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Northrop Grumman Adjusts Guidance; Still Expects To Outpace Industry Growth

May 06, 2020 1:02 AM ETNorthrop Grumman Corporation (NOC)3 Comments
Jenks Jumps profile picture
Jenks Jumps


  • Northrop Grumman reported healthy 2020 first-quarter results on April 29th. Revenue and free cash flow improved 5+% year over year. "Restricted work" revenue contributed 28+%, indicating growth in market share.
  • Expecting an impact from the COVID-19 pandemic in the second quarter, the company adjusted 2020 guidance for revenue and mark-to-market adjusted earnings per share.
  • Though Northrop adjusted its revenue guidance range by approximately 1%, it still expects year-over-year revenue growth of at least 3.4%, outpacing industry growth expectations of 2.9%.

With so much uncertainty swirling around the actual impact from the COVID-19 pandemic, most companies are withdrawing 2020 annual guidance. At this point, investors may find it reassuring to find a company willing to offer guidance... even if the numbers are lower than original guidance. For that matter, a decrease less than 25-30% could appear promising.

Northrop Grumman (NYSE:NOC) initially projected sales for 2020 in a range of $35.3-35.8 billion. Its range on MTM-adjusted EPS was $22.75-23.15. Free cash flow was projected to fall in a range of $3.15-3.45 billion.

Northrop Grumman reported 2020 first-quarter results on April 29th. The company did not withdraw full-year guidance, most likely because it is one of the country's top defense contractors. But it did downgrade pieces of the guidance, though only minimally and much less than 25-30%.

2020 First-Quarter Results

Northrop's first-quarter revenue in 2020 was $8.62 billion, 5.3% greater than the $8.19 billion generated in the first quarter of 2019. Each of the company's four segments - Aeronautics Systems, Defense Systems, Mission Systems and Space Systems - posted year-over-year gains. Northrop expected its Space Systems segment to be its fastest-growing in 2020. In the first quarter, sales in this segment at $1.95 billion increased 8.2% year over year, followed by Defense Systems at 6.4%, Mission Systems at 6.2% and Aeronautics Systems at almost 1%.

Northrop Grumman considers the contribution of “restricted work” as a good measure of success and an indicator that the company is capturing market share. In 2019, it reported restricted work contributed more than 25% of total sales. In the 2020 first quarter, restricted work contributed over 28% of total revenue. The company expects the percentage to grow throughout 2020.

A 60-basis point decline in operating margin resulted in Northrop's total operating income being relatively flat year over year - $934

This article was written by

Jenks Jumps profile picture
I am a self-taught investor. As a member of an investment club, I provide the majority of research to the club. When I started writing for SA, the club was interested in stocks offering growth at a reasonable price (GARP) and stocks that were undervalued. We have since adopted a dividend growth investing (DGI) strategy. We search for GRAVY - our acronym for "GR"owth "A"bility, "V"alue and "Y"ield. I am very interested in other active investors critiquing my research. I believe this critique will make me a better investor for my own interests as well as the club's.

Analyst’s Disclosure: I am/we are long NOC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

I belong to an investment club that owns shares in NOC.

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