Q4 2024 Summary
Published Feb 7, 2025, 7:58 PM UTC- Strong International Growth Prospects: Northrop Grumman expects its international business to accelerate and grow faster than U.S. sales in 2025, driven by increased demand from NATO countries seeking to counter aggressive threats with U.S. products. They have a strong international book-to-bill ratio of 1.4x, indicating robust future sales growth.
- Participation in Next-Generation Defense Programs: The company is actively involved in the competition for the Navy's next-generation fighter (F/A-XX) and is well-positioned to offer sixth-generation aircraft based on their successful B-21 program. Success in these programs could significantly boost future revenues.
- Margin Expansion and Cash Flow Growth: Despite ramping up major programs like B-21, Northrop Grumman is maintaining strong margins, with the Aeronautics Systems segment expected to maintain mid to high 9% returns. The company is also on track to achieve $4 billion in free cash flow by 2028, indicating strong financial health.
- Northrop Grumman expects growth contributions from its major programs B-21 and GBSD/Sentinel to be more modest than in previous years, potentially slowing overall company growth. Both programs are expected to remain less than 10% of sales but will gradually increase from 2024 into 2025.
- The ramp-up of B-21 production may pressure aeronautics segment margins, with margins expected to be in the mid-to-high 9% range in 2025, lower than the double-digit returns seen in early 2024. This suggests that increased B-21 activity could dilute margins in this segment.
- Northrop Grumman is not the prime contractor on the Air Force's Next Generation Air Dominance (NGAD) program, which could limit its opportunities in future advanced aircraft programs. The company is contributing through Mission Systems but is not including any NGAD revenue in its forecasts due to uncertainty of timing.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +0.5% | The modest increase to $10.686B reflects higher volumes in certain defense and aeronautics programs, partly offset by a decline in some space-related activities. Overall, strong demand in core defense programs helped lift revenue in line with prior-year levels. |
Aeronautics Systems | +11% | Sales reached $3.22B, driven by increased fighter aircraft volume, ongoing modernization efforts (e.g., E-2 fleet upgrades), and additional sustainment work. These gains reflect favorable production timing and robust performance across key platforms. |
Defense Systems | +116% | Revenue soared to $3.551B due to significant ramp-ups on missile, munition, and other defense-related contracts. The sharp jump also reflects the impact of new program awards and execution of large-scale production agreements compared to a lower base the previous year. |
Space Systems | -55% | Sales declined to $1.633B, largely due to the wind-down of restricted space work and reductions on key interceptor programs. This dramatic drop follows a prior-year period that benefited from multiple active development efforts, leading to a challenging YoY comparison. |
COGS | +35% (from $7.017B to $9.497B) | The cost increase reflects higher production across multiple programs in Aeronautics and Defense Systems, along with greater material and labor expenses. Although Space Systems’ revenue fell, cost structures for ongoing contracts remained significant, raising overall COGS. |
SG&A | +355% (from $878M to $3.992B) | The surge in SG&A stems from one-time charges, expanded business infrastructure to support growth in defense programs, and investments in future opportunities. The prior-year SG&A was comparatively lower, amplifying the YoY percentage increase. |
Operating Income | Up to $1.089B (from -$393M) | This turnaround reflects improved profitability in Aeronautics and Defense Systems, along with lower unallocated corporate expenses. The previous period’s negative operating income established a favorable basis for comparison, resulting in a major YoY swing. |
Net Income | Up to $1.264B (from -$535M) | Higher net income was driven by strong operating performance, lower pension-related charges, and improved program execution. The prior-year net loss magnified this YoY improvement, underscoring the company’s more balanced contract mix and efficiencies. |
EPS (Basic) | Up to $8.66 (from -$3.50) | The EPS increase reflects higher net income, cost containment, and a lower share count impact. The shift from a negative base last year to a substantial profit in the current period boosted per-share earnings. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Sales Growth | FY 2025 | 3% to 4% | 3% to 4% | no change |
Free Cash Flow | FY 2025 | Expected to increase by >20% year-over-year | Expected to grow >15% year-over-year | lowered |
Segment Margins | FY 2025 | Continued margin expansion | Expand roughly 10 basis points | no prior guidance |
Mark-to-Market Adjusted EPS | FY 2025 | No prior guidance | $28.5 (midpoint) | no prior guidance |
Aeronautic Sales | FY 2025 | No prior guidance | Below $13 billion, mid single-digit growth | no prior guidance |
