Northrop Grumman (NOC) Q4 2023 earnings summary

Executive summary

• FY2023 sales rose 7% to $39.3B, backlog reached a record $84.2B on a 1.14 book-to-bill ratio, and adjusted free cash flow increased 30% to $2.1B.

• FY2023 diluted EPS was $13.53, including a $7.68/share B-21 charge and $2.08/share pension and OPB MTM expense; MTM-adjusted EPS was $15.61.

• 2024 guidance calls for sales of $40.8B–$41.2B and MTM-adjusted EPS of $24.45–$24.85; free cash flow guidance is $2.25B–$2.65B.

Financial highlights

• Q4 sales rose 6% YoY to $10.638B; Q4 net loss was $535M, or $3.54/share, including the B-21 charge.

• FY2023 net earnings were $2.056B versus $4.896B in 2022; operating income was $2.537B versus $3.601B, and reported operating margin was 6.5% versus 9.8%.

• FY2023 operating cash flow was $3.875B, up 34%; adjusted free cash flow was $2.1B, up 30%, with capital expenditures of $1.775B.

• FY2023 effective tax rate was 12.4%, down from 16.1% in 2022; B-21 and MTM items reduced the 2023 rate by 3.8 percentage points collectively.

• FY2023 sales exceeded latest guidance by ~$300M and original guidance by ~$1B; Q4 adjusted free cash flow decreased 3% YoY.

Outlook and guidance

• 2024 sales guidance is $40.8B–$41.2B; segment operating income is $4.475B–$4.550B and operating income is $4.215B–$4.290B.

• 2024 MTM-adjusted EPS guidance is $24.45–$24.85; adjusted free cash flow is $2.25B–$2.65B and capital expenditures are ~$1.8B.

• Free cash flow guidance is $2.85B–$3.25B for 2025 and $3.1B–$3.5B for 2026, with expected CAGR above 15%.

• 2024 segment sales outlook: Aeronautics low $11B, Defense ~$6B, Mission low-to-mid $11B, Space mid-to-high $14B, and eliminations of $(2.3)B.

• Guidance assumes current tax law and excludes potential impacts from an extended continuing resolution, prolonged shutdown, spending limits, or other spending cuts.