NOC - Earnings call transcript Q3 2018 | Northrop Grumman Corporation

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Operator

Good day, ladies and gentlemen, and welcome to the Northrop Grumman's Third Quarter 2018 Conference Call. Today's call is being recorded. My name is Jamie, 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 Jamie, 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 the to Safe provisions Federal matters of discussed call

reconciled may statements measures differ in press our detailed on materially. in These and Matters release which actual that cause call filings. today's uncertainties SEC discussed involve may risks also our company release. Forward-looking financial uncertainties, risks are are include and non-GAAP and results earnings today's to

We a property, summarizes intangibles previously purchased schedule posted and plant pension three slide have five-year IR deck of acquired we website our years and equipment. to the that provided, information the a amortization our and step-up includes guidance, in updates of of of depreciation

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

Wesley G. Bush

Thanks I and performance. Hello, entire continued execution on Steve. by want focus team for joining our call the everyone. thanking Thanks, start their to for us.

time for are aggressively and that year our guidance innovation efforts Our The performance investment. vote. support, a bipartisan on in increasing XXXX multiple as addressing continuing and support bill first nation's resolution. fiscal we're accelerating included our growth first and very appropriation with XX domains quarter We third passing strong Systems. administration note are full on a quarter signals the of Innovation results of as pace for this the of financial Senate the and a threats the begins our the for will strong emerging this operational across strong review administration's results modernization fiscal well the year with the quarter Based focus the that demonstrated view defense without The decade, and Congress and robust to as Ken results. the the X year. received operational performance, Kathy to execution. I'm delighted Defense increasing Department topline

well great programs lead Our and of accomplishments, mature pleased about opportunities own the the supported about programs new I'm ultimately production in robust team's will next franchise our our portfolio attractive in budget the of year-to-date well-balanced I'm pursuing with I'm customers' programs. demonstrated and programs continue generation to budget, including and our between stakeholders, invested production She our that we've our under lead on aggressively has and efforts the to capabilities our for context creating In Systems, addition be and the excited an company is value leadership development future of while a values need very current forward. also improving our Kathy's company programs supporting We're performing to all set. also environment, many affordability. the of excited she focus opportunity Overall, us. advancing before our on driving in leadership. Innovation the the brings capabilities, on of for focused solid and

to Kathy give an third results. me quarter us Kathy? the to turn on let over update So, call our

Kathy J. Warden

of you. afternoon, Good Northrop maintaining first entire Grumman for to the our behalf creating value, in led of Wes, everyone. we Wes. Thanks, highest way while the I express you've our the gratitude team standards team, On and thank want always integrity. ethics

Wesley G. Bush

Kathy. Thanks,

Kathy J. Warden

with and topline as businesses also growth as topline Systems. Systems generated and highlights financial each total note international a for solid comments year-to-date including the the rose will quarter results, integration. $XX.X segment rates of operating the our continued full Beginning backlog third a sectors, well Innovation ended Systems, on our reflecting address and income of My growth with I'd sales financial billion, operational of that quarter today the during and XX% $X.X to strong XX% quarter Aerospace increased and billion. at status Systems Sales margin Innovation Mission we quarter.

decision to E-XD quarter, to Hawkeyes, planned international an see their third continue additional aircraft. purchase strong XX We demand from total to Advanced end of bringing customers. their the nine E-XD announced Japan At purchase the

Third quarter margin increased points segment our rate XX.X%. XX increased operating income and basis segment XX% to operating

in In factors addition of net as rate. third benefited financial operating and combined earnings per earnings strong XX% to the share. this to tax quarter as quarter's performance, generate settlement lower These from well claims results a a third cost increase quarter

result to a third XXXX to earnings and quarter performance, for of increasing guidance of strong a our As $XX.XX $XX.XX. range our share per year-to-date we are

deployment, Invest same: cash return manage to through and repurchases. business, cash the share balance and shareholders the capital Turning to and in our the dividends strategy sheet remains

quarter, flow pension cash are operations the for increasing after flow guidance range from of billion. and for $XXX we our and million year-to-date billion totaled $X.X free $X.XX discretionary the million free year-to-date, the contribution, to During billion was million those quarter year-to-date. to Based reflecting cash on results, cash a $X.X $XXX and $XXX

carrying So and now, to on announced Aircraft, sector F-XX. At ramp aircraft let the the continue delivery BACN, and Hawk Aerospace [Communications] (sic) which Manned Global Systems XX% Battlefield increase We're represents up to deliver In autonomous year, track our fuselages to Communication sales we Force. of me Autonomous over F-XX XXXX. Air touch a the Airborne on or highlights. center the U.S. XXX we on this restricted Node, activities Systems, a

