Northrop Grumman stayed on a hot streak into the third quarter as it continued to get contracts from an administration with ambitions to push the defense budget to historic levels.
Revenues for the defense contractor rose 4.3% to $10.4 billion. Net income increased 7.8% to $1.1 billion or $7.67 a share.
Northrop’s Defense Systems, which include advanced tactical weapons, missiles and manned and unmanned aircraft, saw the biggest company-wide growth this quarter, expanding 14% over last year.
Its Aeronautics Systems, made up of military aircraft, grew 6%, and Mission Systems, a segment with a wide array of computers, intelligence, surveillance, and other communication technologies, grew nearly 10%. Northrop’s Space Systems saw sales dip about 6% compared to the same quarter last year.
Recent legislation added $150 billion in new defense spending to the federal budget, giving the Department of Defense, Northrop Grumman’s main customer, significant means for new contracts. Northrop derived 87% of their sales from the US government and regularly lists this unique relationship as a risk factor. This year it is a strength.
The B-21 Raider is one of many long-term contracts Northrop has obtained from the US. Its latest stage of flight tests moves the aircraft closer to replacing the Air Force’s aging B-1 and B-2 bombers. The contract is being negotiated as Northrop prepares to amp-up production after the budget bill was signed July 4.
“The dollars to support that acceleration are included in the reconciliation bill,” said Kathy J. Warden, Northrop’s CEO, during the earnings call.
The company adjusted sales guidance up from $41.7 billion to $41.9 billion on 8% growth it has seen so far mid-fourth quarter. Although sales are expected to keep climbing, the growth is not as fast as expected.
Northrop expects sales to ramp up in all four of its segments in the fourth quarter, but at a slower pace than previously, according to Chief Financial Officer Ken Crews.
The government shutdown, which was the longest in history at 44 days, hadn’t raised alarm for Northrop. Warden said it would need to last into mid-November to affect cash flows. But it has hampered some expectations.
“We are certainly seeing in recent weeks, the government shut down having some impact on the government’s ability to move quickly to make decisions and have the right resources available,” said Warden.