NOC - Earnings call transcript Q3 2017 | Northrop Grumman Corporation

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Operator

Good day, ladies and gentlemen, and welcome to Northrop Grumman's Third Quarter 2017 Conference Call. Today's call is being recorded. My name is Natalia, and I will be your operator today. At this time, all participants are in a listen-only mode. I would now like to turn the call over to your host, Mr. Vice Relations. and Treasurer Movius, President, Investor Steve Mr. Movius, please proceed.

Stephen C. Movius

Northrop quarter XXXX Natalia. And call. third to welcome Thanks, conference Grumman's

Before we Harbor constitute forward-looking Securities start, today's statements on please Laws. pursuant understand that to Safe provisions Federal matters of discussed call

after statements materially. in earnings detailed today's Matters These factors discussed release which company actual may filings. today's may SEC on involve cause risks our results Forward-looking would the uncertainties, are risk are that and and we reconciled our to also measures call differ note an financial I that homepage. posting to non-GAAP include be also overview our call, Relations earnings will in company release. updated Investor

On the over CFO. our our At CEO call this time, to and Wes. to Bush, call Chairman, President; I'd and the Bedingfield, are today Ken like Wes turn

Wesley G. Bush

for everyone, our us. productive extend Hello, a very like thanks and to my appreciation Steve. was and quarter, It I'd to team. joining entire Thanks,

debt for XX, actions about to in financial third total all long-term and EPS update our critical greater customers, We portfolios strong expect We This value to results, vector. pay our both on generate of global issued acquisition yield senior guidance. expanded operating the and to share, taking through of accelerated capabilities, On then shareholders, related along space, and strategic approximately technologies, our of missiles, Grumman's per believe and of XX, and higher financial acquire innovation, combination of cost, security further notes cash fully strong provide defense. first I'll expenses. all the cash synergies. announced quarter results $X.XX assumed sectors, value and On growth cultures opportunity $X.X employees the in financial and higher to our and strategic Orbital unsecured creation plus our discuss actions ATK strengthen aligned $XXX.XX compelling September we and agreement competition in complementary will continue revenue, stakeholders enhance strong of growth, a XXXX creation represents benefit our generation, leading the of while and Northrop for company billion sales, fees billion missile income profitable innovation-focused operational companies. cash significant to an in and October three $X.X We with domains billion. from finance

provide share our expect In accretive acquisition. will we first to meet after these efforts and strategic on earnings than year to conditions. the share benefits, Orbital Orbital per per updates addition be ATK closing with to no compelling full our brief free cash ATK to later want I flow the

XX. scheduled First, we its meeting understand Orbital ATK on shareholder November conduct is to

U.S. U.S. of the Second, it proposed in regulatory Europe. reviewing FTC transaction ATK approval in in the with the European in is the DoD, The authorities consultation and Orbital and the subject by the acquisition to is is the Commission EU. in reviewing

the expect to engaged we transaction to agencies those We facilitate receive and reviews. reviews, an effort with are in the thorough

of close We in expect acquisition first to continue XXXX. the the half to

our Operating led that of former beginning and assume leadership Vice year. Ashworth, and the the she Chief our role Gloria Gloria Relations will several our and year. Officer I Operating have the at at the prior Sid in contributions Flach, transitions and announced be of at the the our year. has of Sid Kathy also We end President tremendous effective retiring Chief that the Mission of Systems thank President company. and Corporate leadership Warden made system Officer, for first want sector. are to to our nation, Government information to Kathy their company since and them led to XXXX will

transaction closes. will responsible the ATK for report be integration when Kathy of also Orbital will sectors to that Our she and

and as to be With a new role, Kathy ATK As we've Caylor ensure corporate on performance operate has led operational current strong will focus a as previously Information served Purvis Mark and previously new announced, fourth Mark functions, head Kalan Enterprise Shawn we her the will our program Government stability. initially Officer of Relations our Services sector our assuming President Orbital our M&A and successfully Corporate Treasurer. our plan Chief and Services, Systems. Enterprise will to strategy lead Mission Lesley team. team

a the transitions these the of environment through beginning place and of ATK continue be to future. of into All ensure process integration year the Orbital duration in the have at we strong we'll and the will operating

on of performance. had strong sales billion, and in $X.X based XXXX another Aerospace total X% a to rose at resulting As quarter X% Higher Year-to-date growth results, are year-to-date. sales in increase higher and Systems financial to billion. Mission approximately to a I expect and X% we Sales now segment increase sales earlier, X% up increase quarter Systems. also terms these drove sales we operating third $XX.X indicated from income

rate for segment the dollars the and XX.X% operating and year. margin to quarter continue margin mid-XX% Operating the both was for a margin rate full year-to-date. for XX.X% expect year. We Total quarter increased operating the

well for free continue reflects year-to-date diluted per grow Cash We year-to-date. of growth and rose strong $XX.XX investment and results, per approximately Capital growth and in now $XX.XX. We and a of XXXX both earnings combination ongoing development for sales quarter earnings per for operating to quarter demonstrate and to periods. income continued of on and customers. year. production growth new portfolio share on performance Based strong share operations profitable programs. our for long-term the programs, important support execute XX% in affordability Earnings quarter as both the XX% our flow our can were those that from spending of as expect through the cash we a generated as share guidance the we support we