XX, down-select will the first received Space, development The satellite will Global Next OPIR to GEO for Hawk fifth team augment be this was the with generation a Gen compete We Grumman IS launches the of represented develop the to the in Delta summer. competitive the after rocket. the important drop-in United and Parker first at variant fourth example ever of intermediate ICESat-X acquisition and link beginning missile-warning end vehicle IV Parker launch the BACN-equipped years launch Systems, in its Force's Solar ago. critical Innovation the capability. OmegA Launch Innovation the an flights domestic ICESat-X GEM At commercial to aircraft payloads this in fighters Northrop the mission launch with design a during capability phase launch program. review. on at qualification test the V service The least the included to production quarter, XXXX. after this payload a the scheduled the certification new completion successor Delta is includes launch two of enables mission for satellite. the OmegA's through system. third-stage and the This the which Global on OTA in final we the go-fast SBIRS, scope operational providers program with first expected and end XXXnd, of has on rocket This for down-selected have Air of program awarded final, the strategy also the provide of heavy through were incumbent, that Three The Systems. the Alliance The full runs rocket The solutions Capabilities. agreement in for first expendable Probe shortly development to And were to propulsion meet develop national test XXXX generation were launch phase XXXX. is of valuable begin next selected quarter; evolved contract two Atlas development motor, for we for to $XXX successful Innovation its order forces fighters Systems just three to have II for system million Probe providers services commercial another Advanced ground. the successfully completed and XXXX heavy Hawk include Delta to the in variant requirements. II final supported NASA's the Solar security deploying launch

topline we reduction to both our be synergies meet the very Regarding combination excited Sensor and to or we and and yield. programs. driven expect Mission integration, by track we continue At target continues growth on remain be operational Processing to to our revenue exceed cost Systems, about

During quarter. both restricted significant F-XX program, electro-optical/infrared the the and SABR the higher radar. milestones quarter on communications, we during achieved year-to-date, self-protection We program and several the had volume

systems MS a highlighting architecture. successfully SABR flexible installed upgrades In addition F/A-XXC, radar production F-XX aircraft on multiple and demonstrating AESA scalable to Marine a without and SABR for Corps capability our radar's SABR's customers,

approximately and Capabilities. Marines. quarter, three milestones during We on programs, Also, we important in the upgrade G/ATOR XXX the in CIRCM Sensors are Advanced aircraft IBCS for to and development achieved competing and Processing

programs three all reducing total on develop affordable, architectures that our work ability open-system modular, while capabilities, demonstrates Our to life-cycle also improve costs.

signifying On CIRCM, Countermeasure production the System, undergoing fee system achieved Common testing, our rigorous and maturity readiness. milestone Army's or after we Infrared

in We this production Army's helicopter the critical are We initial low moving on life-saving the to the technology rate quarter. third fleet. for order received now production

G/ATOR's system in schedule full the production development and defense the Army's G/ATOR, Advanced We shift ground-based begin awarded In $XXX team also scheduled design radar look We the toward to Corps. executing seventh missile of missile forward paradigm which Marine the to program, continue a and to delivered ahead defense. represents fielding successfully integrated Army for the system IBCS, rate a Capabilities, our air XXXX. which is contract million to

in And their test the to more working Command one posture Defense IBCS steps TS platforms of Services $XXX Poland work System two managed conjunction other like and to maximizing captured for and be we and valued look at cycle letter we solutions TS we we Training to of Patriot Advanced over total Services with modernization of taken XXXX, ensure to and grow recall up Services, future. beginning ramp Army's XXXX. our into life years. also global are late we operational are than of acquire re-compete the business continues million will agreement We Grumman the efficiency as And and with SEMA flight toward we Northrop programs to At our unit in Modernization will that in also a Program a you and and purchases. OEMs. continuing on growth, numerous position Technology logistics We've consolidating have as for for Mission four areas, those

on is positive vector. company Our a

demonstrating needs We are create our our value. we're to and customers' shareholder ability grow to well-positioned and

for But Systems above-market, in outlook opportunity we and quarter global accompanying ahead, and programs, domestic positive revenue profitable long-term be flows. XXXX guidance confident growth Innovation cash on We and will late XXXX synergy set providing our with We're portfolio looking the our focused our of remain achieving beyond. our earnings of on supports potential strong current fourth call that January.

