Northrop Grumman Reports First Quarter 2025 Financial Results (Form 8-K)

Northrop Grumman Reports First Quarter 2025 Financial Results

•Net awards of $10.8 billion; new record backlog of $92.8 billion

•Sales of $9.5 billion

•Diluted EPS of $3.32, including impact of B-21 LRIP loss provision of $2.74

•Repaid $1.5 billion of long term debt and returned nearly $800 million to shareholders through share repurchases and dividends

•Reaffirming 2025 guidance for sales and free cash flow1

FALLS CHURCH, Va. - April 22, 2025 - Northrop Grumman Corporation (NYSE: NOC) reported first quarter 2025 sales decreased 7 percent to $9.5 billion, as compared with $10.1 billion in the first quarter of 2024. First quarter 2025 sales reflect two fewer working days than the first quarter of 2024 and our previously disclosed wind-down of work on certain Space Systems programs.

First quarter 2025 net earnings totaled $481 million, or $3.32 per diluted share, as compared with $944 million, or $6.32 per diluted share, in the first quarter of 2024. During the first quarter of 2025, we recognized a pre-tax loss of $477 million ($397 million after-tax or $2.74 per diluted share) across the five low-rate initial production (LRIP) options on the B-21 program at Aeronautics Systems. The loss largely relates to higher manufacturing costs primarily resulting from a process change made by the company to enable an accelerated production ramp, as well as increases in the projected cost and quantity of general procurement materials.

"Global demand for our products remains strong, which is reflected in our record first quarter backlog, and we are making significant progress on our key programs," said Kathy Warden, chair, chief executive officer and president. "The Northrop Grumman team remains committed to driving innovation to meet our customers' priorities, expanding our market presence and optimizing performance to deliver profitable, sustainable growth. Given this, we are reaffirming our sales and free cash flow guidance for the year."

1 Non-GAAP measure - see definitions at the end of this earnings release.
Northrop Grumman Corporation 2980 Fairview Park Drive • Falls Church, VA 22042-4511 news.northropgrumman.com

Consolidated Operating Results and Cash Flows

			Three Months Ended March 31
$ in millions, except per share amounts			2025						2024						Change
Sales
Aeronautics Systems			$	2,814					$	3,044					(8%)
Defense Systems			1,805						1,737						4%
Mission Systems			2,807						2,659						6%
Space Systems			2,568						3,149						(18%)
Intersegment eliminations			(526)						(456)
Total sales			9,468						10,133						(7%)
Operating (loss) income
Aeronautics Systems			(183)						306						NM
Defense Systems			179						156						15%
Mission Systems			361						378						(4%)
Space Systems			283						330						(14%)
Intersegment eliminations			(72)						(66)
Segment operating income1			568						1,104						(49%)
Segment operating margin rate1			6.0		%				10.9		%				(490) bps
FAS/CAS operating adjustment			63						6						950%
Unallocated corporate expense:
Intangible asset amortization and PP&E step-up depreciation			(21)						(25)						(16%)
Other unallocated corporate expense			(37)						(14)						164%
Unallocated corporate expense			(58)						(39)						49%
Total operating income			$	573					$	1,071					(46%)
Operating margin rate			6.1		%				10.6		%				(450) bps
Interest expense			(156)						(146)						7%
Non-operating FAS pension benefit			130						168						(23%)
Other, net			31						38						(18%)
Earnings before income taxes			578						1,131						(49%)
Federal and foreign income tax expense			97						187						(48%)
Effective income tax rate			16.8		%				16.5		%				30 bps
Net earnings			$	481					$	944					(49%)
Diluted earnings per share			3.32						6.32						(47%)
Weighted-average diluted shares outstanding, in millions			144.9						149.3						(3%)
Net cash used in operating activities			$	(1,565)					$	(706)					(122%)
Capital expenditures			(256)						(270)						(5%)
Free cash flow1			$	(1,821)					$	(976)					(87%)

1 Non-GAAP measure - see definitions at the end of this earnings release.
Northrop Grumman Corporation 2980 Fairview Park Drive • Falls Church, VA 22042-4511 news.northropgrumman.com

Sales

First quarter 2025 sales decreased $665 million, or 7 percent, driven by lower sales at Space Systems due, in part, to the wind-down of work on certain Space programs, as discussed in our segment operating results below, and lower sales at Aeronautics Systems. These decreases were partially offset by higher sales at Mission Systems and Defense Systems.

