Why Northrop’s business segments’ performance is important

In this part of the series, we’ll discuss Northrop’s business segments’ performance.

The Aerospace segment is Northrop Grumman’s (NOC) highest contributor. It contributed ~41% of the company’s total third quarter revenues. The segment was still NOC’s strength. It reported a 2.4% year-over-year (or YoY) growth in revenues. However, the growth was due to $75 million that NOC received as a settlement for its legal claims. Otherwise, the segment’s sales declined. The decline was due to lower sales of its manned and unmanned aircraft products. Its space programs also had lower sales.

The Electronic Systems segment had $1.7 billion in revenues. This was 2.3% lower than the same quarter last year. It was still NOC’s second highest contributor to the total revenues. The segment saw marginal improvements in its operating profits. The operating margins increased by 40 basis points. The increase was due to improved performance.

There were also benefits because the cost accounting standards (or CAS) had lower costs. CAS are a set of 19 rules. The rules are formulated by the US government. They’re used to determine costs for government contracts.

This segment saw a huge fall in revenues of up to 7% YoY. It brought the revenues to ~$1.5 billion. The lackluster performance was due to lower government funding levels. There were also other factors that impacted the sales in their command and control programs. This resulted in a decrease in the operating income as well. However, it managed to sustain its strong operating margins at about the same levels.

The Technical Services segment saw a decrease of 3.1% in its revenues—compared to the same quarter last year. This was due to the decrease in the Combined Tactical Training Range (or CTTR) program and the intercontinental ballistic missile (or ICBM). However, the segment had marginal improvements in its operating margins. The margins improved by ~20 basis points. It also had improved international sales.

Some of the major contractors, aside from NOC, include Lockheed Martin (LMT), BAE Systems (BAESY), and United Technologies Corporation (UTX). These companies form part of the Industrial Select Sector SPDR (XLI).

In the next part of this series, we’ll discuss how NOC performed compared to the industry. This will give you a better perspective on its performance.