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

Kenneth L. Bedingfield

good corporate for was the sector for also I'll performance update items review their I'd cover our including thanks of quarter strong year-to-date leadership. with guidance team my awards add to below-the-line the with third it briefly good and the and and XXXX then Wes Kathy, Overall, solid our everyone. our I'll earnings margin I'll like thank outstanding to Thanks, afternoon, results results and a and growth. remainder pension. and sales move guidance. and quarter year, rates to for his

to Turning Higher both we rose up restricted both Systems results, ramp quarter Volume are year-to-date. Aerospace as during on both Autonomous continue activities, for in was driven for Triton volume, sales by operating continues sales Systems slightly F-XX. periods higher year-to-date. is on lower during and production. volume X% and Manned principally ramp-up the the periods Aerospace were to to year-to-date. be Aircraft and sector Space X% also the and the quarter quarter higher up income up X% for

rate to programs. Year-to-date year. primarily Aircraft XX.X% is margin Autonomous margin points rate due performance to Systems quarter to in increased and comparable operating XX.X%, XX last Third Manned basis improved

AS early reflect to a $XX.X billion year-to-date guidance phase full mid-to-high with increasing $XX billion continue to a on higher rate we of margin rates range margin development and for year-to-date are of results, work, will Based pleased we the to we're level sales AS a AS performance. have year. expect quite operating XX% now While the

XX% third Systems, year, quarter pro compared last Innovation forma the $X.X totaled which, a results billion, increase. to Moving with for when sales represents

Based IS totaled propulsion due quarter sales to income Systems rate. IS increased missile Systems $XXX The increasing $X.X sales volume. all on business reflects launch are Higher on across higher at or were billion a satellite and areas. with $X.X armament three billion we to guidance sales increase and XX.X%. margin range systems higher volume Space were million to of sales government Operating Defense primarily year-to-date products increased Systems a vehicles. mid-to-high systems results, volume. XX% Flight reflect Third for

to growth rose Mission third digit in MS. at year-to-date. the and Processing down and High-single-digit Systems' be year-to-date. to growth sales Moving both continues X% the driver for Underlying offset activities, quarter the on and primary being X% growth for by XX% increased and is MS mid-to-single for quarter quarter in Sensors ISR year-to-date the an operating income program. X% ramp partially and Mission JRDC Systems,

basis performance reflects to operating Year-to-date, XX.X%, margin all and XXX rate to improved is margin year-to-date business operating XX.X% points areas. comparable across of three XXXX. quarter Third increased rate

sales of For range XXXX, to $XX.X MS a to guidance we are refining our $XX.X billion. billion

expect We an have operating margin continue XX%. rate of to will MS approximately

Technology Declines Turning KC-XX shaping, Services, XX.X% Services grow operating a new declined to and sales XX% margin and essentially range margin on to both operating year-to-date. that was rate due in headwinds rate, periods Based our at programs the as would we rate an quarter I year-to-date. well to will billion JRDC, approximately discussed. in for digit sales and as billion XX%. continues Technology $X.X decrease business for portfolio X% year-to-date. of Services note ramp-ups mid-single all of previously results, with between both quarter modernization the SEMA. Technology the $X.X quarter reflect sales and on our year-to-date the year-to-date, XX.X% represent global expect logistics VITA at and program TS and now the also we've like

roll margin of billion. are we guidance approximately operating mid the increasing range. segment to that $XX continue rate performance, to sales XXXX on year-to-date XX% our up, Based strong we As expect all for we

On million. unallocated by the corporate $XXX corporate front, expense declined

the quarter During and was $X step-up purchased cash the quarter, was partially in of a This property, benefit add recognized expense $XX offset plant we $XXX depreciation including from of number merger-related This intangibles that $XX acquired a flows of benefit. the items, settled a resulting years. million and cost equipment. over of in million amortization to additional non-cash claims by will million and of million