robust for growth. acquisition expenditures continues strategy investing balance profitable Orbital call our capital cash deployment substantial the The in managing and the investments returning sheet capital for shareholders. business, Our to and represent to ATK long-term

cash in on we authorization. we acquisition. quarter, ATK risk The down Ground efforts share significant as a quarter. for billion shares. our current paused teams to during repurchases were received During repurchase with share Force's system million Returning intercontinental share performance our to Based a Orbital the contracts of the full-scale X.X million operating we've and considering maturation repurchase a inception. the priority company. the of several since contract the business in ballistic remains Strategic U.S. on development nation's Grumman approximately reduction activities two critical Deterrent. Year-to-date, system. ICBM Grumman the as the its remains to the for Northrop $XXX Air Force I repurchases one million through Air and selected touch Ken technology missile to role on for perform spent of capture Northrop advance next-generation $X.X has We sectors. a work wanted the competitive of $XXX chose played will But our third dividend address shareholders

integrator, programs. the with opportunities, other of With and trusted complexities secure, forward to control win, the We're may partner and and of systems. the questions many MQ-XX Joint affordable. a regarding and Recapitalization STARS know provide a platform with I As the resilient we system strategic modern we've very launch, this you and look that and that technical nation new respect mastered command pleased its flight, have to to the opportunity is deterrent

a the We that program. not be Northrop MQ-XX the bid submitting Grumman will on Navy have notified

company. RFP, this a our represent which could business that an price for the development to reasonable proposition offering of was Our assessment not would the required forward work, incentive Navy final a we fixed bid put for attractive that

forward We addressing work we to support autonomous continue to with the future important and Navy to opportunities a on this Navy in look variety the of regard. systems programs,

Dynamics continuing bid We Mission radar to our prime, We sector submitted this Air have a with and to offer. on a program With all and together our information regarding for this the its Recap program. stand the we, their STARS evaluations, feel LX, still as days proposals that not to of a competing put prime, a ready proceed assessment Joint presently and compelling in do an We Air submitted this on on session. whether by that forward going fewer program. XX respect the bid understand have our U.S. has remaining I'll we for we with with mission. to forward expires than close December under that congressional X, Force primes current we Systems as are is my noting General the needed remarks have important as any conducting that Force resolution support the operating partners,

our a quarter address a increased name of issues, funding space to readiness forces, the few, value productive for adequate, customers timely, financial variety Grumman's to the was taking national of As summary, deterrent, the results enhance of continued our of just predictable. in generate that we actions assets, to In fulfill creation strategic our very our security and strong to aging while security profitable national long-term missions which critical vulnerability a growth and it's stakeholders. strategic our it Northrop our all is

more I'll our now, results So, discussion to a guidance. the detailed Ken for our over Ken? turn of and call

Kenneth L. Bedingfield

and third EPS I'll on solid I'll also will quarter strong to share earnings results, Starting with with growth. updates thanks of a our continued count income My quarter everyone. financial trends color offering. afternoon, the team recent sectors cover operating our and to higher XXXX three higher Wes, quarter strong lower three quarter. results, Sales good comments the and had guidance, all margin were rates. provide of operating sectors, our third performance our results. year-to-date Thanks, my combined two and at our another for debt add our strong in Positive generated a and some

Aerospace Operating Webb and results and and both Triton to also restricted Manned the ramp-up up results, continues quarter than Aircraft up than on growth were lower year-to-date for space as the year-to-date. other performance like the positive In impact areas, EAC we F-XX margin on The restricted activities including adjustment to work. to Aircraft partially mix Space on ramp Moving relative our James AGS had Autonomous and XX.X% periods mix more both development we to Space offset periods programs at we Based up by primary deliveries of improved for and higher programs Systems Higher XX.X%, on for trend range billion for to offset again driver XX% billion. Telescope and a income volume was for other and year-to-date prior $XX.X Aerospace sales XXXX revenue of our sector System is of are in contributed operating guidance Growth versus for quarter periods. billion margin Systems, with both $XX.X as $XX.X The rates well. activities. volume. on Manned million program. the is sales respectively. Systems largely in a EHFs. AS Autonomous $XX on was more periods F/A-XX billion Aircraft NATO guidance prior-year offsetting as reflects ramp guidance. Manned Advanced rates XX% $XX.X the a for increasing and the and to up restricted lower both

the at AS at As adjustments EAC adjustments you be know, was $XX a AS lumpy. increase EAC in net On quarter-over-quarter can basis, million.

high No For continue to at XXXX, to guidance. we a XX% change AS. margin prior rate expect

for X% sensors electro-optical, to programs, the Systems. and to infrared Moving Sales quarter SABR increased F-XX contributed volume periods higher for programs targeting program. and sensors for and and X% on Mission included and volume rose both sales year-to-date. the processing self-protection Increased

increased quarter quarter, XX.X% higher the income quarter and the and X% their Capabilities business. sales Operating on air the third Mission the During defense programs Systems' and rate driven had for by higher volume. year-to-date. both was margin year-to-date, Mission missile and in Advanced volume also operating XX% Systems

