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 2023 Financial Results

  • Net Awards of $10.9 billion; book to bill of 1.14
  • Sales increased 9 percent to $9.6 billion
  • Diluted earnings per share of $5.34
  • Operating cash flow of $919 million
  • Company increases 2023 sales guidance by $400 million and low end of EPS guidance range by $0.20

FALLS CHURCH, Va. - July 27, 2023 - Northrop Grumman Corporation (NYSE: NOC) reported second quarter 2023 sales increased 9 percent to $9.6 billion, as compared with $8.8 billion in the second quarter of 2022. Second quarter 2023 sales reflect continued strong demand and improving labor availability and supplier deliveries. Second quarter 2023 net earnings totaled $812 million, or $5.34 per diluted share, as compared with $946 million, or $6.06 per diluted share, in the second quarter of 2022. Net earnings were reduced by $160 million, or $1.01 per diluted share, as a result of lower net FAS/CAS pension income.

"Strong global demand for our products, increased supply chain deliveries and our continued success in hiring and retaining talent drove second quarter growth of nine percent," said Kathy Warden, chair, chief executive officer and president. "With backlog more than double annual sales and a robust U.S. and international outlook for our programs, we have increased our full year sales guidance by $400 million. We are driving affordability measures to partially offset the impacts of inflation for our customers and we expect margins to expand as macroeconomic headwinds stabilize and we shift our portfolio to more production and international volume."

  • 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 2023 Financial Results

2

Consolidated Operating Results and Cash Flows

Three Months Ended

Six Months Ended

June 30

June 30

$ in millions, except per share amounts

2023

2022

Change

2023

2022

Change

Sales

Aeronautics Systems

$

2,595

$

2,534

2%

$ 5,110

$ 5,237

(2%)

Defense Systems

1,420

1,294

10%

2,796

2,577

8%

Mission Systems

2,641

2,516

5%

5,204

5,013

4%

Space Systems

3,488

2,979

17%

6,838

5,834

17%

Intersegment eliminations

(568)

(522)

(1,071)

(1,063)

Total sales

9,576

8,801

9%

18,877

17,598

7%

Operating income

Aeronautics Systems

278

258

8%

515

565

(9%)

Defense Systems

166

168

(1%)

326

323

1%

Mission Systems

401

413

(3%)

761

798

(5%)

Space Systems

283

310

(9%)

596

571

4%

Intersegment eliminations

(76)

(76)

(144)

(147)

Segment operating income1

1,052

1,073

(2%)

2,054

2,110

(3%)

Segment operating margin rate1

11.0%

12.2%

(120) bps

10.9%

12.0%

(110) bps

FAS/CAS operating adjustment

(21)

(51)

(59%)

(42)

(97)

(57%)

Unallocated corporate expense:

Intangible asset amortization and PP&E

(31)

(61)

(49%)

(61)

(121)

(50%)

step-up depreciation

Other unallocated corporate expense

(33)

(7)

371%

(37)

(41)

(10%)

Unallocated corporate expense

(64)

(68)

(6%)

(98)

(162)

(40%)

Total operating income

$

967

$

954

1%

$ 1,914

$ 1,851

3%

Operating margin rate

10.1%

10.8%

(70) bps

10.1%

10.5%

(40) bps

Interest expense

(147)

(131)

12%

(276)

(264)

5%

Non-operating FAS pension benefit

133

377

(65%)

265

753

(65%)

Other, net

34

(50)

(168%)

82

(46)

(278%)

Earnings before income taxes

987

1,150

(14%)

1,985

2,294

(13%)

Federal and foreign income tax expense

175

204

(14%)

331

393

(16%)

Effective income tax rate

17.7%

17.7%

- bps

16.7%

17.1%

(40) bps

Net earnings

Diluted earnings per share

Weighted-average diluted shares outstanding, in millions

$ 812

$ 946

(14%)

$ 1,654

$ 1,901

(13%)

5.34

6.06

(12%)

10.83

12.16

(11%)

152.2

156.0

(2%)

152.7

156.3

(2%)

Net cash provided by (used in) operating

$

919

$

(197)

(566%)

$

217

$

(685)

(132%)

activities

Capital expenditures

(304)

(263)

16%

(613)

(507)

21%

Adjusted free cash flow1

$

615

$

(460)

(234%)

$

(396)

$

(1,192)

(67%)

  • 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 2023 Financial Results

3

Sales

Second quarter 2023 sales increased $775 million, or 9 percent, due to higher sales at all four sectors. Second quarter 2023 sales reflect continued strong demand and improving labor availability and supplier deliveries.