Operating Income and Margin Rate

First quarter 2025 operating income decreased $498 million, or 46 percent, primarily due to a $477 million loss provision on the B-21 program at Aeronautics Systems and lower operating income at Space Systems and Mission Systems, partially offset by higher operating income at Defense Systems and a $57 million increase in the FAS/CAS operating adjustment. Operating margin rate declined to 6.1 percent from 10.6 percent primarily due to the B-21 loss provision and a lower operating margin rate at Mission Systems, partially offset by higher operating margin rates at Defense Systems and Space Systems and a $57 million increase in the FAS/CAS operating adjustment.

Segment Operating Income and Margin Rate1

First quarter 2025 segment operating income1 decreased $536 million, or 49 percent, primarily due to the $477 million B-21 loss provision described above and lower operating income at Space Systems and Mission Systems, partially offset by higher operating income at Defense Systems. Segment operating margin rate1 decreased to 6.0 percent from 10.9 percent primarily due to the B-21 loss provision and a lower operating margin rate at Mission Systems, partially offset by higher operating margin rates at Defense Systems and Space Systems.

Federal and Foreign Income Taxes

The company's first quarter 2025 effective tax rate (ETR) increased to 16.8 percent from 16.5 percent in the prior year period. The increase in our ETR was driven by interest expense on unrecognized tax benefits and excess tax benefits for employee share-based compensation, partially offset by research credits.

Net Earnings

First quarter 2025 net earnings decreased $463 million, or 49 percent, primarily due to the B-21 loss provision described above as well as a $38 million reduction in the non-operating FAS pension benefit and higher interest expense, partially offset by a $90 million decrease in income tax expense.

Cash Flows

First quarter 2025 cash from operating activities decreased $859 million, or 122 percent, primarily due to changes in trade working capital largely driven by a comparative increase in vendor payments as well as the timing of billings and collections. The net use of cash during the first quarter is consistent with the company's historical timing of operating cash flows, which are generally more heavily weighted towards the second half of the year. First quarter 2025 free cash flow1 decreased $845 million, or 87 percent, principally due to a decrease in net cash from operating activities.

Awards and Backlog

First quarter 2025 net awards totaled $10.8 billion, and backlog totaled $92.8 billion. Significant first quarter new awards include $4.6 billion for restricted programs (primarily at Space Systems, Aeronautics Systems and Mission Systems), $1.1 billion for F-35 programs (primarily at Mission Systems and Aeronautics Systems), $0.5 billion for the Integrated Battle Command System (IBCS) program, $0.3 billion for Triton, and $0.3 billion for E-2.

1 Non-GAAP measure - see definitions at the end of this earnings release.
Northrop Grumman Corporation 2980 Fairview Park Drive • Falls Church, VA 22042-4511 news.northropgrumman.com

Segment Operating Results

Effective July 1, 2024, the company realigned the Strategic Deterrent Systems (SDS) division, which includes the Sentinel program, from Space Systems to Defense Systems. Effective January 1, 2025, the company realigned the Strike and Surveillance Aircraft Solutions (SSAS) business unit from Defense Systems to Aeronautics Systems. These realignments are reflected in the financial information contained in this report.

AERONAUTICS SYSTEMS			Three Months Ended March 31												%
$ in millions			2025						2024						Change
Sales			$	2,814					$	3,044					(8)		%
Operating income			(183)						306						NM
Operating margin rate			(6.5)		%				10.1		%

Sales

First quarter 2025 sales decreased $230 million, or 8 percent, primarily due to lower sales on B-21 and other restricted programs, as well as a decrease in F-35 sustainment volume due, in part, to the timing of materials.

Operating Income

First quarter 2025 operating income decreased $489 million and operating margin rate decreased to (6.5) percent primarily due to the previously described $477 million loss provision on the LRIP phase of the B-21 program, inclusive of a $226 million unfavorable EAC adjustment on the first and second LRIP lots.

DEFENSE SYSTEMS			Three Months Ended March 31												%
$ in millions			2025						2024						Change
Sales			$	1,805					$	1,737					4		%
Operating income			179						156						15		%
Operating margin rate			9.9		%				9.0		%

Sales

First quarter 2025 sales increased $68 million, or 4 percent, primarily due to continued ramp-up on the Sentinel program and higher volume on certain military ammunition programs, partially offset by lower sales on the Stand-in Attack Weapon (SiAW) program.

Operating Income

First quarter 2025 operating income increased $23 million, or 15 percent, due to a higher operating margin rate and higher sales. Operating margin rate increased to 9.9 percent from 9.0 percent primarily due to higher net EAC adjustments.