year $XX.X to of MS XXXX, change and an year-to-date, billion last achieve XX%, Based well guidance. both KC-XX program. between as are slightly to we guidance range we range lower lower sales as due rate was are continues programs, expect lower revenue XX.X% year-to-date to and a margin on prior MS year-to-date the prior income both we of $XX.X up billion periods. on on will billion year-to-date prior to billion third to rate now the the quarter several high for $X.X TS for X% expect Technology our results, slightly Operating $XX.X versus margin TS of approximately billion. and $XX.X to $X.X TS Services, and completion sales continue were billion. to strong Based quarter billion, of very volume of increasing the approximately sales no At performance, than $X.X of the guidance end our For

approximately We margin guidance mid-XX%. also TS are prior raising guidance our operating rate XX% to of versus

for a XX.X% mid-XX% No prior X% and increased we was change Total the third expenses. we in million part margin increase Orbital to had rate continue quarter of operating Our margin operating single year. transaction total ATK segment for note segment third unallocated income that most $XX and $XX the in I would a operating in the year-to-date. XX.X% million the notable guidance. costs. X% to expect quarter corporate increase The year-to-date. And quarter was rate

unallocated In quarter a state addition, last included was third $XX million for and refunds. tax relatively year's low benefit

now expenses full unallocated about expect as is Higher the net higher $XXX FAS/CAS guidance to $XXX quarter. million unallocated approximately rate prior increase expenses corporate in due see partially usually a of transaction to as year, fourth by we pension For of the our offset well higher million third-quarter This corporate run we the a $XX adjustment. were costs, million.

for us finalize year. million. million. study reduced we $XXX we will for of estimate FAS our be expense the by expect million. now that demographic expense of third administrative our FAS $XX billion various third on results, Based now In accounting our the about approximately study versus our conformed the expect During $X.XX XXXX prior methodology We plans, expenses pension which $XXX across the quarter, we CAS the quarter, allows cash completed to of

but of So, our we versus XXXX. of major and everyone expect million billion XXXX I beginning expect and dislocation, years. provided rate to barring now assumptions FAS you that $XXX million, purposes, XXXX additional billion $X XXXX million the CAS of due year, approximately FAS/CAS assumptions XXXX, rate constant. strong the and million I plan approximately interest our note a both in and asset million a year, well pension $XXX $XXX we rate XX-basis-point range on $X demographics CAS and $XXX million, discount our the XXXX are million asset a quarter our changes be by of our again, a we the and will plans the mentioned in rate. XX, would should now at earlier. last of XXX-basis-point year, constant, X% through all XXXX the FAS estimated market would would we net around estimates approximately for we million. of and FAS decline expect change modeling $XXX XXXX approximately annually our discount change to return impact FAS performance for know, prior net update keeping the beginning your of have Holding fourth a $XXX expected as adjustment changes post-XXXX, methodology a for of discount $XX XXXX respectively, our end the lower the million. upgraded expected change estimate September FAS now $XX in would of than return of XXXX would and would I remind which XX% We'll that about estimate as and At for XXXX to call, by recoveries continue and rates $XXX respectively. as rate be XXXX few current our At

asset annual plans, return CAS million. each $XXX earlier this requirements. Regarding contributions that would required than pension also XXXX. million modestly would XXXX a Holding funding $XXX constant, $XXX equal XXXX expected year, $XXX continue reduced contribution foreseeable our of plan required be recoveries we roughly to of be as hold million. this CAS for year, the to approximately our $XXX XXXX million required note required to to we return, assumptions greater about our contribution our decline and we XX% future, would our and million the almost including be in XXXX If contributions I expect will rate by at X% our or would in in XXXX noted third our in expect and

and We sense, if continue the contribution makes consider we a to year. monitor progress reform, this voluntary making on tax economic to plans it would

tax of and we expecting implies rate the some year-to-date year, we're deductions XX.X%, effective of Moving had for release to that our and fourth around in which you credits reduced quarter our rate tax rate that taxes; a to XX%. XX.X%, saw now effective

Wes and we now As assumes per prior diluted average expectation said, shares which versus will $XX.XX, outstanding XXX $XX.XX range million. that our expect of between earnings weighted of about XXX.X XXXX will share have million we

capital excludes to billion, previously the guidance. million after of cash; operations This voluntary third potential And quarter. million in to flow contribution cash after flow cash Moving Based approximately to capital free we million. $X.X $XXX $X discussed. totaled guidance from I range results, totaled of the continue in No year-to-date of $XXX to $XXX any change million, expenditures expect $XXX free million. cash prior expenditures quarter on

comment under recognition. Just new driven standard the sales We accounting currently reported new is quick higher X% XXXX be to revenue units of standard, than regarding the under as This for to roughly on programs. the accounting existing delivery by growing cost-to-cost modestly XXXX the in the a from standard conversion will expect X% range.

wanted to X-year, earlier Before to senior briefly blended $X.XX a the tranches rate I completed in ATK Q&A, at month. move billion acquisition. a notes of X-year, offering fund I issued X-year, touch on we to debt We and in X.XX% XX-year Orbital this XX-year

with has this in interest ATK acquisition. the with debt the of respect carry a next the comfortable the environment, net billion we provision of that share to the $X.XX the year fourth Given $X.XX per of $X.XX completion were mandatory The issuing per debt the now a favorable has and redemption rate year. debt feature Orbital quarter quarter negative

I'll that, turn we to it forward Q&A. quarter, continued our year. of start performance the Steve for from great and to it a was team in to With So, strong summary, the look remainder over

Stephen C. Movius

run usual. little than Prepared a comments today Ken. bit longer Thanks,

open each Natalia, a line. ask to one-part single please participant ask I'd question. the So,

Operator

Ronald line Bank America is with question Merrill Lynch. of Epstein first of from Your the

Wesley G. Bush

Hi, Ron.