Defense Systems Sales | FY 2025 | No prior guidance | Low $8 billion range, double-digit organic growth | no prior guidance |
Mission Systems Sales | FY 2025 | No prior guidance | Approximately $12 billion, mid single-digit growth | no prior guidance |
Space Segment Sales | FY 2025 | No prior guidance | Roughly $11 billion | no prior guidance |
Operating Margin (Aeronautics) | FY 2025 | No prior guidance | Mid- to high 9% | no prior guidance |
Operating Margin (Defense Systems) | FY 2025 | No prior guidance | Mid- to high 9% | no prior guidance |
Operating Margin (Mission Systems) | FY 2025 | No prior guidance | Expand ~50 bps to mid-14% | no prior guidance |
Operating Margin (Space) | FY 2025 | No prior guidance | High 10% | no prior guidance |
Pension Adjustment | FY 2025 | No prior guidance | $800 million | no prior guidance |
Corporate Unallocated Expenses | FY 2025 | No prior guidance | $280 million | no prior guidance |
Pretax Gain (Training Divestiture) | FY 2025 | No prior guidance | $205 million | no prior guidance |
Estimated Tax Rate | FY 2025 | No prior guidance | Low to mid-17% | no prior guidance |
Capital Expenditures | FY 2025 | Expected to reduce vs. historical peaks but remain above norms | $1.5 billion | no prior guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Revenue Growth | Q4 2024 | 5% year-over-year | ~0.45% year-over-year (from 10,638To 10,686) | Missed |
Free Cash Flow | Q4 2024 | Strong Q4 free cash flow consistent with historical patterns | Net change in cash: 1,244(indicating a strong finish vs. 1,027In Q4 2023) | Met |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
B-21 Program | Consistently highlighted as a key driver of Aeronautics growth, meeting milestones, and demonstrating potential for increased production. | Remains under 10% of total sales but growing, with the second LRIP lot awarded and contributing to Aeronautics Systems growth in 2025. | Continuing coverage; sentiment remains bullish, with long-term growth prospects. |
Next-Generation Fighter Programs | Previously noted as part of the Air Force’s force structure review (Q3), ongoing Navy competition (Q2), and a long-term aeronautics opportunity (Q1). | Northrop is monitored in the Navy’s F/A-XX source selection; not prime on Air Force NGAD but well-positioned through Mission Systems. | Recurring coverage; viewed as a future growth driver. |
Sentinel / GBSD Program | Previously discussed in context of program restructure, steady year-over-year growth, and long-term strategic importance. | Well-calibrated outlook; contributes mid-single-digit revenue in 2025, continuing EMD milestones. | Steady coverage; restructuring progress but still seen as a core growth area. |
Margins | Consistent year-over-year improvement driven by cost reductions, program performance, and favorable contract mix. | Expected expansion of ~10 bps in 2025; MS up ~50 bps, Aeronautics and Defense Systems in the mid-to-high 9% range. | Continual improvement; stable upward trajectory reinforced by operational efficiencies. |
Growth Guidance | Historically aiming for mid-single-digit growth; 3-5% near-term guidance reiterated over multiple quarters. | Reiterated 3-4% organic growth for 2025, double-digit free cash flow increase expected. | Ongoing emphasis on moderate but steady expansion, matching portfolio strengths. |
International Demand | Consistently growing faster than U.S. sales; multiple European and global opportunities discussed each quarter. | Forecasting double-digit growth in 2025, aided by 1.4x international book-to-bill and NATO interest. | Continuously expanding; strong sentiment from NATO and global partners. |
Space Segment | Earlier calls noted strong backlog but near-term headwinds from program wind-downs (NGI, restricted). | Sales dipped modestly in 2024, margins expanding, and expected return to growth late 2025. | Core business with near-term softness, still bullish longer term. |
Cash Flow Growth | Consistently cited strong Q4 inflows, with robust long-term targets and over 15% CAGR through 2026. | $2.6B free cash flow in 2024, up 25% YoY; on track for >15% increase in 2025. | Consistent improvement; management confident in sustainable FCF expansion. |
Supplemental Defense Funding | Previously noted in Q1 as supporting munitions procurement and missile product capacity expansion. | No mention in Q4. | No longer discussed; dropped from recent commentary. |
Solid Rocket Motors | Ongoing efforts to increase capacity, address supply chain constraints, and meet elevated weapons demand. | Capacity expansion continues into late 2026; demand expected to absorb all additional output. | Sustained emphasis; strong demand outlook, stable bullish sentiment. |
Triton Unmanned Aircraft System | Seen as a key international opportunity with interest from the U.S., Australia, and NATO. | Mentioned as a growth driver in autonomous programs, favored by NATO allies for quick fielding. | Consistent coverage; expanding global adoption remains positive. |
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B-21 Production Acceleration
Q: If the Air Force accelerates B-21, will unit pricing change?
