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NORTHROP GRUMMAN CORP /DE/ (NOC)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 results were steady on the top line with sales of $10.69B, GAAP diluted EPS of $8.66, and MTM‑adjusted EPS of $6.39; full‑year 2024 delivered 4.4% sales growth to $41.03B, segment OM rate expanded to 11.1%, and free cash flow rose 25% to $2.62B .
  • Backlog reached a new record $91.5B with Q4 net awards of $17.3B and book‑to‑bill of ~1.23x, supported by large awards (TACAMO ~$3.5B, Next‑Gen OPIR Polar ~$1.7B, Poland IBCS ~$0.9B, restricted programs ~$4.0B) .
  • 2025 guidance: sales $42.0–$42.5B, segment operating income $4.65–$4.80B, MTM‑adjusted EPS $27.85–$28.25, FCF $2.85–$3.25B; segment OM rates guided to mid‑high 9% (AS/DS), mid‑14% (MS), high‑10% (Space) with intersegment eliminations at ~($2.1B) and 13% OM rate .
  • Strategic portfolio actions and operational themes: B‑21 LRIP Lot 2 awarded in Q4, DS refocused on strategic deterrence/advanced weapons/missile defense, announced sale of Training Services for $327M; management emphasized microelectronics innovation (>20% growth in 2024), international growth (book‑to‑bill 1.4x), and cost efficiencies (> $200M removed in 2024) .

What Went Well and What Went Wrong

What Went Well

  • Record backlog of $91.5B and strong Q4/2024 awards signal durable demand, including $3.5B TACAMO, $1.7B Next‑Gen OPIR Polar, and $0.9B Poland IBCS; book‑to‑bill 1.23x in 2024 .
  • Margin expansion and cash generation: segment OM rate rose to 11.1% for 2024; Q4 operating margin 10.2%; FCF up 25% y/y to $2.62B; management removed >$200M costs, enabling efficiency‑led margin gains .
  • Prepared remarks highlight technology differentiation: “Terahertz Microchip… fastest in the world,” microelectronics grew >20% in 2024; scaling advanced manufacturing and digital factories improving agility and cost .

What Went Wrong

  • Space Systems sales down 13% y/y in Q4 (−$388M) and −1% for 2024, primarily due to wind‑downs on restricted space and NGI; growth headwind of ~$900M expected in 2025 (first half weighted) .
  • Mission Systems margin pressure: Q4 OM rate 14.9% (−20 bps y/y) from airborne radar inefficiencies and mix shift toward cost‑type content; 2024 OM rate declined to 14.0% .
  • Higher interest expense (+$32M in Q4 y/y) and higher tax expense (+$509M in Q4 y/y), with lower FDII deductions and higher interest on unrecognized tax benefits pressuring bottom line .

Financial Results

MetricQ2 2024Q3 2024Q4 2024Consensus (S&P Global)
Revenue ($USD Billions)$10.20 $10.00 $10.69 Unavailable (S&P Global daily limit)
Diluted EPS ($)$6.36 $7.00 $8.66 Unavailable (S&P Global daily limit)
Segment Operating Margin %N/A11.5% 11.2% Unavailable (S&P Global daily limit)
Operating Margin %N/AN/A10.2% Unavailable (S&P Global daily limit)

Notes: S&P Global consensus data unavailable at time of analysis due to request limits; no estimate comparisons provided.