Stephen C. Movius

Hey, Natalia, you Ron. moving. let's Are keep there?

Operator

next the Your Copeland is with Research. Melius question from Carter of line

Carter Copeland

Good gentlemen. morning, Hey.

Wesley G. Bush

Hey, Carter.

Kenneth L. Bedingfield

Hi, Carter.

Carter Copeland

XXXX. time a to to the Wes, question of process? in insight to into put some manage got nothing us planners. out to is to I But wondered plan ask I to if meticulous give are might you year it. don't of a But for you growth. guys want that terms mean, I guidance able isn't together know there be lot planning This the You you if provide get trying else?

wide out understand lot very moving a just scenarios and There's You're as Can close budget numbers from us of of what the are, you trying risks of not. help some opportunities what and of integrate all and bigger just caps put opportunities XXXX that as to in give that a what how There's us together you're terms manage and risk put and maybe a that sense acquisition. an of try are? plan. range for parts XXXX to at together you the looking there you to it,

Wesley G. Bush

It's at XXXX. our of way, question. is that dynamic out us, across the appreciate planning the just really timeline Northrop at when as frankly, exciting look not an industry. by in I we front clearly Grumman, and for quite Carter. thanks, And our and Well, pointed time you

lens you We cycle planning front my and think of making is in long look cycle finding about as are through also over as resources things we in is the discipline for process it that over both of the business, we a with our industry allocating longer balance, can to team business, being that able we company, has, experience it's very us, for being we defense deliver is clear-eyed and and set about And customers, that while that it's more our our right shareholders years enamored much easy have opportunity which a time. a much to to the incredibly sure for appropriately, are we assured and deliver framed the as well, about a the over year-to-year. than to become our in well them being our at think difficult take opportunities, as that seriously

attached is so, just and look road, things to off It's that to hard get a very want that do been without get going that feel in the to annual road. to things, down ourselves really it's thoughtful sometimes easy it on that our and you process on we you've And but working at take better force keep attachment. to

accountable beginning in be process going who I for the as before to we in we my and that of the the execution is plans, as that in will some well. with mentioned process did We, we announced want those now. that announce transitions, both end and seat year remarks, So, own tend of bit plan, transitions and leadership those the be year the are these to at we of a during the the the responsible

budgets. We've customers You things, good to to our asked pleased see about us in better of perhaps the do risk new with an asking last then a where been bipartisan with course risks and our for supporting over attendant lot of done customers of opportunities. been are years support so we're the very number Clearly, The that's a to opportunity process. environment and environment. has is broadly the respect that

continuing resolution. still are a under We operating unfortunately

We a which out to have been get past Control do. figure Budget to Act needs has move Congress able the place yet to where it how to to

our that future drives a drives drives risk for into And of imposes all inherently, more and acquisitions. so, risk. and consequently, into importantly only for it from planning but It community, risk current our company, perspective customer not challenges that even operations source

we an that's So, attention to. close pay that very area

there in of years next the the right big right is of growth talent We the the as that important demand around our companies, in and and not but are just comes as globe, industry, our the top about get and for on with the making growing other front around it think list. the talent, country I we sure few at things over us

absolutely in talent terms We our good universities, and just team, we right recruiting and looks is driven making with incredibly able of have that going continue out our and commitment as company, hardworking we're with into capacity, coming seeing as we're here both it the intellectual bring we're U.S. members a talent as the had those significant to that of We with forward important. we're both efforts. to in team sure that we year year the as I'm go a by the the the just last around the like year globe build are experience, well delighted recruiting. a the this company year to good of

I'm excited risk That's with about focused that. that I'm And customer of strong in also terms for to our that of being an at able Clearly, to of mature it's on our excited a in and realize advanced and there So, do company. see the is attendant goes increasingly programs, more an really technologies area our planning as look we technologies. is class focus hard another we process, pull them to into the we that stand. take where thing the

great at job a in a those fabulous a of Chief of Technology Antkowiak, does company. our through leading Pat have We things. our technologists Officer look clear-eyed us group

of but an quite to I does in a come it to it's challenges have right, a with that our balance. able make being for lot sort So, we represent through team environment the things right sure few us, a and few out get in opportunities confidence quite those

Carter Copeland

the for Great. Wes. Thanks color,

Wesley G. Bush

Carter. Thanks,

Operator

of Your from the Myles is Bank. Deutsche next line Walton question with

Myles Alexander Walton

Good afternoon.

