NORTHROP GRUMMAN CORP /DE/ (NOC)·Q4 2025 Earnings Summary
Northrop Grumman Beats Q4 But FY26 EPS Guide Disappoints — Stock Slides
January 27, 2026 · by Fintool AI Agent
Northrop Grumman delivered a solid Q4 2025 beat across revenue, EPS, and free cash flow, driven by 10% top-line growth and strong execution across all four segments. However, shares fell ~3.7% in aftermarket trading as FY2026 EPS guidance came in well below Street expectations — and management announced no share buybacks are planned beyond January.
The quarter in brief:
- Revenue: $11.7B (+10% YoY), the highest quarterly sales growth of 2025
- MTM-adjusted EPS: $7.23 (+13% YoY)
- Free cash flow: $3.3B for full year (+26% YoY), third consecutive year of 25%+ growth
- Backlog: Record $95B+ (book-to-bill 1.1x for 5-year average)
The disconnect: FY2026 MTM-adjusted EPS guidance of $27.40-27.90 implies ~$27.65 at the midpoint vs. Street consensus of $28.84 — a ~4% miss that's driving the stock reaction.*
Did Northrop Grumman Beat Earnings?
Yes, and convincingly. Northrop Grumman exceeded expectations on all key metrics for Q4 2025:
*Values retrieved from S&P Global
The 10% revenue growth was the standout, driven by Aeronautics (+18% YoY on F-35 materials timing, TACAMO ramp, and B-21 volume) and Mission Systems (+10% YoY on restricted programs, F-35, SEWIP, and international radars).
Full year 2025 also came in ahead:
- Revenue: $42B (+3% organic), above high end of guidance
- Free cash flow: $3.3B, near high end of guidance (+26% YoY)
- Net awards: $46B+ driving record backlog
Ask Fintool AI AgentWhat Did Management Guide?
This is where expectations diverged. Northrop Grumman's FY2026 guidance is lighter than the Street expected, particularly on EPS:
*Values retrieved from S&P Global
Key guidance assumptions:
- Effective tax rate: Low-to-mid 17%
- Interest expense: $620M
- Share count: Flat (no buybacks planned beyond January)
- Q1 sales: Up low single digits (partially due to 61 working days — fewer than typical quarters)
Important: Guidance does NOT include B-21 acceleration or FAXX (F/A-XX) program awards.
Segment guidance for FY2026:
Defense Systems remains the fastest-growing segment with broad-based demand across weapons, missile defense, and strategic deterrence.
How Did the Stock React?
Shares fell ~3.7% in aftermarket trading to ~$646, reflecting disappointment with FY2026 EPS guidance and the pause on share buybacks.
Context on recent trading:
- The stock had run up significantly heading into the print, reaching near all-time highs
- 52-week high: $677.30 (January 23, 2026)
- The guidance miss and capital allocation shift give investors reason to take profits
What Changed From Last Quarter?
Several notable shifts emerged from the Q4 2025 call:
Positive developments:
- Backlog hit record ~$95B — grown by nearly $20B since 2021, with 5-year average book-to-bill of 1.1x
- Free cash flow surged 26% YoY — third consecutive year of 25%+ growth
- International sales grew 20% in 2025 — with continued momentum expected
- Space Systems returned to growth in Q4 (+5% YoY) after full-year declines
Capital allocation shift:
- No buybacks planned beyond January — focus on reinvesting in capacity
- CapEx increasing to $1.65B (~4% of sales) to build industrial base
- $527M debt maturity in March to be paid with cash on hand
- Dividend update expected in May with Q2 earnings
B-21 Acceleration: What We Learned
The B-21 program dominated analyst Q&A. Here's what management revealed:
Current status:
- First flight of second aircraft completed in 2025
- LRIP Lot 3 contract awarded in Q4
- Lot 5 advanced procurement funding received
- No significant EAC changes in Q4
Acceleration investment:
- Northrop expects to invest $2-3B over a multi-year period if acceleration agreement is reached
- Better opportunity for returns on the program (multi-year)
- Accelerated revenue expected to ramp over multi-year period
- Minimal 2026 impact — greater impact in 2027, 2028, and into 2029
CEO Kathy Warden expressed optimism: "Funding for this acceleration has been approved as part of the reconciliation bill, and I am optimistic that we will come to an agreement with the Air Force this quarter."
