NOC earnings analysis
What we found in NOC's 10-Q: the parts that mattered, the offsets in the same document, and what the company said about what comes next.
Our reading of the filing · Free to read, no account needed
Northrop Grumman grew Q2 revenue 5% to $10.876 billion and reported diluted EPS of $7.68, but EPS declined 6% year over year and operating margin fell from 13.8% to 10.1%, principally due to the absence of the prior-year $231 million divestiture gain and weaker Defense and Space profitability. Aeronautics and Mission Systems drove underlying strength, while Defense Systems and Space Systems absorbed $68 million of SiAW and $91 million of GEM 63XL unfavorable EAC adjustments, respectively. The $104.692 billion backlog, up 9%, supports demand visibility, but first-half adjusted free cash flow remained negative at $845 million amid $2.522 billion of trade-working-capital use.
The parts that mattered.
Pulled out of the filing itself, with the figures the company reported.
- Revenue growth broad-based, led by Aeronautics
- Q2 sales rose $525 million, or 5%, year over year to $10.876 billion. All four sectors grew, led by Aeronautics Systems, where sales increased $405 million, or 13%, to $3.519 billion.
- Mission Systems margin expanded 140 bps
- Mission Systems delivered the strongest profitability improvement: operating income increased $60 million, or 14%, to $501 million and operating margin expanded 140 basis points to 15.4%.
- Aeronautics growth supported earnings
- Aeronautics Systems operating income rose $41 million, or 13%, to $362 million on 13% sales growth; its 10.3% operating margin was unchanged year over year. First-half segment operating income surged $529 million to $667 million as the prior-year B-21 loss provision did not recur.
- Backlog reached $104.7B
- Backlog increased 9% from $95.681 billion at December 31, 2025 to $104.692 billion at June 30, 2026. Q2 net awards were $20.0 billion, including $7.6 billion for Sentinel and $4.3 billion for restricted programs.
- First-half cash outflow improved
- Cash conversion improved year over year: first-half operating cash outflow narrowed $321 million to $376 million, and adjusted free-cash-flow outflow improved $339 million to $845 million. Capital expenditures declined 4% to $469 million.
- Tax-rate benefit supported net income
- The effective tax rate fell to 6.3% from 17.7%, reducing quarterly tax expense by $179 million to $74 million. The lower rate principally reflected remeasurement of uncertain tax positions amid developments with the IRS.
And the other side of it.
The offsets in the same document — the things a summary that only listed the good news would have left out.
- GEM 63XL cost growth hurt Space margins
- Space Systems margin fell 200 basis points to 8.6%, and operating income declined $44 million, or 16%, to $236 million. The sector recorded a $91 million unfavorable EAC adjustment on GEM 63XL, principally from higher projected cost to complete.
- Defense Systems margin compressed sharply
- Defense Systems operating margin contracted 520 basis points to 7.5%, driving a $97 million, or 38%, decline in operating income to $156 million. The quarter included a $68 million unfavorable EAC adjustment on SiAW as production maturity and development/qualification costs increased.
- Reported profit declined despite sales growth
- Reported operating income decreased $329 million, or 23%, to $1.096 billion and operating margin declined 370 basis points to 10.1%. The comparison included a $231 million prior-year gain from the training-services divestiture, while Q2 diluted EPS declined $0.47 to $7.68.
- B-21 execution remains a material exposure
- The company has previously recognized approximately $2.0 billion of cumulative losses on B-21 LRIP and expects to invest approximately $2.5 billion over multiple years to expand capacity. Future cost-to-complete, quantities, and supplier-negotiation outcomes could materially affect results and cash flow.
- Working-capital consumption remains elevated
- First-half trade working-capital use was $2.522 billion, contributing to $376 million of operating cash used and $845 million of adjusted free cash flow used. Cash and equivalents were $2.3 billion at June 30, 2026, although no credit-facility borrowings were outstanding.
What they reported.
What the company itself reported, taken out of the document.
- Earnings per share
- $7.68
- Operating margin
- 10.1%
- Segment
- Aeronautics Systems: $3.519B revenue, up 13% year over year
- Segment
- Defense Systems: $2.093B revenue, up 5% year over year; organic sales up 7%
- Segment
- Mission Systems: $3.250B revenue, up 3% year over year
- Segment
- Space Systems: $2.753B revenue, up 4% year over year
What they said about what is next.
The 10-Q does not provide quantitative company revenue or EPS guidance; outlook was deferred to the earnings release/call. Management states it expects approximately $2.5 billion of multi-year investment to expand B-21 production capacity.
The filing reads about the same as the one before it.
What came before.
- 10-Q · April 21, 2026
- Northrop Grumman reported Q1 sales of $9,881 million, up $413 million (4.4%) versus Q1 2025, driven by product sales. Operating income rose to $989 million (10.0% operating margin) from $573 million (6.1%), and diluted…
This is our reading of a public filing, not the filing. Read the original on SEC.gov · Educational only. Nothing here is investment advice.
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