings guidance for 2019, due to better segment operating margin, lower interest expense, and a lower tax rate.

Net income in the quarter tumbled 25 percent to $933 million, $5.49 earnings per share (EPS), from $1.2 billion ($7.11 EPS) a year ago, two pennies above consensus per share estimates. Lower segment operating earnings, reduced pension benefits, and a substantial gain from a settlement a year ago were the primary contributors to the income drop.

At the operating level, the decrease in income was driven by a decline at the Aerospace Systems segment, which suffered from charges taken in a Defensive Management Systems Modernization program for the B-2 stealth bomber and delays in production for some commercial space components. The charges were less than $20 million for each program, Ken Bedingfield, Northrop Grumman’s chief financial officer, said on the company’s earnings call.

The B-2 defensive system work is complex but the company is making progress and hitting milestones as it moves forward with work here, Bedingfield said.

Sales increased 5 percent to $8.5 billion from $8.1 billion a year ago, with growth in all four operating segments. The increase was led by the Innovation Systems segment, which is the former Orbital ATK acquired by Northrop Grumman in June 2018.

Specific growth drivers cited by Northrop Grumman include national security satellite systems, precision munitions and armaments, tactical missiles, military and commercial aerospace structures, F-35 production, E-2 aircraft, Next Generation Overhead Persistent Infrared, unmanned aircraft systems, marine systems, cyber and ISR, airborne radar and electronic warfare programs, and global logistics and services.

For 2019, the company expects its adjusted earnings to be between $20.10 and $20.35 EPS versus the prior outlook of between $19.30 and $19.55 EPS. Free cash flow guidance was also revised upward by $100 million on the low end of the range to between $2.7 billion and $3 billion.

In 2020, Northrop Grumman expects sales growth to be in the mid-single digits, which includes the recent loss to Olin Corp.

[OLN] for operation of the Army’ Lake City Ammunition Plant in Missouri where small caliber ammunition is manufactured, Kathy Warden, the company’s chairman, president and CEO, said on the call. The 2020 sales outlook is a percent lower due to the loss, Bedingfield said.

Segment operating margin in 2020 will be consistent with 2019, Warden said. Segment margin is forecast to be around 11.5 percent this year. The margin rate in the quarter was 11.1 percent, down a percent from a year ago. Free cash flow will be higher, she said.

Orders in the quarter totaled a robust $10.1 billion and backlog stood at $65 billion, a 22 percent increase from $53.5 billion at the end of 2018. Classified work in backlog has also grown 22 percent since the start of 2019, Warden said.

So far this year, Northrop Grumman has received $8.5 billion in classified business, which is growing as a percent of the company’s sales, Warden said, highlighting this trend as evidence of its alignment with the Pentagon’s National Defense Strategy.