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NORTHROP GRUMMAN CORP /DE/ (NOC)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 sales fell 7% to $9.47B and diluted EPS was $3.32, driven by a $477M pre-tax loss provision on B‑21 LRIP; segment operating margin compressed to 6.0% from 10.9% YoY .
  • Revenue and EPS missed S&P Global consensus: $9.95B vs $9.47B actual and $6.26 EPS vs $3.32 actual; EBITDA also missed ($1.39B est. vs ~$1.04B actual)*. The B‑21 charge equated to $2.74 per share after tax .
  • Guidance was reset: FY25 segment operating income cut to $4.2–$4.35B (from $4.65–$4.8B) and MTM‑adjusted EPS to $24.95–$25.35 (from $27.85–$28.25), while sales ($42.0–$42.5B) and FCF ($2.85–$3.25B) were reaffirmed .
  • Record backlog rose to $92.8B, net awards totaled $10.8B, and management cited improving award timing, a stronger international pipeline (Q1 international book‑to‑bill 1.45x), and minimal tariff risk as supports for H2 ramp .
  • The stock fell ~12.7% on the day of the release, with multiple law firms announcing investigations citing the miss and B‑21 charge as catalysts .

What Went Well and What Went Wrong

What Went Well

  • Backlog reached a new record: $92.8B, with notable awards including $4.6B restricted programs, $1.1B for F‑35, $0.5B for IBCS, $0.3B Triton, and $0.3B E‑2 .
  • Defense Systems (+4% sales, +15% operating income; OM 9.9%) benefited from Sentinel ramp and ammo programs; Mission Systems sales +6% on SABR, EW, and marine systems; Space Systems OM rate improved to 11.0% on favorable EACs .
  • Management tone remained constructive on demand and awards: “record first quarter backlog” and reaffirmed sales and FCF guidance; international sales up 11% with 1.45x book‑to‑bill; over $1B international awards in Mission Systems .

What Went Wrong

  • Aeronautics posted an operating loss (‑$183M; OM ‑6.5%), primarily from the $477M B‑21 LRIP loss provision due to a process change to accelerate the production ramp and higher material costs; company operating margin fell to 6.1% from 10.6% YoY .
  • Company sales down 7% YoY, impacted by fewer working days, Space Systems wind‑down on restricted space/NGI, and contracting/material timing; segment OM fell to 6.0% from 10.9% .
  • Cash usage intensified: operating cash flow ‑$1.565B and FCF ‑$1.821B on vendor payments and billing/collection timing; seasonality implies back‑half recovery but near‑term optics are weak .

Financial Results

Consolidated Performance vs Prior Year and Prior Quarter

MetricQ1 2024Q4 2024Q1 2025
Revenue ($USD Billions)$10.13 $10.69 $9.47
Diluted EPS ($)$6.32 $8.66 $3.32
Operating Margin (%)10.6% 10.2% 6.1%
Segment Operating Margin (%)10.9% 11.2% 6.0%
Net Earnings ($USD Millions)$944 $1,264 $481

Results vs S&P Global Consensus (Q1 2025)

MetricConsensusActual
Revenue ($USD Billions)$9.95*$9.47
Primary EPS ($)$6.26*$3.32
EBITDA ($USD Billions)$1.39*~$1.04

Values retrieved from S&P Global.

Segment Sales and Profit

SegmentSales ($USD Billions) Q1 2024Sales ($USD Billions) Q1 2025Operating Income ($USD Millions) Q1 2024Operating Income ($USD Millions) Q1 2025OM Rate Q1 2024OM Rate Q1 2025
Aeronautics Systems$3.04 $2.81 $306 -$183 10.1% -6.5%
Defense Systems$1.74 $1.81 $156 $179 9.0% 9.9%
Mission Systems$2.66 $2.81 $378 $361 14.2% 12.9%
Space Systems$3.15 $2.57 $330 $283 10.5% 11.0%
Intersegment Eliminations-$0.46 -$0.53 -$66 -$72 ——

KPIs and Cash

KPIQ4 2024Q1 2025
Total Backlog ($USD Billions)$91.47 $92.80
Net Awards ($USD Billions)$17.3 (Q4) $10.8 (Q1)
Operating Cash Flow ($USD Billions)$2.58 (Q4) -$1.57
Free Cash Flow ($USD Billions)$1.76 (Q4) -$1.82
Effective Tax Rate (%)18.5 (Q4) 16.8

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Sales ($USD Billions)FY 2025$42.0–$42.5 $42.0–$42.5 Maintained
Segment Operating Income ($USD Billions)FY 2025$4.65–$4.80 $4.20–$4.35 Lowered
MTM‑Adjusted EPS ($)FY 2025$27.85–$28.25 $24.95–$25.35 Lowered
Free Cash Flow ($USD Billions)FY 2025$2.85–$3.25 $2.85–$3.25 Maintained
Aeronautics Systems OM RateFY 2025Mid‑High 9% Low‑Mid 6% Lowered
Defense Systems OM RateFY 2025Mid‑High 9% Mid‑High 9% Maintained
Mission Systems OM RateFY 2025Mid 14% Mid 14% Maintained
Space Systems OM RateFY 2025High 10% High 10% Maintained
Intersegment Eliminations OM RateFY 2025High 13% High 13% Maintained
Dividend (Quarterly)Q1/Q2 2025$2.06 declared Feb 18 $2.31 declared May 20 Raised