Operating Income and Margin Rate

Second quarter 2023 operating income increased $13 million, or 1 percent, due to a reduction in the FAS/CAS operating adjustment, partially offset by lower segment operating income. Second quarter 2023 operating margin rate declined to 10.1 percent due to a lower segment operating margin rate, partially offset by the lower FAS/CAS operating adjustment.

Segment Operating Income and Margin Rate

Second quarter 2023 segment operating income decreased $21 million, or 2 percent. Higher sales were more than offset by a lower segment operating margin rate, which reflects a $36 million unfavorable estimate-at-completion (EAC) adjustment on the Habitation and Logistics Outpost (HALO) program at Space Systems. In addition, the prior year period includes a $38 million gain on a property sale at Aeronautics Systems and a $33 million benefit recognized in connection with a contract-related legal matter at Mission Systems.

Federal and Foreign Income Taxes

The second quarter 2023 effective tax rate (ETR) of 17.7 percent was comparable with the prior year period and reflects higher interest expense on unrecognized tax benefits, offset by favorable returns on tax-exempt marketable securities.

Net Earnings and Diluted EPS

Second quarter 2023 net earnings decreased $134 million, or 14 percent, primarily due to a $244 million reduction in the non-operating FAS pension benefit, partially offset by a $51 million increase in returns on marketable securities related to our non-qualified benefit plans, higher operating income, higher interest income on short-term investments and lower income tax expense. Second quarter 2023 diluted earnings per share decreased 12 percent, reflecting a 14 percent decrease in net earnings and a 2 percent reduction in weighted-average diluted shares outstanding.

Cash Flows

Second quarter 2023 net cash provided by operating activities was $919 million compared to net cash used in operating activities of $197 million in the prior year period and reflects improved trade working capital largely driven by increased billings and cash collections. Second quarter 2023 adjusted free cash flow increased $1.1 billion due to higher net cash provided by operating activities, partially offset by an increase in capital expenditures.

Awards and Backlog

Second quarter and year to date 2023 net awards totaled $10.9 billion and $18.9 billion, respectively, and backlog totaled $78.8 billion. Significant second quarter new awards include $5.4 billion for restricted programs (primarily at Space Systems, Aeronautics Systems and Mission Systems), $0.6 billion for F-35 (primarily at Aeronautics Systems and Mission Systems), $0.3 billion for the Missile Defense Agency's Ballistic Missile Defense System Overhead Persistent Infrared Architecture (BOA) and $0.3 billion for Virginia-Class submarines.

  • 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 2023 Financial Results

4

Segment Operating Results

AERONAUTICS SYSTEMS

Three Months Ended

%

Six Months Ended

%

June 30

June 30

$ in millions

2023

2022

Change

2023

2022

Change

Sales

$ 2,595

$ 2,534

2 %

$ 5,110

$ 5,237

(2)%

Operating income

278

258

8 %

515

565

(9)%

Operating margin rate

10.7 %

10.2 %

10.1 %

10.8 %

Sales

Second quarter 2023 sales increased $61 million, or 2 percent, due to higher volume in both Manned Aircraft and Autonomous Systems. Higher sales on restricted programs were partially offset by lower volume on E-2 and F/A-18, as well as the Joint Surveillance and Target Attack Radar System (JSTARS) program as it nears completion.

Operating Income

Second quarter 2023 operating income increased $20 million, or 8 percent, due to higher sales and a higher operating margin rate. Operating margin rate increased to 10.7 percent from

10.2 percent primarily due to higher net favorable EAC adjustments on restricted work, partially offset by a $38 million gain on a property sale in the prior year.