A: Kathy Warden stated that they would work with the Air Force to discuss pricing for any accelerated units. While accumulating performance data to inform discussions, it's premature to comment on expected pricing ( ). -
Sentinel Program Risks
Q: Any news on Sentinel program review and risks?
A: Kathy Warden affirmed that they believe the outlook is well calibrated. They are meeting important milestones on the EMD contract, and while the government projects the restructure to take 18 to 24 months, they expect 2025 Sentinel revenue to be in the mid-single-digit percentage of total revenue, continuing to grow from '24 into '25 ( ). -
Mission Systems Margin Expansion
Q: Drivers behind Mission Systems margin expansion in 2025?
A: Kenneth Crews highlighted performance improvements driven by cost reductions, factory efficiencies, and digital technologies. Mission Systems expects about 50 basis points of margin expansion in 2025, building on strong performance improvements since Q2 2024 ( ). -
International Growth Outlook
Q: How will international growth trend in coming years?
A: Kathy Warden expects double-digit international growth in 2025, with a path to continue for multiple years. International book-to-bill was 1.4x in 2024, and the pipeline includes programs like IBCS, E-2D, and Triton. She believes there's strong demand from NATO countries for U.S. products that can be fielded quickly ( , ). -
Participation in NGAD and CCA
Q: Thoughts on NGAD and CCA opportunities?
A: Kathy Warden stated they are well positioned to offer sixth-generation aircraft based on B-21 experience. For the Air Force NGAD program, they are a contributor through Mission Systems; for the Navy's next-generation fighter (F/A-XX), they are in the source selection and would be excited to be selected ( , ). -
Defense Systems Strategy
Q: What's the focus of Defense Systems after changes?
A: Kathy Warden explained that Defense Systems is now focused on strategic missiles, tactical weapons, and command and control. This alignment enhances customer focus and creates synergy across these businesses, completing the life cycle from missiles to command systems ( ). -
Rocket Motors Growth
Q: Are there constraints or growth in rocket motors?
A: Kathy Warden said they are growing tactical solid rocket motor capacity, with additional capacity coming online in late 2026. Demand is expected to consume all capacity, supporting stockpile replenishment and new weapons entering production later this decade ( ). -
2025 Bookings Expectations
Q: Expectations for 2025 bookings and book-to-bill?
A: Kenneth Crews anticipates 2025 book-to-bill to be around 1x sales. Growth opportunities include space (restricted activities, strategic comms), B-21 (advanced procurement, production), Mission Systems (sensors, radars, EW systems), and Defense Systems (IBCS, weapons, ammunition) ( ). -
Aeronautics Margins and B-21 Ramp
Q: Any change in aeronautics margin pressure with B-21 ramp?
A: Kenneth Crews stated that despite B-21 expansion, efficiencies are helping maintain mid to high 9% margin levels in 2025. The team has driven performance improvements and maintained margins in 2024, even with increased B-21 activity ( ). -
Capital Deployment and Acquisitions
Q: Does a relaxed regulatory environment open up acquisitions?
A: Kathy Warden believes it's early to predict the regulatory environment, especially in national security. While concerns about over-consolidation remain, they will continue active portfolio management where opportunities to create shareholder value exist ( ). -
Free Cash Flow Outlook
Q: Is the trajectory to $4B free cash flow in 2028 intact?
A: Kenneth Crews confirmed they are on track to achieve $4 billion in free cash flow by 2028, with growth normalizing in line with the overall business growth rate beyond 2025 ( ). -
Impact of Russia-Ukraine Hostilities Ending
Q: What impact if Russia-Ukraine hostilities end?
A: Kathy Warden stated that revenue from tactical weapons directly expended in Ukraine is less than 1% of total revenue. A multi-year stockpile replenishment is expected, so they don't foresee an immediate ramification ( ). -
Industry New Entrants and Portfolio
Q: Thoughts on new industry entrants and portfolio focus?
A: Kathy Warden embraces new entrants and often teams with companies bringing new ideas or technology. This doesn't cause a shift in their technology differentiation strategy but sharpens focus on investment areas. She sees more opportunity than risk in this collaboration ( , ). -
Top Priorities for the Year
Q: Top 2 or 3 priorities for the year?
A: Kathy Warden's priorities are advancing technology differentiation to support customers, improving efficiency within the company, and strategically deploying resources to areas with the most impact for shareholders and customers ( ).