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Why Is Northrop Grumman (NOC) Down 14.6% Since Last Earnings Report?

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A month has gone by since the last earnings report for Northrop Grumman (NOC - Free Report) . Shares have lost about 14.6% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Northrop Grumman due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Northrop Grumman Tops Q4 Earnings, Revenues Down Y/Y

Northrop Grumman Corporation reported fourth-quarter 2019 earnings of $5.61 per share, beating the  Zacks Consensus Estimate of $4.78 by 17.4%. Reported earnings also improved 13.8% from $4.93 recorded in the  year-ago quarter.

For 2019, earnings were $21.21 per share, down 0.56% from the year-ago quarter. Moreover, full-year earnings figure exceeded the Zacks Consensus Estimate of $20.39 by 4%.

Total Revenues

In fourth-quarter 2019, Northrop Grumman reported total revenues of $8,721 million, missing the Zacks Consensus Estimate of $8,828 million by 1.2%. However, revenues increased 6.9% from the year-ago quarter’s $8,156 million. The year-over-year revenue upside was primarily driven by 10% increase in Aerospace systems sales, 9% in Innovation Systems sales, and 6% in Mission Systems sales.

In 2019, total revenues increased 12.4% year over year to $33,841 million. Full-year revenues however missed the Zacks Consensus Estimate of $33,960 million, by a mere 0.35%.

Segmental Details

Aerospace Systems: Segment sales of $3,518 million increased 10% year over year as a result of higher volumes of manned aircraft, autonomous systems and space programs.

Operating income rose 9% to $367 million, whereas operating margin contracted 10 basis points (bps) to 10.5%.

Mission Systems: Segment sales increased 6% to $3,220 million, due to higher sales volume of Advanced Capabilities, Cyber and ISR and Sensors and Processing systems.

Operating income rose 13% to $450 million, with operating margin expanding 90 bps to 14%.

Technology Services: Sales at this segment dropped 4% to $1,022 million, primarily due to the low Global Logistics and Modernization sales.

Operating income declined 8% to $106 million, with operating margin contracted 40 bps to 10.4%.

Innovation Systems: Innovation Systems’ fourth-quarter 2019 proforma sales increased 9% to $1,599 million compared with $1,461 million proforma sales in the fourth-quarter of 2018. The sales increase was due to higher volume for Space Systems, Flight Systems and Defense Systems.

The segments’ operating income totaled $171 million and operating margin rate expanded 90 bps to 10.7%.

Operational Update

Total operating costs and expenses at the end of the quarter were $29,872 million, up 13.6%.

Operating income during the quarter increased 5% to $3,969 million.

Financial Condition

Northrop Grumman’s cash and cash equivalents as of Dec 31, 2019 were $2,245 million, down from $1,579 million as of Dec 31, 2018.

Long-term debt (net of current portion) as of Dec 31, 2019, was $12,770 million, down from $13,883 million as of 2018 end.

Net cash inflow from operating activities as of Dec 31, 2019 was $4,297 million compared with $3,827 million as of Dec 31, 2018.

2020 Guidance

Northrop Grumman currently expects to generate revenues of $35.3-$35.8 billion during 2020. The company expects free cash flow of $3.15-$3.45 billion in 2019. The 2020 earnings are expected to be $22.75-$23.15 per share.

How Have Estimates Been Moving Since Then?

Fresh estimates followed an upward path over the past two months.

VGM Scores

Currently, Northrop Grumman has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Northrop Grumman has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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