DEFENSE SYSTEMS

Three Months Ended

%

Six Months Ended

%

June 30

June 30

$ in millions

2023

2022

Change

2023

2022

Change

Sales

$ 1,420

$ 1,294

10 %

$ 2,796

$ 2,577

8 %

Operating income

166

168

(1)%

326

323

1 %

Operating margin rate

11.7 %

13.0 %

11.7 %

12.5 %

Sales

Second quarter 2023 sales increased $126 million, or 10 percent, due to higher volume in both business areas. Battle Management & Missile Systems sales increased primarily due to higher volume on ammunition programs and the Integrated Air and Missile Defense Battle Command System (IBCS), Hypersonic Attack Cruise Missile (HACM) and advanced fuze programs. Mission Readiness sales increased principally due to higher volume on the NATO Alliance Ground Surveillance In-Service Support (NATO AGS ISS) program and an international training program.

Operating Income

Second quarter 2023 operating income decreased $2 million, or 1 percent, due to a lower operating margin rate, which more than offset higher sales. Operating margin rate decreased to 11.7 percent from 13.0 percent primarily due to lower net EAC adjustments.

MISSION SYSTEMS

Three Months Ended

%

Six Months Ended

%

June 30

June 30

$ in millions

2023

2022

Change

2023

2022

Change

Sales

$ 2,641

$ 2,516

5 %

$ 5,204

$ 5,013

4 %

Operating income

401

413

(3)%

761

798

(5)%

Operating margin rate

15.2 %

16.4 %

14.6 %

15.9 %

Sales

Second quarter 2023 sales increased $125 million, or 5 percent, primarily due to higher restricted sales in the Networked Information Solutions business area, as well as higher volume

  • 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 2023 Financial Results

5

on marine systems programs and the Surface Electronic Warfare Improvement Program (SEWIP). These increases were partially offset by lower volume on the Ground/Air Task Oriented Radar (G/ATOR) program.

Operating Income

Second quarter 2023 operating income decreased $12 million, or 3 percent, due to a lower operating margin rate, which more than offset higher sales. Operating margin rate decreased to

15.2 percent from 16.4 percent primarily due to a prior year $33 million benefit recognized in connection with a contract-related legal matter, as well as changes in contract mix toward more cost-type content.

SPACE SYSTEMS

Three Months Ended

%

Six Months Ended

%

June 30

June 30

$ in millions

2023

2022

Change

2023

2022

Change

Sales

$ 3,488

$ 2,979

17 %

$ 6,838

$ 5,834

17 %

Operating income

283

310

(9)%

596

571

4 %

Operating margin rate

8.1 %

10.4 %

8.7 %

9.8 %

Sales

Second quarter 2023 sales increased $509 million, or 17 percent, due to higher volume in both business areas. Launch & Strategic Missiles sales increased primarily due to ramp-up on development programs, including a $156 million increase on the Ground Based Strategic Deterrent (GBSD) program and higher volume on the Next Generation Interceptor (NGI) and Ground-based Midcourse Defense Weapon Systems (GWS) programs. Sales in the Space business area increased primarily due to higher volume on restricted programs, the Next- Generation Overhead Persistent Infrared Polar (NextGen Polar) program and the Space Development Agency (SDA) Tranche 1 Tracking Layer program. These increases were partially offset by lower volume for Commercial Resupply Services (CRS) missions.

Operating Income

Second quarter 2023 operating income decreased $27 million, or 9 percent, due to a lower operating margin rate, which more than offset higher sales. Operating margin rate decreased to

8.1 percent from 10.4 percent primarily due to lower net EAC adjustments, including a $36 million unfavorable EAC adjustment on the HALO program largely due to cost growth stemming from evolving Lunar Gateway architecture and mission requirements combined with macroeconomic challenges, and a $15 million write-down of commercial inventory.

  • 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 27 July 2023 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 27 July 2023 10:40:35 UTC.