Segment Performance Deep Dive
Aeronautics Systems — The Growth Engine
Q4 revenue of $3.9B jumped 18% YoY, the fastest growth across segments:
- F-35: Material timing drove volume increase
- TACAMO (E-130J): Continued program ramp
- B-21: Higher volume enabled by inventory liquidation on LRIP Lot 3/Lot 5 awards
FY2026 margin guided to low-to-mid 9%, reflecting higher mix of development programs (B-21 at 0% margin, TACAMO ramp).
Defense Systems — Fastest Growing Segment
Q4 revenue of $2.15B grew 7% GAAP, 12% organic:
- GMLRS: Higher solid rocket motor production volume
- Missile defense (IBCS): Strong demand
- Sentinel: Continues to ramp
FY2026 sales expected to grow low double digits organically to mid-to-high $8B.
Mission Systems — The Margin Leader
Q4 revenue of $3.45B grew double digits with outstanding 14%+ margin:
- Restricted programs, F-35, SEWIP: Strong production volume
- International radar systems: Continued growth
- FY2026 margin expected to improve further into high 14% range
Space Systems — In Transition
Q4 revenue up 5% YoY after a challenging full year:
- GEM 63: Production for Amazon's Project Kuiper (flat volumes expected in 2026 as capacity expands, growth resumes in 2027)
- Restricted programs: Increased volume
- Q4 margin: 11.3% on favorable EAC adjustments and contract mix
Strong Q4 backlog awards: GEM 63 (Amazon), Tranche 3 Tracking Layer (18 satellites), CRS launch, and restricted programs — two quarters in a row at 1.8x book-to-bill.
Ask Fintool AI AgentStrategic Highlights: Transforming for Speed
CEO Kathy Warden emphasized Northrop's transformation to meet the new administration's focus on speed, capacity, and performance:
Uncrewed Systems Progress
- Project Talon (YFQ-48A): New CCA designed and built in under 24 months, leveraging Beacon/Talon IQ autonomous testbed. Air Force awarded designator in December — only third CCA platform with this designation.
- Kratos partnership: $231M award for Marine CCA, combining Northrop's mission systems with Kratos' Valkyrie platform. 20+ successful demonstrations completed.
Capacity Expansion
- Solid rocket motors: Doubled capacity at ABL (West Virginia) since 2021, advancing to triple capacity by early 2027
- Elkton, Maryland: Investments to triple capacity by 2030
- Space: Gone from producing tens of satellites per year to hundreds
International Momentum
- IBCS: 20+ countries have expressed formal interest; Poland deployment expanding; 2-3 new country awards expected in 2026
- Ground-based radars: Contracts expected from Americas, Middle East, and Asia-Pacific
- FY2025 international growth: 20%, with continued acceleration expected
Q&A Highlights
On 2027 Growth Acceleration (Sheila Kahyaoglu, Jefferies)
Q: Does growth accelerate from mid-single digits in 2026 to higher in 2027?
Kathy Warden: "We believe that it does, based on what signals we are receiving regarding the FY27 U.S. budget and the fact that we see continued acceleration of demand internationally... We believe we will have a book-to-bill internationally well above one again this year, and that positions us for growth into 2027."
On Guidance Conservatism (Kristine Liwag, Morgan Stanley)
Q: Backlog is at a record $96B but midpoint growth is only 4%. What converts more backlog into revenue?
Kathy Warden: "You call it conservatism. I'll call it a balanced approach. It's a dynamic environment... As we look at 2026, we believe we have invested in the areas that will see significant growth in the coming years: munitions, Golden Dome, FAXX, collaborative combat aircraft. Yet, as we sit here in January, we have not yet seen those opportunities progress toward contract... As we look to 2027, we feel much more confident that those opportunities will lead to increasing sales."
On Capital Allocation (Robert Stallard, Vertical Research)
Q: No mention of dividends or buybacks. What's the plan?
CFO John Green: "We made a decision to keep the share count flat and increase our spending on property, plant, and equipment in order to build out the industrial base... The plan at this point is not to execute on additional buybacks beyond the end of this month, January. And the dividend plan will be agreed with the board in the May timeframe."
