Executive Summary

Q3 2025 delivered mixed headline results: revenue rose 4% YoY to $10.42B but came in below consensus, while EPS rose 10% YoY to $7.67 and beat Street expectations; segment OM expanded 80 bps to 12.3% as operational execution and favorable EACs supported profitability .
Guidance was reset: FY25 sales lowered to $41.7–$41.9B (from $42.05–$42.25B), but MTM-adjusted EPS raised to $25.65–$26.05 (from $25.00–$25.40); free cash flow guidance held at $3.05–$3.35B .
Operating cash and FCF inflected positively: Q3 operating cash flow of $1.56B and FCF of $1.26B (up 72% YoY) on higher earnings and improved trade working capital; book-to-bill was a strong 1.17 with $12.2B of net awards and $91.4B backlog .
Key stock catalysts: clarity on B‑21 production acceleration, outcomes on FPXX, and international IBCS orders starting in 2026; near-term revenue timing/award delays tempered sales guide, but margin/FCF resilience and segment mix support EPS upside .

What Went Well and What Went Wrong

What Went Well

Mission Systems drove profitability: OM rate expanded to 16.7% on efficiencies and a $68M favorable EAC in restricted advanced microelectronics, underpinning consolidated segment OM of 12.3% .
Free cash flow strength: Q3 operating cash flow of $1.56B and FCF of $1.26B rose on improved working capital; company reaffirmed FY25 FCF $3.05–$3.35B .
Strategic momentum and awards: Book-to-bill 1.17 with $12.2B net awards, including GMD Weapon System extension (~multi‑billion), and ongoing IBCS progress (32/32 successful flight tests) .

Quotes

“Segment operating margin increased to 12.3% in Q3, which drove a 10% year‑over‑year increase in earnings per share.” – Kathy Warden .
“We are increasing our [FY25 EPS] guidance by $0.65…driven by lower unallocated costs, modest pension/tax tailwinds and returns on marketable securities.” – CFO Ken Crews .

What Went Wrong

Revenue timing/award delays: FY25 sales outlook cut to $41.7–$41.9B due to delayed timing and uncertain awards; Aeronautics sales guide reduced to “High $12B” from “Low $13B” .
Space Systems headwinds: Q3 sales down 6% YoY on wind‑down of restricted space and NGI work and lower SDA volume; OM% declined to 11.0% .
Higher ETR YoY: Q3 ETR rose to 16.9% (from 13.6%) due to 2024 reserve releases and lower 2025 research credits following OBBBA enactment .

Financial Results

Top-line, margins, EPS, and cash flow (oldest → newest)

Metric	Q1 2025	Q2 2025	Q3 2025
Revenue ($B)	$9.468	$10.351	$10.423
Diluted EPS ($)	$3.32	$8.15	$7.67
Operating Margin (%)	6.1%	13.8%	11.9%
Segment Operating Margin (%)	6.0%	11.8%	12.3%
Free Cash Flow ($B)	$(1.821)	$0.637	$1.256
Net Awards ($B)	$10.8	$7.4	$12.2
Total Backlog ($B)	$92.797	$89.737	$91.448

Q3 2025 vs Wall Street consensus (SPGI)

Metric	Consensus*	Actual
Revenue ($B)	10.714*	10.423
Diluted EPS ($)	6.46*	7.67
EBITDA ($B)	1.525*	1.757*

Values retrieved from S&P Global*

Segment performance (Q3 2025)

Metric	Aeronautics	Defense Systems	Mission Systems	Space Systems
Sales ($B)	3.142	2.059	3.093	2.698
Sales YoY (%)	6%	14%	10%	(6%)
Operating Income ($M)	305	234	515	298
Operating Margin (%)	9.7%	11.4%	16.7%	11.0%

KPIs (Q3 2025)

KPI	Q3 2025
Book-to-bill	1.17
Net Awards ($B)	12.2
Backlog ($B)	91.4
Operating Cash Flow ($B)	1.557
Capex ($B)	0.301
Free Cash Flow ($B)	1.256
Weighted Avg Diluted Shares (M)	143.5

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Sales ($B)	FY25	$42.05–$42.25	$41.7–$41.9	Lowered
MTM-adjusted EPS ($)	FY25	$25.00–$25.40	$25.65–$26.05	Raised
Segment Operating Income ($B)	FY25	$4.275–$4.375	$4.275–$4.375	Maintained
Free Cash Flow ($B)	FY25	$3.05–$3.35	$3.05–$3.35	Maintained
Aeronautics Sales ($B)	2025	Low $13	High $12	Lowered
Aeronautics OM Rate (%)	2025	Low–Mid 6	Low–Mid 6	Maintained
Defense Systems OM Rate (%)	2025	Mid 10	High 10	Raised
Mission Systems Sales ($B)	2025	Low–Mid $12	Mid $12	Raised
Space Systems Sales ($B)	2025	Mid–High $10	Mid–High $10	Maintained
Intersegment Eliminations ($B)	2025	~$(2.1)	~$(2.25)	Lowered (more negative)

Why: Sales guide trimmed on award timing/uncertainty and intercompany mix; EPS lifted on lower unallocated corporate expense, modest pension/tax tailwinds, and marketable securities gains; FCF maintained with seasonal Q4 uplift drivers intact .

