Northrop Grumman Corporation (NOC)

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Northrop Grumman Corporation (NOC)

Q1 2010 Earnings Call

April 28, 2010; 10:30am ET

Executives

Wes Bush - Chief Executive Officer & President

Jim Palmer - Chief Financial Officer

Paul Gregory - Vice President of Investor Relations

Analysts

Robert Spingarn - Credit Suisse

Doug Harned - Sanford Bernstein

Sam Pearlstein - Wells Fargo Security

David Strauss - UBS

Howard Rubel - Jefferies & Company.

Heidi Wood - Morgan Stanley

Cai von Rumohr - Cowen & Company

Joseph Nadol - JPMorgan

Robert Stallard - Macquarie

George Shapiro - Access 342

Noah Poponak - Goldman Sachs

Troy Lahr - Stifel Nicolaus & Co.

Presentation

Operator

Good day ladies and gentleman and welcome to the Northrop Grumman first quarter earnings conference call. My name is Michael and I will be your coordinator for today. At this time all participants are in listen-only mode. We will be facilitating a question-and-answer portion at the conclusion of the presentation. (Operator Instructions)

I would now like to turn the presentation over to your host for today’s conference Mr. Paul Gregory, Vice President of Investor Relations; please proceed sir.

Paul Gregory

Very good, thank you Michael. Good morning everyone and welcome to the Northrop Grumman first quarter 2010 conference call. We’ve provided supplemental information in the form of a PowerPoint presentation that you can access at www.northropgrumman.com.

Before we start, please understand that matters discussed on today’s call constitute forward-looking statements, pursuant to safe-harbor provisions of Federal Security Laws. Forward-looking statements involve risks and uncertainties, which are detailed in today’s press release and our SEC filings, and may cause actual company results to differ materially.

During today’s call we will discuss first quarter results and our guidance for 2010. We will refer to non-GAAP measures, which are defined and reconciled in our earnings release. I also want to point out that results for all periods reported reflect the tax divestiture, which was completed in December of 2009. On the income statement task sales, operating income, and the net gain on sale are accounted for a discontinued operations for the first quarter of 2009 and for all periods presented.

On the call today, are our CEO and President Wes Bush; and Chief Financial Officer Jim Palmer. With that, I think we are ready to go to slide three and at this point I would like to turn the call over to Wes.

Wesley Bush

Thank you, Paul. Good morning everyone and thanks for joining us. This morning we will discuss our first quarter results, operational highlights and Northrop Grumman’s outlook for 2010.

Overall we are pleased with the quarter; EPS grew 37% to $1.51 of higher sales, higher operating income and lower shares outstanding. We now expect 2010 earnings from continuing operations of $5.75 to $6 per share, due to operational improvements. Cash flow for the quarter was impacted by some timing issues, but as we look at the year, we are comfortable that we will meet our cash guidance.

During the quarter we repurchased $8.3 million shares of our stock for approximately $500 million, and approximately $440 million remains on our current authorization. Combined with last year’s fourth quarter repurchases of 8.4 million shares, we have now essentially offset the task divestitures impact to 2010 earnings per share. As a result we expect share repurchases to moderate from the phase of the last two quarters.

First quarter new business awards totaled $6.9 billion, bringing total backlog to $67.5 billion or approximately two years of sales. The decline from year-end is almost entirely due to a $1.4 billion decline in ship building backlog, where order flow is more lumpy due to the size and duration of contract awards.

Looking ahead, we have many exciting new business opportunities. At the company level E-Mars is a key competitive ISR opportunity to develop under aerial common center requirements. Northrop Grumman can bring an unparalleled set of capabilities to this pursuit from across our sectors and E-Mars announcement is expected sometime in the fall.

For aerospace in the unmanned domain we are pursuing several major new programs including UCLASS. This is a multibillion dollar Navy opportunity that builds in our UCLASS work and leverages our industry leading unmanned technology.

We are also pursuing NATO AGS, a $2 billion program to deploy Global Hawk’s for NATO and other promising international targets. We continue to make good progress on BAMS, our Global Hawk derivative for the Navy. This program is currently in development, and the Navy has plans to procure multiple systems in the future, and this represents a terrific opportunity for us down the road when the program goes into production.

On the manned side, we have major international opportunities on advanced Hawk Eye and the FA18. In space we have opportunities for additional Advanced EHF payload builds and upgrade and we are pursuing the precision tracking space system, which builds on the recently launched STSS missile-tracking program.

We continue to be excited about our broad array of differentiation sensor products and electronics, such as VADER, our Vehicle and Dismount Exploitation Radar, which is capable or tracking vehicles and foot traffic over a wide area, and SABR our Scalable Agile Beam Radar, which will provide state-of-the art radar performance for the F16.

Our information systems sector continues to pursue a robust set of target, including the joint space operations center mission systems, which we expect to be awarded later this year. We are also excited about being BAEs teammate on the Ground Combat Vehicle, which over the long term could be a major program for the company.

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