As item you merger-related slide you expenses. gives our can line earnings five-year purchased are depreciation a release, included our of unallocated amortization and see in also separate of presenting we provided as intangibles estimate corporate expense in We've that a step-ups. a

expect annually thereafter. to total merger-related we to in million $XXX increase items XXXX, For $XXX million, and decline XXXX

increase quarter demographic are adjustments. after increasing XXXX results pension, slight our billion, to third our net $X estimated total in completing which cost pension Moving cash pension our study, FAS/CAS a we to in

Looking as our discount interest basis based approximately and returns XXXX we basis net rates XXXX, the of expect in XX, on XX ahead to asset were range rate on September breakeven, to points. September points would of plan XX increase XX our to

included FAS increase for XX estimates, with quarter $XX a quarter's net-plan consistent Interest increased assuming are this purposes, asset variances discount updated our in in The returns modeling now and prior of assumptions rate and year-to-date, are in the we've XXXX sensitivities expense three-year net interest our asset your For pension million. and and million breakeven, $XXX for returns also XXXX slide basis we expect million discount plan point expense rate. $XXX deck. and

the tax Our in mid-XX% XXXX effective should range. rate be

years. for a benefit reflects manufacturing the Our credits $XX and discretionary statutory tax rate third for reduction quarter million of prior and for pension deductions contribution research additional $XX the in million rate benefit our

we effective million the between settlement, count and range outlook, cost expect diluted and claim average tax noted, XXXX weighted Kathy a $XX.XX our our shares. reflecting improved share $XX, now lower operational As approximately of will XXX rate, EPS

$XXX Regarding debt capital deployment, we of July million Orbital on outstanding redeemed XX. ATK

an addition to returned deployment million remaining authorization $XXX per end important In $X.X year-to-date XXX,XXX September and and repurchase about remain our of quarter repurchased Through shareholders the price approximately our contributing repurchases our XX, average component strategy was debt billion. shares share. down an to of third pension we repurchases. and through share capital share Share of at paying at to we've have dividends plans, $XXX our

With free on approximately the cash year. $X.X think between and billion to Steve? based results, we billion And our now to voluntary continue flow I of both $X.X operational expect million spending range cash healthy for contribution. Q&A. ready billion, $XXX we're this year-to-date capital from enterprise We after expect flow and $X.XX that, pension

Stephen C. Movius

one-part to question. the initiate limit Thanks, Ken. a themselves you In Q&A? single I to participant each time, would interest of Jamie, the would ask

Operator

the UBS. comes Myles of first from Walton question with line Your

Myles Alexander Walton

Hey. Good afternoon.

Wesley G. Bush

Myles. Hey,

Myles Alexander Walton

kind pretty I'm the are kind over curious. you wondering And is believe synergies in, the one I I'm synergy, of term revenue Systems, rate for gates. in revenue of business? one? to what just you Innovation not mean, on of, was And hitting out underlying expect stellar but I that's the growth year medium growth usually this

Kathy J. Warden

few we the are Those on for for So, revenue have become so growth performance IS the do recognizing strong that we synergies is worked. are the good will good and team as We in next revenue more a becomes that making the much with more much Myles, and that now anticipate progress I'll beyond. XXXX seeing much continued are our of delivered Those XXXX and performance in cost just too, right are solid we track We, said, very the markets quarter. thanks lot we're of you, that operational material pleased A material tell that and they in delivered. being synergies. serves. for the XXXX, IS in years. defined synergy, this on result in I what evident

Operator

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

Carter Copeland

Hey. Good amazing. era. Wes. morning, end an congrats, It's the and been on of performance. Congrats the It's

Wesley G. Bush

Well, thank you.

Carter Copeland

on are product see noise of but no-bid potentially to cost to I'd of help those, not respect the around two change you, KPPs return – bidding it. have work mean, or just now perspective and industry, in on necessarily the your share behavior, perspective And or structures given whether hurdles? and that with potential chose to we you could share positioning I losses differences just I to if you think for this you'd pieces could appreciate Any beginning whatnot. can't other calls, around ask, I but and you bidding a some I bit wondered strategies of led