On Supply Chain Investment (Robert Stallard)
Kathy Warden: "We are already partnering with our supply chain as we look at capacity expansion... In most cases, they are investing alongside of us. We do see areas that need to be shored up, not just for our contracts, but more broadly — this tends to be at lower levels of the supply chain, areas like raw materials, including rare earths. In those cases, the government often is directly engaging."
On $1.5T Defense Budget (Miles Walton, Wolfe Research)
Q: A 50% defense budget increase would be seismic. What would change strategically?
Kathy Warden: "This is the most robust demand environment I've seen in my career... This organization is well positioned because we have been working toward this moment for years, but at the same time, there is more for us to do. We are focused on our engineering and operations talent, helping to design the right solutions so that we can be competitive."
On Aeronautics Margins (Douglas Harned, Bernstein)
Q: Why is AS margin guidance low-to-mid 9% instead of expected improvement?
CFO Ken Crews: "It's really driven by two factors. The growth for AS in 2026 is B-21, where the margin profile is 0%. And it's driven by development programs like TACAMO. Our mature production activities with the higher rates are relatively stable... Over the long term, as we exit LRIP activities on B-21 and development programs shift to production, we do see AS being able to get back to 10% again."
Key Management Quotes
CEO Kathy Warden on the demand environment:
"The Northrop Grumman team delivered another quarter of strong operating results, generating the highest quarterly sales growth of 2025 and exceeding expectations across our key performance metrics... Northrop Grumman's portfolio is aligned to what U.S. and international customers need right now, and we see a clear path to continued solid growth in the future."
On transformation:
"Our strategy for technology leadership has not changed, but we are directing that talented engineering and operations team to be able to design products that can be fielded more quickly. We're balancing the need for performance with affordability and speed to market."
Capital Allocation & Balance Sheet
FY2026 capital deployment outlook:
- CapEx: $1.65B (~4% of sales), up from prior expectations
- Share buybacks: None planned beyond January
- Debt: $527M note maturing in March to be paid with cash
- Dividend: Update expected in May with Q2 earnings
Pension status:
- 2025 asset returns: 11.3%
- Funding status: 106%
- 2026 cash recoveries: $245M
- Minimal annual cash contributions expected over next several years
Forward Catalysts & Risks
Catalysts to watch:
- B-21 acceleration agreement — Expected this quarter; $2-3B investment unlocks 2027+ growth
- FAXX (F/A-XX) program — Major opportunity not in guidance
- Golden Dome/homeland defense — Aligned with administration priorities
- International IBCS awards — 2-3 new countries expected in 2026
- FY27 budget recommendation — $1.5T indicates potential for historic defense spending growth
Risks:
- Government budget/continuing resolutions — FY26 appropriations not yet complete
- B-21 execution — Already at 0% margin; acceleration requires investment
- Aeronautics margin dilution — Development programs weighing on segment profitability
- GEM 63 flat in 2026 — Growth resumes in 2027 as capacity expands
The Bottom Line
Northrop Grumman delivered exactly what investors expect from a defense prime: operational execution, margin discipline, and record backlog providing multi-year visibility. The Q4 beat was clean across revenue (+0.8%), EPS (+3.9%), and free cash flow.
The issues are FY2026 EPS guidance (~4% below Street) and capital allocation shift (no buybacks, elevated CapEx). For a stock trading near all-time highs heading into the print, that's enough to trigger profit-taking.
Key takeaways:
- 2026 is a transition year — Heavy investment in capacity, B-21 acceleration pending, development programs diluting margins
- 2027 is the setup — Management explicitly confident in growth acceleration from U.S. FY27 budget and international momentum
- B-21 inflection — $2-3B investment over multi-year period; meaningful impact starts 2027-2029
- No buybacks signals conviction — Management sees better ROI in capacity expansion than repurchases
What to watch: The B-21 acceleration agreement (expected this quarter), FAXX award timing, and whether Space Systems can sustain its Q4 recovery.
Ask Fintool AI AgentAnalysis based on Northrop Grumman Q4 2025 earnings call transcript and 8-K filing dated January 27, 2026. Consensus estimates from S&P Global.