• Revenue: $9.5 billion, down 7% compared to the prior year.
• Backlog: Record backlog of $92.8 billion.
• B-21 Program Loss: $477 million pretax loss due to higher manufacturing costs.
• International Sales: 14% of total sales, with international sales up 11% in the quarter.
• Segment Operating Margin: 6% due to B-21 adjustment.
• Defense Systems Margin Rate: Improved to 9.9%.
• Space Segment Operating Margin: 11% with net favorable EACs of $29 million.
• EPS Impact: B-21 adjustment lowered EPS by $2.74 per share after-tax.
• Operating Cash Flow: Outflow of $1.5 billion.
• Capital Expenditures: Nearly $300 million invested.
• Shareholder Returns: Nearly $800 million returned through dividends and share repurchases.
• 2025 Sales Guidance: $42 billion to $42.5 billion, representing 3% to 4% organic growth.
• Free Cash Flow Guidance: Reaffirmed at $2.85 billion to $3.25 billion.

• Warning! GuruFocus has detected 6 Warning Signs with NOC.

Release Date: April 22, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Northrop Grumman Corp (NYSE:NOC) reported a record backlog of $92.8 billion in the first quarter, driven by strong international bookings.
• The company reaffirmed its 2025 financial guidance for sales and free cash flow, indicating confidence in achieving its outlook.
• Significant progress was made on key programs, including the successful static fire test of the Sentinel missile's Stage 1 solid rocket motor.
• Northrop Grumman Corp (NYSE:NOC) received a nearly $500 million contract for IBCS from the US Army, expanding software development and AI capabilities.
• International sales represented approximately 14% of total sales, with a first-quarter international book-to-bill ratio of 1.45 times, indicating strong growth potential.

Negative Points

• The company recognized a $477 million pretax loss related to the B-21 program due to higher manufacturing and material costs.
• First-quarter sales were down 7% compared to the prior year, impacted by contracting delays and timing of material receipts.
• The B-21 program's financial impact was disappointing, with a total loss provision of $477 million affecting the company's segment operating margin rate.
• There is uncertainty in the US defense budget environment, with delays in new awards affecting sales ramp-up.
• The macroeconomic environment and inflationary pressures have led to increased projected material costs, impacting profitability.

Q & A Highlights

Q: What milestones should we watch for to track the risk retirement of the B-21 program, and could there be further charges due to tariffs? A: Kathy J. Warden, CEO, explained that the B-21 program is completing the EMD phase and progressing through performance test milestones. The company has started low-rate initial production (LRIP) and is working through the first two lots. The manufacturing changes and associated costs are a result of scaling, and these learnings are now behind them. There is no change in the program's profile due to these updates, and the company is confident in its progress.

Q: Can you provide more color on Northrop Grumman's strategic strengths in AI compared to commercial players? A: Kathy J. Warden highlighted that Northrop Grumman has been investing in AI for decades, integrating it into various applications such as autonomous aircraft and situational awareness systems. The company partners with commercial entities like NVIDIA to enhance its software development, leveraging AI to make sensors and software more valuable and efficient for users.

Q: How confident are you that the B-21 charge is a one-time event, and what changed from a quarter ago? A: Kathy J. Warden stated that the charge was due to a process change to support higher production rates and increased material costs. The learning from these changes is now understood, and the company does not expect these issues to recur. The adjustments reflect macroeconomic factors and the learning curve from building the aircraft.

Q: How does Northrop Grumman view the impact of tariffs on its portfolio and international opportunities? A: Kathy J. Warden noted that about 5% of the supply chain is sourced internationally, primarily from Europe. Most costs related to trade policy are covered under contracts with the US government, minimizing risk. The company sees significant international demand, with a strong pipeline translating into firm bookings, particularly in Defense Systems.

Q: What gives you confidence in achieving the mid-teens sales growth in the second half of the year? A: Ken Crews, CFO, explained that growth will be driven by large awards received at the end of 2024, planned ramps in existing programs, and new competitive awards expected in the second quarter. The company is confident in its backlog and the timing of material receipts to support this growth.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.