Northrop Grumman [NOC] on Wednesday reported a huge leap in its bottom line in the second quarter driven primarily by a lower tax rate and a pension benefit. The company increased its profit guidance for 2018 based on a lower than expected tax rate this year.
Net income jumped 24 percent to $689 million, $3.93 earnings per share (EPS), from $555 million ($3.16 EPS), beating consensus estimates by nine cents a share. Operating martin rate slipped 1.9 percent to 11.6 percent.
Sales increased 10 percent to $7.1 billion from $6.5 billion a year ago, with the June acquisition of the former Orbital ATK contributing $400 million to the top line.
While Innovation Systems, the name given to the new operating segment created through the Orbital ATK deal, drove most of the higher sales, revenues were also higher in the Aerospace Systems and Missions Systems segments. Aerospace sales were up on classified programs, which include the Air Force’s B-21 stealth bomber, and the F-35 Joint Strike Fighter, for which Northrop Grumman supplies the center fuselage to prime contractor Lockheed Martin [LMT], and unmanned aircraft systems.
Excluding the impact of $39 million in operating profit contributed by Innovation Systems, operating profits were down overall at the other three segments as declines at Technology Services and Mission Systems more than offset a gain at Aerospace. The company said it took a charge for NASA’s James Webb Space Telescope program and a forward loss provision on an advanced capabilities program.
With a lower than expected tax rate forecast for 2018, Northrop Grumman upped its earnings guidance by 40 cents to between $16.60 and $16.85 EPS this year. Sales are still expected to be around $30 billion. Free cash flow guidance was raised $100 million on the low end of the range to between $2.4 billion and $2.6 billion.
Free cash flow in the quarter was $676 million and backlog at the end of the quarter stood at $52.2 billion versus $42.9 billion at the end of 2017.