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 2024)Previous Mentions (Q4 2024)Current Period (Q1 2025)Trend
B‑21 LRIP and margin impactNo charge; margins improved; EAC benefits in Space Transition to production; prior year charge backdrop $477M LRIP loss provision; process change to accelerate ramp; materials higher; $2.74/sh after tax Negative near‑term margin; derisking for future ramp
Award timing / budget environmentHealthy awards; raised FY24 guidance Record backlog; FY25 guide set Delays in certain awards; expect improvement in Q2/H2; CR details supportive Improving award flow expected
International demandNoted pipeline Backlog mix strong International sales +11%; 1.45x book‑to‑bill; >$1B awards in Mission Systems Strengthening
Tariffs / supply chainMacro pressures cited broadly —~5% direct foreign sourcing; most costs covered by contracts; minimal risk seen Manageable
Sentinel programRealigned to Defense Systems Ramp driving DS growth Stage 1 SRM static fire success; restructuring for cost/schedule efficiencies Executing; optimization ongoing
AI partnerships——Mission AI integration; partnerships including NVIDIA Expanding initiatives
Cash flow cadenceFree cash flow up in FY24 Seasonality acknowledgedLargest cash generation expected in Q4; FY25 FCF reaffirmed Back‑half weighted

Management Commentary

  • “Global demand for our products remains strong…record first quarter backlog…reaffirming our sales and free cash flow guidance for the year.” — Kathy Warden, CEO .
  • On B‑21: “We recognized an additional $477 million pretax loss…process change to enable a higher production rate and increased projected material costs.” — CEO prepared remarks .
  • Outlook: “We continue to expect $42–$42.5 billion in 2025 sales…reaffirming free cash flow guidance of $2.85–$3.25 billion.” — CFO .
  • International demand: “International book‑to‑bill of 1.45x and international sales up 11%…over $1B in international awards at Mission Systems.” — CEO .
  • Tariffs: “Most potential costs are incorporated and covered under our U.S. government contracts…we do not see significant risk at this time.” — CEO .

Q&A Highlights

  • B‑21 charge anatomy and recurrence risk: Majority tied to one‑time process change to enable higher rates; learning should not repeat; remaining risks largely inflation/materials .
  • Cash impact of charge: No material impact in 2025; primarily spread through 2026–2028 .
  • Sentinel profitability and restructuring: Confidence in design; cost‑plus structure; working with USAF to reduce cost/schedule; LRIP costs not yet contract‑estimated .
  • Mission Systems margin path: Investments weigh near‑term; efficiency initiatives and mix support second‑half margin improvement .
  • Award timing and H2 ramp: Large Q4 2024 awards, backlog ramps, and expected new competitive wins (esp. Space) underpin second‑half growth .

Estimates Context

  • Q1 2025 missed consensus on revenue ($9.95B est. vs $9.47B actual), EPS ($6.26 est. vs $3.32), and EBITDA ($1.39B est. vs ~$1.04B actual)*; B‑21 LRIP loss provision was the key driver of EPS/margin shortfall .
  • Street models likely shift lower for FY25 EPS and Aeronautics margins, but sales and FCF ranges were reaffirmed; management guides sequential sales growth in Q2 and stronger H2 driven by awards/backlog and improved award timing .

Values retrieved from S&P Global.

Key Takeaways for Investors

  • The quarter’s headline miss was driven by a strategic process change to accelerate B‑21 production; while painful near‑term, management views it as derisking and supportive of profitable NTE and FRP units longer term .
  • FY25 top‑line and FCF are intact; the reset is concentrated in segment OI and MTM‑adjusted EPS, with Aeronautics OM rate lowered materially; near‑term multiple risk persists until H2 execution is evident .
  • Backlog and international momentum (1.45x book‑to‑bill) provide cushion; watch cadence of delayed awards converting in Q2/Q3 and competitive wins in Space .
  • Cash flow remains back‑half weighted; Q1 cash usage was seasonal and amplified by working capital; monitor vendor payment cadence and collections in Q3/Q4 .
  • Tariff/macro risks appear manageable given contract structures and domestic sourcing; focus instead on inflation/material consumption assumptions within Aeronautics .
  • Stock reaction was negative (~12.7% down on the day), with legal firms publicizing investigations; near‑term sentiment will hinge on clarity of B‑21 charge containment and award flow .
  • Dividend increased post‑Q1 (to $2.31/qtr in May); debt issuance ($1.0B notes) supports flexible capital deployment amid guidance reset .

Additional Notes

  • Non‑GAAP items: FY25 guidance references MTM‑adjusted EPS and segment operating income; segment OM excludes certain corporate items and FAS service costs .
  • Two working days fewer than Q1 2024 modestly impacted sales, alongside known Space Systems wind‑downs and timing factors .
  • B‑21 after‑tax per‑share impact: $2.74; supplemental per‑share pension effects also disclosed (net FAS/CAS +$0.99/sh) .