Wesley G. Bush

Myles. Hey,

Myles Alexander Walton

And almost you've and not those I'd bids I take wanted bidder, Northrop turning This industry And of entertaining of Northrop level is as to on in average walk than what or from going contracts these are occurrence down, wanted Hey, third to by bit. – of the kind to despite some detriment Wes. no off that's attract announcing program of these effectively winning. industry government what is I to and This chosen companies probe is how a frequent interesting. the is where chances view it is is proposals company of what no is it Grumman turning a the – it a having if bid, bids to major a outside and little a saying to infrequent they these? the qualified better

Wesley G. Bush

these at in and let a lenses. little lens the to it's through Yeah, Myles, important of companies, each are give I of its look things different that me context flavor which you own individual the think because also on

And shareholders, cannot principles. other make we can looking so, to hard do to what arena, you've I one things. about that similar real we – our bond great When over can look it defense is these really our you that say And doesn't of to that's suggest suggest is only out don't what to we're the execute. not under a about intended something it the And sure worked really I'm of think any break. a years how nations follow say, announcement. opportunities, at let is then feels not have in at wrong the to of it entrusted can't an day But When if your on it the the executability and we to trust U.S. and It afford terms win. just of you're clear, me we've are. come of for be really RFPs really on that allied done clarity Winning objective objectives our thing. by deliver to hard execute long around company in number or one good our great. your you the of customer on is companies

black that you the across you But sometimes, the tough and that can, go clear-eyed this? feedback, the that And And company are our if own on we then for in been in how our little not we're so, want there these independent, mentioned, the evidence may you be company. customers that rationale on ourselves that decision, the them, do those customer forward real of red we would decision. outcome, lot they those decisions make industry we so demand approach. our that cases of appreciative things, call say that. And whether hats I about intended they've would conversations. really in but attest, confident looking our leaders don't cases each can, that on in say just I customer their aggressively is only for And much offerings things them we have both and particular we And actually where see for a proceeding. ourselves I a not want is that regard. to made general, feel of we has happen we whatever that feel our the because teams, our any We they've call about if going we our bid change can or say bids, to attractive we them they're has compelling been to to question to be of good very at and are to and we or with where the clear that inviting way individual obligation been it helps understand for very then we're to do might a demand But

particularly they see it I of getting of And that needs. have It all right the what so high of intend to the So, in is customer reflection matches, for a as gets I to that we us forward. need industry don't what this. continue anything simply go negative gets and degree discipline

Myles Alexander Walton

Yeah.

Wes. cognizant I as decision the company you're clear, be rational decisions hope the perspective, making well. Thanks. they're right for the customer Thanks, to is I'm of just of from companies Just the sure kind driving

Wesley G. Bush

to so as important we decisions clear make we customers. as And ourselves our when one Myles. can we I Thanks, that as said, explain these that's to it's Yeah. of feel be why fully to

Operator

Your next Goldman question Noah of Poponak is with Sachs. from the line

Noah Poponak

everyone. Hello,

Wesley G. Bush

Hi, Noah.

Kenneth L. Bedingfield

Noah. Hey,

Noah Poponak

regard what the actually to of buckets made at Wes was multiple It synergies. you the when with at OA broke looks and announcement in Ken, synergies. out – said looking like you back

that $XXX additional additional and compare cost the which But and in is $XXX then – two even bucket you there's an you it's the there's of where buckets million entirely the directional So, of primarily like Is it of revenue. rate interpretation bucket how to then maybe it size, even what was had million those wide just duplicative just looks there run really operational, there's in that cost? can if duplicative was like a two calling of XXXX. by organizations, you're between range and cost, or actually other right could that sounds quoted or

Kenneth L. Bedingfield

end the add, here. Noah, And and he question, We did. Thanks, start anything in can jump the for Wes at has I'll to if off.

right. cost is that And bucket the You the that I will would it three first did see. being savings. to got sequentially we exactly We expect say first parts, into

have annual get there. So, of we're incur order some million in we modeled we XXXX. cost estimating by And cost about that will to savings $XXX

about – So, year talked and half believe or a we I in first so. $XX the we've million modeled

that that in beyond that to and some the certainly And but but of chain four the to going you able do would the cost as not are to well, take we We make the sure see accrue the that the the would in being us is synergies I cost that cost versus point in businesses, back that looking to quantify filling the of probably And are we we synergies. would can at then at look in savings, piece like of longest, customer, operational being to sort both customer supply bucket tell revenue margins as time. where that you time. the the in and three generate the the cost initial we savings long-cycle in synergies. in areas to to what And gap kick again start point beyond pass that us find over to revenue savings additional manufacturing will those that's the see fill think to start work of and to the synergies reduction we at synergy to that the third synergies this those period expect five-year drive will revenue synergies we we is that's as to

we're how of hope answers about question. kind it. the that's thinking that I So,

Noah Poponak

is something... it mean, I

Wesley G. Bush

value to cost part Hey, the enables the It important. Wes. about synergy think of Noah. I it we over just creation is clearly, add. to be us more time, would efficient, It's When more affordable.

we're see of doing And of at our Ken disciplined creation our And excitement the that long and as contracts, the of to look period history customer the real passed we pass that company as cost offerings them pointed customers well. as company good side the both cost we've is excel creation to it's for we progresses industry to a our where harder might in this that our to there savings innovate develop to great revenue so company the really the on absent savings. But you creation is. offerings. thing. on and a create customers, As savings customer, the for new relies synergies synergies least, It and the do that's like that a And offerings lot employees, shareholder of broader where we be and us revenue generated is time. much the to for this the but us a in were see reason to of in It's back focused ability our cost for out, you to we combination over intend to innovative that ideas at those and Clearly, to also and those get years. a is shareholders as something our our for this important generating the see forward I savings. me, domain opportunity, this from was very cost at which be that's aggressively back and of long-term synergy for of the where over that have really really enter directly clearly, over perspective, a been not time going competitive community created, even time our value industry into new as back them and opportunity if something capabilities. But over, our complementary put new marketplace

ability put when of the the exciting. future. the customers. of within to you ATK their outstanding we and company for of that's those that Orbital where applications to continue look comes technology excitement that advance that's quality just And the company, is to the qualities the into if team turn state forward their is an So, similar to innovation, together with our think it as most I

Noah Poponak

understand. you. I Thank

Wesley G. Bush

Thank you, Noah.

