The acquisition last year of Orbital ATK, combined with strong results in the company’s Aerospace Systems, led to a solid opening quarter for Northrop Grumman, with sales and earnings higher and the outlook for earnings higher this year.
Net income increased 3 percent to $863 million, $5.06 earnings per share (EPS), from $840 million ($4.79 EPS) a year ago, whipping analysts’ expectations by 46 cents per share. Sales increased 22 percent to $8.2 billion from $6.7 billion, with the Orbital ATK deal accounting for $1.4 billion of the gain.
The 2018 acquisition made Northrop Grumman part owner of Consolidated Nuclear Security, the management prime for the National Nuclear Security Administration’s Y-12 National Security Complex in Tennessee and Pantex Plant in Texas.
Outside of Orbital ATK, which makes up the company’s new Innovation Systems segment, the sales and earnings drivers were due to increased volume on the B-21 stealth bomber, F-35 fighter, E-2D airborne early warning aircraft, Triton unmanned aircraft system, and a secure satellite communications program at the Aerospace segment.
Sales were flat at Mission Systems while operating income was up slightly on improved performance, and sales were off 15 percent at Technical Services, which posted a 16 percent drop in profit on the sales decline. Mission Systems will return to growth in the second quarter and Technical Services late this year, Kathy Warden, president and CEO of Northrop Grumman, said on the company’s earnings call.
While Innovation Systems also drove the higher earnings, Northrop Grumman also said improved operating performance helped boost the bottom line. The company overcame higher corporate expenses and a slight pension headwind to increase earnings.
Segment operating margins rose 50 basis points to 11.8 percent.
While sales guidance was unchanged at around $34 billion, the outlook for earnings in 2019 was increased to between $18.90 and $19.30 EPS from prior projections of between $18.50 to $19 EPS due to lower than expected interest expense.
