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Will Lower Expenses Aid Northrop Grumman (NOC) in Q3 Earnings?

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Northrop Grumman Corp. (NOC - Free Report) is scheduled to release third-quarter 2021 results on Oct 28, before the opening bell.

The company’s earnings surpassed the Zacks Consensus Estimate in the trailing four quarters, the average surprise being 13.08%. The mixed performance delivered by its segments is likely to get reflected in the upcoming earnings release.

Let's take a closer look at the factors likely to have impacted the company’s performance.

Mixed Segment Performance

While strong sales of its manned aircraft are expected to have boosted Northrop’s Aeronautics Systems unit’s top-line performance in the third quarter, lower A350 production activity compared to the prior-year period might have had an adverse impact on the same.

The Zacks Consensus Estimate for this segment’s revenues, pegged at $2,892 million, indicates a slip of 0.8% from the prior-year quarter’s reported figure.

Northrop Grumman Corporation Price and EPS Surprise

Its Space Systems segment is expected to have delivered a strong performance once again in the third quarter, driven by continued ramp-up on the GBSD program. The Zacks Consensus Estimate for this segment’s revenues, pegged at $2,539 million, indicates an improvement of 7.3% from the prior-year quarter’s reported figure.

However, the absence of its IT service business, which Northrop had divested in February, has been hurting its Defense Systems segment’s performance. A similar trend is expected to have impacted this unit’s third-quarter revenues.

The Zacks Consensus Estimate for this segment’s revenues, pegged at $1,422 million, indicates a deterioration of 23.5% from the prior-year quarter’s reported figure.

So, the effect of segmental performance on the company’s overall sales figure in the third quarter is likely to have been mixed.

The Zacks Consensus Estimate for the company’s third-quarter 2021 sales is pegged at $8.84 billion, indicating a 2.6% decline from the year-ago quarter’s reported figure.

Earnings Expectation

Lower corporate unallocated expenses driven by state tax changes are expected to have benefited the company’s bottom-line performance in the third quarter. However, a higher federal tax rate along with the impact of the IT services divestiture might have marred the effect of the favorable factors, thereby impacting its earnings performance.

Notably, the Zacks Consensus Estimate for third-quarter earnings is pegged at $5.93 per share, suggesting a mere 0.7% increase from the year-ago quarter’s reported figure.

What the Zacks Model Unveils

Our proven model does not conclusively predict an earnings beat for Northrop Grumman this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. That is not the case here.

Northrop Grumman has an Earnings ESP of 0.00% and a Zacks Rank #3. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks to Consider

Here are a couple of defense companies you may want to consider, as these have the right combination of elements to post an earnings beat this season:

Transdigm Group (TDG - Free Report) has an Earnings ESP of +0.36% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

CAE Inc (CAE - Free Report) has an Earnings ESP of +9.46% and a Zacks Rank #3.

Huntington Ingalls (HII - Free Report) has an Earnings ESP of +3.59% and a Zacks Rank #2.