Wesley G. Bush

question. lens two sort just offer I the And I'd through one I No, – the the perspectives: lens of Carter. appreciate of customer. industry, and the of the would Yeah, other through

to about side, clearly, economics its they of how On broader has of years. have number to own of its it the company terms decisions any we've like all look for both industry in of make itself approach I at together. the base been in it the the deal. particular every process will factor and of deal terms using a and business things how those And

the present how thinking know much in We end of hard for spent picture, to that But individual I presume on not of going project decisions. And their to it's make the out different those the as little of sort at comment various industry companies get of early, areas. the of really landscape, in and, you have of but position of at time how to I what clear-eyed We total I hole appetites to to pretty would get a can those look the a at are day, net in have across there to suggest view the it very time of dig likely pictures. we folks good types appetite generally made. they're well-managed a have elements is for economics going the smart the there not lot and, And day, a some bit other When change our they're big economics industry. any a time, appetite decisions are end running figure to obviously, to are much true company a about be. how to just and from be that look we of go forward, clearly, when would companies have again, finite value And make will investment individual to decisions NPV. the

to gone of the of the as We've mind-set acceptable where well. a customer era was understand idea of as through side, kind low-price an we technically customer all On has this this globe. concerned era navigating were we about of with the we've dealing mostly structure an around the force capacity our the through different to been of things deal were where all with

that on got customers, advantage understand strategy you talking taken we've There we're think in have that to recognition is be us I the now, what our and beginning When of full answer. national we're assure real capability, are not areas focus put those taken they're that capability very programs way capability, but time use their framework which high-end that from had investing technically to defense and about careful at this some we a catch the look that they're in adversaries talking we're that when got much, more, get them to for operating going a us, with low-price going is shift it's have under to defense to some to as and and investing thinking is the strategy. to that acceptable need. For high And our think, acquisition – in elsewhere I our up some we've have an capabilities focus core surpass we've to strategies probably of are ultimately only direction. that different need going to that in for capabilities, to wrong about and need really work the standpoint, they national

over the time. on these things and pendulum forth So, back swings

will I get as do which things think way not going customer But are enables community a on we, about, navigate high-end be as go. industry be said the we I and that that that and I track one well acquisition and to needed, to a are hopefully trend into technology capabilities of the more are industry to too it's managed. important locked think influence the we'll way towards stay seeing that behaviors to going that thinking together,

Operator

the is Jon question from next Your of Raviv with Citi. line

Jon Raviv

say morning sorry, to good Wes. afternoon, and Good should at Hey. point. congratulations, this again, Or I

environment. investing of just growth broader perspectives this in on on question, Sort following that some

for might the down long And that we associated the of as runway CapEx visibility the have budget what's Any example, sales how we've that in as make Essentially is, to XXXX you been come again? that? for few these of investments, related peak. place? For FY sort growth years a CapEx, with waiting visibility growth is for to sort sales when now

Kenneth L. Bedingfield

well CapEx and to color then over hit the more Maybe where she for sales question. as opportunities. the Appreciate a sees that Jon. Kathy turn lead growth the I'll as on it little off, Thanks,

portfolio moderate think out investing forward additional CapEx, to we and in the years of been have that at down-select expect on that to growth, the I portfolio existing few been the particularly as we growth compared on some of driving will terms program that last are stay say beyond we've that add we've CapEx capital, and in We've opportunities that, that in want us. drive In front well of continue we level could been one if we growth increased be are that seeing material we would in start successful continue as in we in that? we programs. is after business. some both that, of and here drive sure of the to look it's but XXXX is color be the some percentage GBSD see a would that what from Kathy, to seen as development X, some to clear drive dollars for in growth it the say additional I to as should there you programs. the to that blip don't amount I as and should did that the for successful again, a newer could then we in something sales X

Kathy J. Warden

our primary investing follow near both term. in Just certainly and said, see ourselves do on opportunities have we to growth as focus and we what Ken longer

XXXX continue pursue have in you the us pursuing. saw And significant programs CapEx next GBSD that a opportunities, we're will for We if opportunities to we current see expenditure. Ken moment our what we to could are in top of see as including year. been starting we growth lead have that as said, restricted well that budget But and pleased to with set additional successful out at as the very

Operator

Your Seth from comes JPMorgan. with Seifman next question

Seth M. Seifman

Thanks very much. Good afternoon.

Kenneth L. Bedingfield

Hi, Seth.