Kenneth L. Bedingfield

Noah. Thanks,

Operator

line is Bernstein. with of Doug Your next from question the Harned

Douglas Stuart Harned

afternoon. Good you. Thank

Wesley G. Bush

Doug. Hi,

Douglas Stuart Harned

about that think ATK, you to because, long Orbital bring are time. the – Northrop Wes, portfolio? think ATK, to synergy discussion they that Hi. opportunities, in when a and Grumman's And that most been you've looked you on you follow revenue I what important want and opportunities can capabilities at are around space for

Wesley G. Bush

thanks, Doug. Well,

As is is, remarked about great complementary. this of a couple times, what's so

the thread two companies. We on have me first. let pull almost between And part just the the it no space of overlap

and terms As long period dramatic said are you over a the the that long incorrect space The around permissive we've today, is change business has of done the know, the I've an is getting assets in operated a a of space much years. been years. noted, a of of for actions need has don't concerned vulnerability else such we everybody time, And school environment about you we it space adversaries. and understood. U.S. architecture gone seen nicely I'm a becoming be which on space notion somehow to the of or consequently without so of in my throughout saying the transitions importance with to And lot forever time so what recognized where over strategic for many old, space we is career, now is notion,

assets regard, dramatic combination the in other to the So, of domain. capabilities create in going diversity we shift capability space different our our operating think mission, And essentially that we've dawn assessed. we of real strength is it's forward in that only domains, way architecture in our domain, in you not we're terms defend the our create we and sea important to our air as take really space of to for being nation the way a the and over assets, execute areas with a but create and and many a which allies a that of is domain, as what done classes at the of a

focus Northrop portfolio us large we domain, security look very capabilities, to in space we the big Grumman the at about tend things. the the really or focus on tend to Think national observatories you as on If assets.

portfolio at those be just look types case, as both answers, architectures the capabilities systems core are of in that Orbital more be other going of more these domains, to different response the going are ATK, agile require you at make in smaller, it to many of If the future. that to combinations this And it'd it's to the work.

on manufacturing space very in the those of In why yet, advance. way. competency see side. that's in And, support technologies into see going we of continuing mix. they're And, our very progressing significant the a we're quickly. arena, that's future, and the strong the we're that but is systems. opportunities production Orbital a technology also doing So, there marketplace think that our in important, missiles a allies we again, is Grumman they what and with the today U.S. ATK obviously today a it's not clearly to at so technology And bring be of the customers really customers excited and about in set we have class the complementary has way continue to supporting to enabling to of to as Northrop

broadly, just this getting So, we're see forward and say would start we it But I'm our ATK Orbital working now, through I and portfolio, exciting very that on. looking the customers more couple are can that to things through we're process of a more those on our of we the full helping with way get excited going about breadth the broadly. so

Douglas Stuart Harned

you. Okay. Great. Thank

Wesley G. Bush

Thank you, Doug.

Operator

next line with from Fargo. question Wells of the Sam is Your Pearlstein

Samuel J. Pearlstein

Good afternoon.

Wesley G. Bush

Hi, Sam.

Kenneth L. Bedingfield

Hi, Sam.

Samuel J. Pearlstein

we Hi. I there segment's DOMino, differently I that bit trying – not from revenues these bids you approach wondering And, where is for from – it competitive look about been much? could your the services I look environment, forward? was secure the as when seems businesses competitors. really, Homeland little for that that talked network Iris. mean technical about quarter, some prospects at it if of as just last you you've seen like you a discussion why know the I'm winning understand a how margins what Is you're business data perhaps seen talk the the reason at and the does Security. to We've looking about stuff before

Wesley G. Bush

Well, thanks, Sam.

when above the and work broad a in of We but at none both in it we give that. we our interlinked company bit AS little a of that, view to are point, beyond It parts at class services. kind that is that when are across it be just have of yes, was that margin and on long as to not ought wasn't and higher MS, you on margin It's been comes of has about portfolio, more for of team extraordinary reflective able new important rate And to that and delivering. TS types the it comes it to of TS. sector the that a address our we've training, did are technologies, that we that that the more see domain. the rebalance we've of in TS me core can that to reflected new business rates, It's the customers so ago of Let tightly comes focused who provision, with with prior And, quality critically we that have us the mid-single-digit TS, the business. calls, commodity the see of of ideas, is need some application to the doing liked programmatics been on world have your there end us, to that. strategy. of as logistics, whole at talked when when towards sustainment, tended to

an and on the asked trim focus areas they're line, And to also the have that's generating business, in where so for back we've invest what is in they really what capital do where lot that that appropriate hard. of application that them human space, to it's of top Basically, value, longer a had doing. we're technology to in the we term the and

decision-making not TS these We'll end with fine surprised, have little and work our a a we around to time, the out what some we're of that their is. over market of decisions that that to to are with higher is with customers approach to going want of simply moves go where if the continue the that but to there some fits for wouldn't we're understand focus bids going on us, not more to yes, and will So, type bit, customers where be That's of do. to space strategy. are I part be decision-making commodity that. test making

and So, stay that are, to I'm wanting that with we team pleased where with see where on going, pleased vector. I

