Northrop Grumman : Reports First Quarter 2016 Financial Results

NOC-03.31.2016 - Earnings Release EX-99 News Release‌‌‌‌

Contact: Randy Belote (Media)

703-280-2720

randy.belote@ngc.com

Steve Movius (Investors) 703-280-4575

steve.movius@ngc.com

Northrop Grumman Reports First Quarter 2016 Financial Results

• Q1 EPS Increase 26 Percent to $3.03, including $0.44 per Share Tax Benefit

• Q1 Sales Total $6.0 Billion

• 2016 EPS Guidance Increased to $10.40 to $10.70

  FALLS CHURCH, Va. - April 27, 2016 - Northrop Grumman Corporation (NYSE: NOC) reported first quarter 2016 net earnings increased 15 percent to $556 million, or $3.03 per diluted share, from $484 million, or $2.41 per diluted share in the first quarter of 2015. In the first quarter of 2016 the company adopted an accounting standard update regarding treatment of share-based compensation, which resulted in a tax benefit of $80 million, or $0.44 per diluted share. First quarter 2016 diluted earnings per share are based on 183.4 million weighted average shares outstanding compared with 200.5 million shares in the prior year period, an 8.5 percent decline. The company repurchased 1.5 million shares of its common stock in the first quarter of 2016. As of March 31, 2016, approximately $4.0 billion remained on the company's share repurchase authorization.

  "Our first quarter operational results support our outlook for 2016. We are positioned to achieve profitable growth over the long term. Congratulations to our entire team for another quarter of solid performance," said Wes Bush, chairman, chief executive officer and president.

  ($ in millions, except per share amounts)	First Quarter
  	2016	2015
  Sales	$ 5,956	$ 5,957
  Segment operating income1	701	735
  Segment operating margin rate1	11.8% 12.3%
  Operating income	739	780
  Operating margin rate	12.4% 13.1%
  Net earnings	556	484
  Diluted EPS	3.03	2.41
  Net cash used in operating activities	(60)	(654)
  Free cash flow1	(358)	(771)
  Pension-adjusted Operating Highlights
  Operating income	739	780
  Net FAS/CAS pension adjustment1	(74)	(83)
  Pension-adjusted operating income1	$ 665	$ 697
  Pension-adjusted operating margin rate1	11.2% 11.7%
  Pension-adjusted Per Share Data
  Diluted EPS	$ 3.03	$ 2.41
  After-tax net pension adjustment per share1	(0.26)	(0.27)
  Pension-adjusted diluted EPS1	$ 2.77	$ 2.14
  Weighted average shares outstanding - Basic	181.3	197.7
  Dilutive effect of stock awards and options	2.1	2.8
  Weighted average shares outstanding - Diluted	183.4	200.5

  1 Non-GAAP metric - see definitions at the end of this earnings release.

  First quarter 2016 segment operating income decreased to $701 million, and segment operating margin rate decreased 50 basis points to 11.8 percent primarily due to lower operating income for Aerospace Systems than in the prior year period. Operating income decreased 5 percent and operating margin rate decreased 70 basis points to 12.4 percent. Lower operating income reflects the decline in segment operating income and a lower net FAS/CAS pension adjustment than in the prior year period.

  During the first quarter of 2016, the company's total backlog increased and reflects higher backlog at Aerospace Systems and Mission Systems and a modest decline in backlog at Technology Services. The company recorded various awards during the quarter, including a portion of the B-21 Long-Range Strike Bomber program.

  ($ millions)	First Quarter
  	2016 2015
  Cash used in operating activities before after-tax discretionary pension contributions1 After-tax discretionary pension pre-funding impact Net cash used in operating activities Less: Capital expenditures Free cash flow1 After-tax discretionary pension pre-funding impact Free cash flow before after-tax discretionary pension contributions1	$ (60) $ (329) - (325)
  	$ (60) $ (654) (298) (117)
  	$ (358) $ (771) - 325
  	$ (358) $ (446)

  1 Non-GAAP metric - see definitions at the end of this earnings release.

  First quarter 2016 cash used in operating activities totaled $60 million compared to a use of $654 million in the first quarter of 2015, which included a $500 million pre-tax discretionary pension pre- funding contribution. In addition, first quarter 2016 results benefited from an improvement in working capital and the previously described $80 million tax benefit. As a result of the accounting standard update the tax benefit is now presented in operating activities.

  First quarter 2016 free cash flow was a use of $358 million and includes capital expenditures of $298 million. First quarter 2016 capital expenditures included $159 million for the purchase of a building previously leased by Mission Systems. Changes in cash and cash equivalents include the following for cash from operating, investing and financing activities through March 31, 2016:

  Operating

  • $60 million used in operations

    Investing

  • $298 million used for capital expenditures

    Financing

  • $282 million used for repurchase of common stock

  • $107 million used for repayment of long-term debt

  • $159 million used for dividends

2016 Guidance

The company's 2016 financial guidance is based on the spending levels provided for in the Bipartisan Budget Act of 2015 and the Consolidated Appropriations Act of 2016. The guidance assumes no disruption or cancellation of any of our significant programs and no disruption or shutdown of government operations. Guidance for 2016 also assumes adequate appropriations and funding for the company's programs in the first quarter of the U.S. government's fiscal year 2017.

2016 Guidance

($ in millions, except per share amounts) Sales	As of 1/28/16 23,500 - 24,000	As of 4/27/16 23,500 - 24,000
Segment operating margin %1	High 11%	High 11%

Net FAS/CAS pension adjustment1	~275	~275
Operating margin %	~12%	~12%
Effective tax rate %	~30%	~27%
Diluted EPS	9.90	-	10.20	10.40	-	10.70
Capital expenditures	700	-	1,000	700	-	1,000
Free cash flow1	1,500	-	1,800	1,500	-	1,800
1 Non-GAAP metric - see definitions at the end of this earnings release.

Estimated capital expenditures in 2016 reflect increased programmatic requirements and approximately $300 million for the purchase of facilities currently occupied by the Mission Systems sector. These investments support the company's continued focus on cost reduction, affordability and competitiveness.