Segment sales and margin (realigned reporting):

SegmentQ4 2023 Sales ($B)Q3 2024 Sales ($B)Q4 2024 Sales ($B)Q4 2023 OM %Q4 2024 OM %
Aeronautics Systems$2.91 $2.88 $3.22 (43.7%) 9.1%
Defense Systems$2.23 $2.08 $2.33 10.0% 10.8%
Mission Systems$3.06 $2.82 $3.14 15.1% 14.9%
Space Systems$3.10 $2.87 $2.71 9.4% 10.1%
Total$10.64 $10.00 $10.69 (3.7%) op margin 10.2% op margin

KPIs and cash metrics:

KPIQ2 2024Q3 2024Q4 2024
Backlog ($B)>$83 $85 $91.47
Net awards ($B)$15.0 (Q2) N/A$17.3 (Q4)
Book‑to‑bill (x)1.5 (Q2) N/A1.23 (FY)
Cash from Operations ($B)N/AN/A$2.58 (Q4)
Free Cash Flow ($B)$1.10 (Q2) $0.73 (Q3) $1.76 (Q4)

Guidance Changes

MetricPeriodPrevious Guidance (Q3 2024 call)Current Guidance (Q4 2024 release)Change
Sales ($B)FY 2025Organic growth 3–4% (qualitative) $42.0–$42.5 Quantified; maintained trajectory
Segment Operating Income ($B)FY 2025Segment OM dollars up; ~10 bps expansion (qualitative) $4.65–$4.80 Quantified; maintained
MTM‑Adjusted EPS ($)FY 2025~$28.5 midpoint (call) $27.85–$28.25 (midpoint $28.05) Slightly lower vs call midpoint; formal guidance narrower
Free Cash Flow ($B)FY 2025>15% y/y growth (midpoint) $2.85–$3.25 Quantified; consistent with >15% growth
Aeronautics Sales/OMFY 2025Mid‑single‑digit growth; mid‑to‑high 9% OM Low $13B; mid‑to‑high 9% OM Maintained
Defense Systems Sales/OMFY 2025Fastest growth (double‑digit); mid‑to‑high 9% OM Low $8B; mid‑to‑high 9% OM Maintained
Mission Systems Sales/OMFY 2025Mid‑single‑digit growth; ~+50 bps OM to mid‑14% ~$12B; mid‑14% OM Maintained
Space Systems Sales/OMFY 2025~$900M headwind; OM high‑10% ~$11B; high‑10% OM Maintained
Intersegment Eliminations OMFY 2025N/A~($2.1B); high 13% OM New detail

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 2024)Previous Mentions (Q3 2024)Current Period (Q4 2024)Trend
B‑21 program rampLRIP started; positive trajectory; EPA on NTE lots beyond first 5 LRIPs Strong execution; LRIP Lot 2 expected Q4; AS margins sustained near double digits LRIP Lot 2 awarded; unit pricing discussions contingent on performance; margins guided mid‑high 9% Execution improving; profitability profile gradually accretive
Sentinel restructureNunn‑McCurdy: cost growth mostly post‑EMD; runway long‑dated; cautious booking Incorporated into ramp; year‑over‑year growth continues 2025 revenue mid‑single‑digit % of total; growth calibrated; restructure ongoing Visibility improved; cadence smoothed
Microelectronics/AIPortfolio and factory investment driving efficiency Scaling; MS pressure easing with efficiency >20% growth in 2024; world‑record THz chip; missionized AI partnerships Strengthening technology moat
Supply chainAlternate AP supply for SRMs; challenges easing Capacity/productivity risks remain; broad‑based supplier support needed Continued focus; efficiency/digital tools reduce process time Gradual stabilization
InternationalPipeline building; bookings strong; exportable offerings Book‑to‑bill ~2x; expect faster growth than U.S. 2024 intl book‑to‑bill 1.4x; double‑digit growth expected in 2025 Accelerating
Space headwindsRestricted/NGI wind‑downs; mid‑single‑digit growth in remaining portfolio Earnings adjustments improving; OM rate up ~$900M headwind in 2025 H1; OM rate high‑10%; return to growth late 2025/2026 Margin improvement, sales recovery lagged
Capital deploymentPeak CapEx; >100% FCF returned; dividend raised FCF outlook >20%; working capital best‑in‑class 2025 R&D+CapEx >$2.5B; 100% FCF returns; early Jan $1.5B notes repaid Balanced returns; deleveraging