Earnings Call Themes & Trends

Topic	Q1 2025	Q2 2025	Q3 2025	Trend
B‑21 cost/acceleration	LRIP loss provision $477M; AS OM hit	AS sales up on B‑21; steady OM%	No change to prior loss; EMD test costs offset by contract restructure; in talks to accelerate production	Stabilizing costs; potential rate-upside
Sentinel (SDS)	Ramp-up supported DS sales	$76M favorable EAC on EMD drove DS margins	Program restructure progressing; key design milestones achieved; funding profile evolving	Execution improving; scope clarity rising
Microelectronics	Lower restricted microelectronics volume pressured MS margin	Efficiencies improved MS OM (airborne radar)	$68M favorable EAC in restricted microelectronics; OM 16.7%	Margin tailwind
IBCS/international	$0.5B IBCS awards; backlog record	Strong DS growth QoQ/YoY	IBCS 32/32 in flight tests; expected double‑digit growth driver from 2026; 32% international growth in quarter	Robust demand
Supply chain/shutdown	Cash flow seasonality/working capital	—	Rare earths mitigated via on‑shore foundries; limited shutdown impact if resolved quickly	Managed risk
Digital/AI initiatives	—	—	Enterprise digital ecosystem ($2B+ invested); AI in IBCS; autonomy via Beacon platform	Increasing emphasis

Management Commentary

“We achieved mid‑single‑digit growth, expanded our segment operating margins, and grew free cash flow year over year…we remain on track to receive LRIP LOT 3 and LOT 5 advanced procurement awards later this year.” – Kathy Warden .
“We are exploring creative ways to…incorporate AI into our solutions…and developing smarter weapon systems that bring unmatched superiority on the battlefield.” – Kathy Warden .
“Segment operating margin rate increased 80 basis points to 12.3%…Mission Systems OM increased nearly 300 bps to 16.7% with a $68M favorable EAC in restricted advanced microelectronics.” – Ken Crews .
“We are increasing [FY25] EPS guidance by $0.65…We are reaffirming free cash flow of $3.05B to $3.35B.” – Ken Crews .

Q&A Highlights

B‑21 acceleration and FPXX: Company is in active discussions with the Air Force to accelerate B‑21 production (earlier production at zero margin; longer‑term return improvement), while FPXX would add development revenue, likely dilutive to near‑term EPS but accretive long term .
Revenue timing: Sales guide cut reflects delayed timing on certain awards/programs and higher intercompany sales; MS sales raised on execution; DS OM guide raised to high‑10% .
IBCS growth: Expect international orders to phase in from 2026; view IBCS as a double‑digit growth driver next year .
Supply chain: Rare earths risk mitigated by two U.S. microelectronics foundries and allied sourcing; minimal impact expected if shutdown resolves soon .
SRM capacity: Tactical SRM capacity more than doubled; additional facility underway; positioning for second‑source wins (e.g., SM‑6) .

Estimates Context

Q3 vs consensus: Revenue $10.42B vs $10.71B* (miss), EPS $7.67 vs $6.46* (beat), EBITDA ~$1.76B* vs $1.53B* (beat). Drivers: MS outperformance (favorable microelectronics EAC), DS strength, mark‑to‑market gains on marketable securities, and modest pension/tax tailwinds; revenue constrained by Space wind‑downs and award timing .
Prior quarters: Q2 revenue/EPS exceeded consensus, supported by DS and MS execution and training divestiture gain; Q1 EPS miss was driven by a B‑21 LRIP loss provision .

Values retrieved from S&P Global*

Key Takeaways for Investors

Margin and FCF quality > top-line volatility: Despite revenue timing headwinds, NOC expanded segment OM and lifted EPS guide while reaffirming FCF—supportive for multiple resilience .
Segment mix improving: MS margin expansion and DS execution offset Space wind‑downs; watch intercompany eliminations and AS ramp cadence into Q4 .
Near‑term catalysts: B‑21 production acceleration framework, FPXX outcome, and incremental IBCS orders—positive optionality not embedded in 2026 outlook .
International demand underpinning growth: 20–32% international growth cited; multi‑year opportunity set across air/missile defense and radars .
Watch tax/pension mark‑to‑market and securities returns: Q3 included ~$80M returns on marketable securities; company did not assume full Q3 gains in FY guide, leaving room for variability .
Execution focus: Management emphasized digital transformation and IRAD to drive affordability and returns—key to sustaining OM% in low‑to‑mid 11s for 2026 absent large EACs .

Additional details

Q3 revenue +4% YoY; Diluted EPS +10% YoY; Segment OM +80 bps YoY .
Q3 Space sales −6% YoY on restricted/NGI wind‑downs; CRS missions offset partially .
Tax update: OBBBA changes (full expensing of R&D, bonus depreciation extension) affected 2025 ETR dynamics; Q3 ETR 16.9% .

Notes on non-GAAP

FY25 EPS guidance references MTM‑adjusted EPS; per‑share impact of total net FAS/CAS pension adjustment in Q3 was $1.06 after‑tax .

Press releases

10/21/25 press release directed investors to the 8‑K furnished earnings release and webcast; no additional financial disclosures beyond the 8‑K .

(End of recap)

NORTHROP GRUMMAN CORP /DE/ (NOC)·Q3 2025 Earnings Summary