Kenneth L. Bedingfield

as we just TS contracts, would lost Wes, as also a won in of couple of, add are I we've what well. that large while contracts viewed a large have number

down wins have of third see that lost full and is our been where see in had necessarily exercised. this contracts think nice year, revenue than you some IDIQ quarter only types value where And the I don't that ever But getting reflected some are X%. you has that can TS less

Wesley G. Bush

Even as we're portfolio doing the shaping.

Samuel J. Pearlstein

you. Thank

Wesley G. Bush

Sam. Thanks, We that question. appreciate

Operator

Shapiro question of next Research. from Shapiro with the George line is Your

George D. Shapiro

Good morning.

Wesley G. Bush

Hi, you How George. are doing?

Kenneth L. Bedingfield

Hi, George.

George D. Shapiro

in getting frequently $XX I with Q XX% these question a $XX talk as aggressive more around? down you a it's what margins, we're EACs, going I My Thanks. mean, being on a about it says Is little little so million. even are incentives strategy? different EACs then performance there Can million. might is on be general the largely year-to-date, bit just mean, there question the as incentive. EACs, or this you in about can how the also, describe come core maybe a less well? if And you're

Kenneth L. Bedingfield

Sure, George.

that, programs programs. look, would – large say I cycle other AS is sectors, a got a that relative a to our have relatively And of years. that's The multiple Let one. business they business. me long number take last over span small

amount can. the those nothing point it you to And is not adjustments can't to but we year. the try year years, nature unusual this increase say to last about getting seeing we out, are we're certainly adjustments would our less earnings nature restricted And to more that a second moving of this say I again, I realizing into we're margin to about to the often rate, and those we've it that you working baseline margin unusual margins above as and we sure that reflecting reflect basis. the of this risk say, too would opportunities item, it that, a manage over opportunities adjustments make many right of and total recognizing. your able realize less that And our have of are margin and harvest ordinary that the part in as a we're and not that or a therefore, frequent of And I the think therefore, to as the on we're make as in we're adjustments single larger forward. number – so kind impact you is see out to nothing recognition the recognizing sure large incentives try is than their baseline really to on working EAC EAC much the in on those question, way given as the as and continue I timely we incentive last business But are large an of other it. right, into look basis, been we're we reductions, program EACs, we over relatively seen baseline than similar do And we're

So that the on strategy timely part sure basis. a and that recognizing our of certainly is a earnings making appropriately we're

George D. Shapiro

current to conservative, in might one care the that projections comment on or... I are Would one have Okay. quick you, OA for proxy filing realistic Wes. on you the

Wesley G. Bush

opportunities. what revenue George, said have commentary companies I there. the is, two that earlier, say represents would All would together synergy I I nice coming not any some

George D. Shapiro

Thanks. Okay.

Wesley G. Bush

George. you, Thank

Operator

Seth Your JPMorgan. of from with next question line Seifman is the

Seth M. Seifman

and much good very Thanks afternoon.

Wesley G. Bush

Hi, Seth.

Seth M. Seifman

where pension number number million a around XX% dynamics B, or come the cash that's cash couple lot that to to discount with the to the rate but XXXX, you that return, the years is return the pretty or around in contribution XXXX, that I on bounce returns XX% a goes you goes? review down this just you is that next sure, the $XXX in to fairly much net locked with of X% and and the out-years. year going based regard of, and an benefit that in cash $XXX funding out, got have wanted some the in the guess, that where year-to-date, a I million want to about here in and to million quickly that of to so is it's could this year, With Ken, on you I $XXX XXXX. in pretty make small for talked A, positive on if about correct hang return

Wesley G. Bush

your So, largely. you're first tell of just say me effecting Seth, I you those to I would remind just is like them calculations. through will are sure so would that all, you have that as numbers, those sounds math you, – worked that correct make I tax pre-tax it

those managing really the of we're performance year-to-date, returns to the volatility. terms risk hold generate and proud and able we're a certainly of trust of expect returns, CAS certainly, In out set and project amount look would as And to we our those while investments this impact managing nice of and XXXX year lower on certainly or if to FAS returns can dislocations some trends But or organization lower contributions. to into of market forward. we XXXX market

project prepared went through we in funding as the numbers feel have should today with number we of we next forward. our giving as we're forward the best and estimates But we just we So, with we're the you the recoveries pretty given years our assumptions confident remarks. as look offset that that CAS the for do

Seth M. Seifman

Great. Thank you very much.

Operator

Buckingham the from is Research. question of Richard next Safran line with Your

Richard T. Safran

afternoon, Good Hey. Ken and Wes, Steve.

Wesley G. Bush

Hi, Rich.

Richard T. Safran

How are you?

Wesley G. Bush

Good.

