We have maintained our Neutral recommendation on Northrop Grumman
Corp. following the third-quarter 2014 results. Earnings beat
expectations despite a pension headwind from the HATFA legislation.
As a result of its strong performance, it boosted its 2014
guidance, which assumes a segment margin in the high 12% range.
Foreign military sales remain the primary growth driver at Northrop
Grumman, offsetting the slowdown in domestic contract flows. The
company's product innovation and diversified business operations
will help maintain a stable earnings stream. Nonetheless, a
plummeting order backlog and the ramp-down of military programs are
Falls Church, VA-based Northrop Grumman Corporation (NOC)
supplies a broad array of products and services to the U.S.
Department of Defense (DoD), including electronic systems,
information technology, aircraft, space technology and systems
integration services. Currently, the company operates under four
reporting segments. These are as follows:
Aerospace Systems (AS) based in Redondo Beach, CA, focuses on
the development, integration, production and support of manned and
unmanned aircraft, spacecraft, high-energy laser systems, and
microelectronics. Its products are used mainly for intelligence,
surveillance and reconnaissance communications battle management
strike operations electronic warfare missile defense earth
observation space science and space exploration. The segment
generated revenues of $10.0 billion in 2013, up 0.4% year over
Electronic Systems (ES), based in Linthicum, MD, designs,
develops, manufactures and integrates a variety of advanced
electronic and maritime systems for both defense and select
non-defense applications. It provides systems for applications like
airborne surveillance, aircraft fire control, precision targeting,
electronic warfare, automatic test equipment, inertial navigation,
integrated avionics, space sensing, intelligence processing, air
and missile defense, communications, mail processing, biochemical
detection, ship bridge control and radar, ship machinery controls
and shipboard components. This unit contributed $7.1 billion of
revenues in 2013, up about 3% from the year-ago level.
Information Systems (IS), headquartered in Reston, VA, provides
advanced solutions for the DoD, national intelligence, federal
civilian, state and local agencies, and commercial customers.
Products and services are focused on the fields of command,
control, communications, computers and intelligence air and missile
defense airborne reconnaissance intelligence processing decision
support systems cybersecurity information technology and systems
engineering and systems integration. The segment generated $6.6
billion of revenues in 2013 compared with $7.4 billion in 2012.
Technical Services (TS), based in Herndon, VA, provides
logistics, infrastructure and sustainment support, while also
providing a wide array of technical services including training and
simulation. The segment provides infrastructure management and
maintenance, training and preparedness, and logistics and life
cycle management in a wide array of operating environments. This
division's top line declined approximately 6% year over year to
$2.8 billion in 2013.
Total order backlog as of Jun 30, 2014 was $35.55 billion, down
3.9% from $37.03 billion as of Dec 31, 2013.
Northrop Grumman Corporation (NOC): Read the Full
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