Northrop Grumman’s third quarter reflected steady operational execution but fell short of Wall Street’s revenue expectations, with management attributing the results to strong demand across defense programs and ongoing investments in production capacity. CEO Kathy Warden pointed to “mid-single-digit growth, expanded segment operating margin, and a 72% increase in free cash flow year over year,” emphasizing robust order activity and backlog growth despite delayed program awards. Warden acknowledged some headwinds related to timing of contract awards and continued challenges in the company’s space segment, but highlighted that international sales grew 32% and operational improvements drove higher earnings per share.
Is now the time to buy NOC? Find out in our full research report (it’s free for active Edge members).
Northrop Grumman (NOC) Q3 CY2025 Highlights:
- Revenue: $10.42 billion vs analyst estimates of $10.72 billion (4.3% year-on-year growth, 2.7% miss)
- Adjusted EPS: $7.67 vs analyst estimates of $6.46 (18.8% beat)
- Adjusted EBITDA: $1.62 billion vs analyst estimates of $1.52 billion (15.6% margin, 6.3% beat)
- The company dropped its revenue guidance for the full year to $41.8 billion at the midpoint from $42.15 billion, a 0.8% decrease
- Management raised its full-year Adjusted EPS guidance to $25.85 at the midpoint, a 2.6% increase
- Operating Margin: 11.9%, in line with the same quarter last year
- Backlog: $91.45 billion at quarter end, up 7.6% year on year
- Organic Revenue rose 4.8% year on year vs analyst estimates of 7.6% growth (285.6 basis point miss)
- Market Capitalization: $85.05 billion
While we enjoy listening to the management's commentary, our favorite part of earnings calls are the analyst questions. Those are unscripted and can often highlight topics that management teams would rather avoid or topics where the answer is complicated. Here is what has caught our attention.
Our Top 5 Analyst Questions From Northrop Grumman’s Q3 Earnings Call
- Kristine Liwag (Morgan Stanley) questioned the outlook for major new programs like FAXX and B-21 acceleration. CEO Kathy Warden explained both are excluded from current guidance and would initially be lower-margin but accretive long-term.
- Ronald Epstein (Bank of America Merrill Lynch) asked about causes of program award delays. Warden attributed timing to new administration transitions and government shutdown effects, noting the company expects resolution once shutdown ends.
- Seth Seifman (JPMorgan) pressed on potential shutdown impacts. Warden stated guidance assumes only a short-duration shutdown, but a prolonged event could delay funding and impact cash flow.
- Ken Herbert (RBC) inquired about growth prospects for IBCS. Warden described IBCS as a double-digit growth driver with upcoming international orders expected to phase in beginning in 2026.
- Richard Safran (Seaport) asked about capacity expansion for missile production. Warden detailed ongoing and planned facility investments, noting current capacity exceeds orders and future growth is expected as new programs qualify.
Catalysts in Upcoming Quarters
In the coming quarters, our analysts will focus on (1) the pace of contract awards and government funding resolutions, (2) the ramp-up and operational milestones for B-21 and major missile defense programs, and (3) evidence of international order growth and backlog conversion. Execution on capacity expansion, supply chain resilience, and successful integration of new technologies will also be critical for tracking Northrop Grumman’s progress against its long-term strategy.
Northrop Grumman currently trades at $596.32, down from $602.50 just before the earnings. Is there an opportunity in the stock?See for yourself in our full research report (it’s free for active Edge members).
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