Richard T. Safran

hear. to Good

busy really pending still Grumman. out it's So, a have competitions program been wins a even Northrop year for We there. few for

You mentioned previously. JSTARS Recap

staffing thinking also programs. you your question ask about they about discuss to know noted competition could head if here. staffing to facing were Yesterday, support want to example, And hiring you up. like X,XXX any into for in your could you a I you're I'd get new how engineers So, you're count. challenges response if

And programs all support B-XX efforts. these want you programs. think if are to have and Thanks. Based know critical mass New Deterrent you sufficient large like new Strategic the pretty to Ground of development just

Wesley G. Bush

that little Yeah. a reflecting earlier. a Rich, it's on really the And question just good Carter question. asked bit

the frankly so good working for an time talk the closely, we're I'm all to it But to, just of shifting cycle. side the thing company. sure ongoing that see strong count We've talent us it I company in but for about of only attention initiatives. the clearance side, is on an that having quite of in really key side, is head have us. really said, to finger we that's would our a as talent equation. all and the pipeline people really makes your also are industry, our lot our grew to well about something apply And of you've despite concerns year doing have And this You demographics focused success issue We well very of and these of that talent in well. with respect all one so takes on equation. we very a be it's the to terms heard I year, business, into last very, that The We But going far, industry. the things to pay just attracting on not factor in have been manage through talent that on the pipeline. industry and say the it's will the of things clearance us. across just government one get important our many talent new the and

talent, good our way. We're send them know hiring. you if So,

Richard T. Safran

Wes. Sure Thanks for will. that,

Wesley G. Bush

Rich. Thanks,

Operator

next of Kahyaoglu line Sheila Your with question Jefferies. is from the

Sheila Kahyaoglu

my Hi. Good question. taking everyone. Thanks afternoon, for

So, about unmanned Wes, back and opportunity talk the I from the maybe have Triton? the can you for guess program? outlook set MQ-XX for stepped you

Wesley G. Bush

Thanks, Yes. Sheila.

most technology across reconnaissance, set class to it. spectrum the gotten And the about whether sort past. of in a to just unmanned, in we'd mission an whole of It the We're with is capability we've been you've which ground capability joystick. is where future finding where incredibly you're is U.S. the in the because a class traditional a and the heard about not point the real discuss vehicle calls flying about the like of there new as the capability that use somebody isn't on think has just I the application forms. autonomous autonomous us of of that As sitting the it's increasingly on to application really excited word talking of

need supportive have a around active partners the this be and around of The the regard our of in needs, technology. working U.S. allies' number countries is to Our this globe. efforts we globe in hard

the We if effective what technology. are We internally investments will, aerodynamic the make making continue capabilities to terms only its – to that mission. sure make we it's continuing of, not significant advance want to in in mission of it's you delivering

trust degree one We have confidence aircraft. that also they highly secure. and would normally apply a to are of sure these want systems And the to that that can make manned

continue company. for area a So, see we to this as great growth our

going on As particular things I decision you are final and did RFP. nature that a broadly, mentioned, as bid really for the not referenced, well we just MQ-XX around to make But, us. of

about on on LRIP Triton. the next Triton. discussions very You continues forward the into to move That program stage well. asked We're of

that So, I good growth this is the going for a our customers. opportunity think for and to just is be demand increasingly company a important

Stephen C. Movius

And, Natalia, please. more, one

Operator

is And Baird. your final question from the Peter line of with Arment

Peter J. Arment

Ken. Wes, afternoon, Good thanks. Hey,

Wesley G. Bush

Peter. Hey,

Kenneth L. Bedingfield

Hi, Peter.

Peter J. Arment

plan your deal guess plans the Once just the notes new once it folded efforts Ken, on quick in, Thanks a I notes. color for you the the update deleveraging the with for – maybe the then. hopefully closes issuance. Orbital what's maybe on one

Kenneth L. Bedingfield

appreciate Yeah. question, And Peter. the I

we cash as priority. one from investing look business perspective, a the remains the in certainly So, number forward

a of opportunities in set of ATK of well. as have it and nice set front We a nice front growth growth us, of Orbital opportunities has in

So, coming will amount We've some continue coming with some debt the that due some got be highly deleveraging. maturities as we generators we in paying a debt can well their sufficient we of you But competitive after planned, flow. cash our or are that so that, And dividend we we said, deleveraging at or delevering look and be do generator share leftover business, a business of or And to strategy of laddered have be debt on certainly repurchases. that our due closing. got debt, using be going see will at will taken XXXX. in we We've some the focused to one. XXXX, we and looking we and we would as near-term cash together from in that will looking being be strong number some then refinancing around that care invest a do to invest expect of a of raised perspective. we refinance will at to some That after in likely together debt strong

about of to it. kind ability strong really the on we're the scenario deployment that's how So thinking with same A cash nice generation and really strategy. focused stay

Peter J. Arment

Thanks.

Stephen C. Movius

Wes, turn you comments. for I'll right. it to All over final

Wesley G. Bush

and for incredibly for All for on hard the and right. your focus thanking up just I'll work us our their call customers company. team joining again our our wrap Thanks, Everyone's incredible today by shareholders on interest serving our in performance. well. continuing Thanks, everyone, is Steve.

Operator

Ladies participation. and conference Thank your call. you gentlemen, concludes this today's for

Northrop Grumman (NOC) 25 Oct 172017 Q3 Earnings call transcript