Management Commentary

  • “We ended the year with a backlog of approximately $91.5 billion and a book‑to‑bill ratio at 1.23x, providing a solid foundation for future growth.”
  • “Our Terahertz Microchip… operates at 1 trillion cycles per second… fastest in the world according to the Guinness World Record.”
  • “We removed over $200 million of cost in the enterprise in 2024 alone.”
  • “We’ve decided to exit our training services business… signed an agreement to sell the business to Serco Inc. for $327 million… forecast to close towards the middle of the year.”
  • “Defense Systems now is largely a strategic missiles, tactical weapons and command and control business.”

Q&A Highlights

  • Homeland missile defense: NOC positioned with end‑to‑end capabilities including “left of launch,” satellite‑based tracking, hypersonic interceptors, and C2 systems for a U.S. Iron Dome‑like architecture .
  • B‑21 acceleration and pricing: Acceleration would involve negotiation; increasing actual performance informs pricing; Lot 2 awarded; EPA protection applies to NTE lots beyond first 5 LRIPs .
  • Mission Systems margin drivers: ~+50 bps expansion guided for 2025 from factory efficiencies, cost reductions, lower G&A %, gradual mix shift to FFP over 5 years .
  • Space trajectory: ~$900M headwind in 2025 (H1‑weighted); segment expected to expand margins and return to growth late 2025 into 2026 .
  • TACAMO contract: $3.5B award; protest period passed; ~$350M revenue in first year; program phases include EMD demonstrators, test units, and LRIP of 6 aircraft .
  • International growth: Double‑digit growth in 2025 with robust pipeline (IBCS, E‑2D, Triton); mix accretive to margins .
  • Solid rocket motors capacity: Capacity expansions through late ’26; demand expected to consume capacity across stockpile replenishment and new weapons production .

Estimates Context

  • S&P Global Wall Street consensus EPS and revenue for Q4 2024 could not be retrieved due to data access limits (Daily Request Limit exceeded). As a result, explicit “beat/miss vs consensus” comparisons are unavailable; management stated full‑year results “met or exceeded” company‑level guidance .
  • Implications: Absent external estimates, focus centers on y/y normalization post B‑21 charge, backlog expansion, segment margin progression, and 2025 guidance quantification .

Key Takeaways for Investors

  • Backlog strength and award momentum de‑risk 2025 sales growth (3–4% organic) and support margin expansion, with DS and MS leading profitability improvements; Space margins up despite sales headwinds .
  • Aeronautics margins resilient at mid‑high 9% despite B‑21 ramp; the LRIP Lot 2 award and EPA features on NTE lots support improving program profitability beyond early LRIPs .
  • Efficiency and digital manufacturing initiatives are translating into higher segment OM and cash generation (2024 FCF +25% y/y), with 2025 FCF guided to $2.85–$3.25B and 100% return to shareholders planned .
  • International demand is a meaningful margin tailwind (book‑to‑bill 1.4x in 2024) in near term; portfolio aligned to strategic priorities (deterrence, advanced weapons, sensors, C2) .
  • Space Systems transition remains a watch item: sales recovery lags due to restricted/NGI wind‑downs; margin improvements continue; growth inflects late 2025/2026 .
  • Portfolio pruning (Training Services divestiture) and DS refocus sharpen strategic coherence; expect DS to be fastest‑growing segment in 2025 with margin dollars growing faster than sales .
  • Monitoring items: tax rate normalization (low‑mid 17% 2025), corporate unallocated expenses higher vs 2024, pension net effects (lower FAS benefit, slightly higher CAS recoveries) .

Appendix: Additional Press Releases (Q4 2024 window and subsequent)

  • Share repurchase authorization: New $3.0B authorization announced Dec 11, 2024 (document referenced; details not provided in call/release list).
  • Dividend: Board declared quarterly dividend of $2.06 per share payable Mar 19, 2025 (Feb 18, 2025 release) .