Northrop Grumman Corporation

Second quarter sales were $10.9 billion, up 5% year over year, with sequential sales up 10%. Adjusted EPS was $7.68. Q2 adjusted free cash flow was nearly $1 billion, and capital expenditures were $302 million. Second-quarter awards totaled $20 billion, backlog increased 17% year over year to a record $105 billion, and book-to-bill was 1.84x. Segment details included Aeronautics sales up 13% with a 10.3% margin rate, Defense Systems sales up 5% (7% organic) with a 7.5% margin rate, Mission Systems sales up 3% with a 15.4% margin rate, and Space sales up 4% with an 8.6% margin rate. For 2026, management raised sales guidance to $43.75 billion-$44.25 billion, raised adjusted EPS guidance to $28.60-$29.10, reaffirmed adjusted free cash flow guidance at $3.1 billion-$3.5 billion, and reiterated expected CapEx of $1.85 billion. Segment guidance included Aeronautics sales of about $14 billion with margins in the mid-to-high 9% range, Defense Systems sales in the mid-to-high $8 billion range with margins around 10%, Mission Systems sales in the high $12 billion range with margins around 15%, and Space sales of about $11 billion with margins in the low 10% range.

Kathy Warden said the company is benefiting from strong U.S. and allied defense spending, with support for key programs in the FY27 base budget and growing international demand. She emphasized that Northrop is investing in factories, capacity, and program execution to meet demand faster, while positioning the portfolio for multi-year growth in missiles, space, and production programs. Her tone was confident but practical, highlighting both growth opportunities and the need to fix the two problem programs called out on the call.

John Greene said Q2 performance showed rising momentum, with awards of $20 billion, backlog of $105 billion, and nearly $1 billion of adjusted free cash flow. He noted EPS of $7.68, including a lower tax rate benefit, and explained that the year-over-year comparison was affected by a $76 million favorable Sentinel EAC in Q2 2025. He raised 2026 sales and EPS guidance, reaffirmed free cash flow at $3.1 billion-$3.5 billion, said CapEx remains expected at $1.85 billion for 2026, and explained that several hundred million dollars of B-21 asset sale cash will be collected this year without changing 2026 cash expectations overall.

Analysts focused on the $1.20 EPS guidance increase, and management said it reflects a mix of higher sales, stronger second-half margins, and a tax benefit from the uncertain tax position remeasurement. Questions also centered on the SiAW cost growth and the GEM 63XL issue; management said SiAW is being affected by testing delays and extra qualification work, while GEM 63XL has a redesign that passed static fire testing and should begin delivering by year-end. Other questions addressed PAC-3, B-21 production scale, HALO’s revenue shift due to NASA’s Gateway changes, and whether space, international, and missile programs can sustain growth into 2027.