MISSION SYSTEMS			Three Months Ended March 31												%
$ in millions			2025						2024						Change
Sales			$	2,807					$	2,659					6		%
Operating income			361						378						(4)		%
Operating margin rate			12.9		%				14.2		%

1 Non-GAAP measure - see definitions at the end of this earnings release.
Northrop Grumman Corporation 2980 Fairview Park Drive • Falls Church, VA 22042-4511 news.northropgrumman.com

Sales

First quarter 2025 sales increased $148 million, or 6 percent, primarily due to higher sales on the Scalable Agile Beam Radar (SABR) program, ramp-up on electronic warfare self-protection and international ground-based radar programs, and higher volume on marine systems programs. These increases were partially offset by lower volume on restricted advanced microelectronics programs.

Operating Income

First quarter 2025 operating income decreased $17 million, or 4 percent, due to a lower operating margin rate, which more than offset higher sales. Operating margin rate decreased to 12.9 percent from 14.2 percent, primarily due to investments made by the sector in connection with restricted business opportunities and lower volume on restricted advanced microelectronics programs, which more than offset higher net EAC adjustments.

SPACE SYSTEMS			Three Months Ended March 31												%
$ in millions			2025						2024						Change
Sales			$	2,568					$	3,149					(18)		%
Operating income			283						330						(14)		%
Operating margin rate			11.0		%				10.5		%

Sales

First quarter 2025 sales decreased $581 million, or 18 percent, primarily due to wind-down of work on the restricted space and Next Generation Interceptor (NGI) programs, which reduced sales by $228 million, as well as decreases for Commercial Resupply Services (CRS) missions, Space Development Agency (SDA) satellite programs and other restricted space programs.

Operating Income

First quarter 2025 operating income decreased $47 million, or 14 percent, due to lower sales, partially offset by a higher operating margin rate. Operating margin rate increased to 11.0 percent from 10.5 percent principally due to higher net EAC adjustments.

1 Non-GAAP measure - see definitions at the end of this earnings release.
Northrop Grumman Corporation 2980 Fairview Park Drive • Falls Church, VA 22042-4511 news.northropgrumman.com

Guidance

Financial guidance, as well as outlook, trends, expectations and other forward-looking statements provided by the company for 2025 and beyond, reflect the company's judgment based on the information available to the company at the time of this release. The company's financial guidance and outlook for 2025 and beyond reflect what the company currently anticipates will be the impacts on the company from, among other factors, the global macroeconomic, security, and political/budget environments, including the impacts from inflationary pressures and labor and supply chain challenges; changes in the threat environment; changes in government budget, appropriations and procurement priorities and processes; the continuing resolution; changes in the regulatory environment, including trade policy; and changes in support for our programs. We are not assuming, and the company's financial guidance and outlook for 2025 and beyond do not reflect impacts on the company from, any government shutdown, or application of spending limits or other spending cuts. However, the company cannot predict how these factors will evolve or what impacts they will have, and there can be no assurance that the company's current expectations or underlying assumptions are correct. These factors can affect the company's ability to achieve guidance or meet expectations.

For additional factors that may impact the company's ability to achieve guidance or meet expectations, please see the "Forward-Looking Statements" section in this release and our Form 10-Q.

2025 Guidance
($ in millions, except per share amounts)			As of 4/22/2025
Sales			$42,000 - $42,500
Segment operating income1			$4,200 - $4,350
			Prior: $4,650 - $4,800
MTM-adjusted EPS1			$24.95 - $25.35
			Prior: $27.85 - $28.25
Free cash flow1			$2,850 - $3,250

2025 Segment Guidance
			As of 4/22/2025
			Sales ($B)			OM Rate %
Aeronautics Systems			Low $13			Low to Mid 6%
						Prior: Mid to High 9%
Defense Systems			Low $8			Mid to High 9%
Mission Systems			~$12			Mid 14%
Space Systems			~$11			High 10%
Intersegment Eliminations			~($2.1)			High 13%

1			Non-GAAP measure - see definitions at the end of this earnings release.

Northrop Grumman Corporation 2980 Fairview Park Drive • Falls Church, VA 22042-4511 news.northropgrumman.com

About Northrop Grumman

Northrop Grumman will webcast its earnings conference call at 9:30 a.m. Eastern Time on April 22, 2025. A live audio broadcast of the conference call will be available on the investor relations page of the company's website at www.northropgrumman.com.

Northrop Grumman is a leading global aerospace and defense technology company. Our pioneering solutions equip our customers with the capabilities they need to connect and protect the world, and push the boundaries of human exploration across the universe. Driven by a shared purpose to solve our customers' toughest problems, our employees define possible every day.

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Forward-Looking Statements and Projections

This earnings release and the information we are incorporating by reference, and statements to be made on the earnings conference call, contain or may contain statements that constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as "will," "expect," "anticipate," "intend," "may," "could," "should," "plan," "strategy," "project," "forecast," "achieve," "believe," "estimate," "guidance," "outlook," "trends," "goals," "confident," "on track" and similar expressions generally identify these forward-looking statements.