Seth M. Seifman

to basis, was cost of cash you're forma I that, a to with wondering sloppy fourth close three of on calculation bit generate – quarter stuff acquisition down. and a billion in seems now with it the but levered about maybe take this a net right like Hi. times like be the that $X to might pro

you you back the really get can of stock? back into market do So, how think when about to buy kind

Kenneth L. Bedingfield

of quite that say, as with at rating would perspective. are from a leverage to downgrade where Seth, a able single agencies execute and advantage we the the our to credit were on essentially rating of time one. a credit from I and the acquisition, the leverage, hold comfortable issuance of couple of to acquisition we we see at with We our are the take debt, look notch the

part we plan issue OA de-levered, us. the debt another enter in was acquisition, as de-lever the rating. of could on therefore, the both repurchase. we we're we to the share be share and of to our process expect of have repurchase, on of BBB+ to bit related XXXX fact information, see acquisition. were credit ability possession the were due not not, in a leverage was on that's we out related as tranche of non-public that material on little second at time We As a a execute our to and the debt, clear the to market in to to That that for back your into traditional some of the well question drive But the

– the closed be that we able as acquisition from pleased we get in I'm on and to be back continue to days there, are and expect X June We forward. repurchase June couple the share market a look – the on into we were sorry within to of market X and

the we do business, the the grow see leverage. cash, grow the us. with will on grow continue satisfied expect quite as So to that EBITDA, we I leverage drop number

Operator

line of with Lynch. Bank Ronald of comes question Epstein America next the Your from Merrill

Ronald J. Epstein

Yes. Good afternoon.

Kenneth L. Bedingfield

Hey, Ron.

Ronald J. Epstein

and both Wes. question Kathy a Maybe for

OA the better a those the strategically, opportunities in not position how in you seems thing? in some assets of space, of to that classified that put it have assets family, Because than had you do of them? the that about you we Now like, hypersonics, within win front think kind work you Northrop had

Kathy J. Warden

I'll in. Ron, is can this and start then add So, Wes Kathy.

just in opportunities increased And The to opportunity see way we for exactly do. where innovation together synergy. together see also hypersonics, our us bringing teams pursuing the bringing and with Northrop in through affordability. it rest those see jointly clearly the of markets really These will go cost space, Grumman, as we the IS are to see that we We important, You contribute where areas the opportunity competitiveness. we'll clear shape the generate precision munitions. in portfolio and synergies

all and synergy, as the primary mentioned, Grumman. more into of now options see team sources others, from I create long over the able of well that the on are value IS which we revenue to the that those Northrop as So, our dimensions, in term will we offer bringing markets be

Wesley G. Bush

and I said. agree would just with Yeah, what completely Kathy

is two would I almost how add frankly, part the companies customer delighted companies. the respect just bring to customer. the are And wonderful together. longer of that period new I is I've this be the to out individuals with I think bringing both been instant very all of the The nice a see of of and That's only value match better culture the thing in involved think this, able to of and turning us, and start expecting of just desire together serve the the we're source that's is ideas new what ideas, to creation. as together over we came quite together, to companies creating of the time, the getting on

those So, we're seeing already connections generated. I'm made to being beginning because that ideas excited those and be really about

what this very mean. So, will I'm optimistic about

Operator

line from the Rajeev comes Stanley. with Your of next Morgan Lalwani question

Rajeev Lalwani

question margins afternoon. the Aerospace Hi. you on side. for just a Good Ken, Kathy,

years? the year-to-date. some look to in of quarters mean, the next had forward we trends I the low-to-mid-teens maybe getting think and does couple here quarter nice a back this You create to over I runway as and

Kathy J. Warden

to and ask then of in our what The good that tackling I performance clearly program program performance Ken what really in. on we see is AS But So, see to the goes part strong for solid is to execution the clearly Rajeev, is expansion. team just the start, that team. and We to blocking potential I'll add continue to and that improvement margin to leading improvement, opportunities leads find margin to incentivize continue.

shareholder details. our bit that team's speak are expect continue. what so, more the the and clear a a alignment of it objectives, we And of to we on Ken let is to I'll seeing objective result

Kenneth L. Bedingfield

just of more in Yeah, as seen them and production we on Kathy's point, terms our I a at AS mix the run I line in and is is as But lower And the could years. profile couple think the has pressure we're of look could the in on of back incentivize sector we we've its take see years. in on of if that is page same say would margin forward. that some terms portfolio we development the impact mix with than referenced significant that just some to dollars additional couple sure development teens. better you of up. margins challenge has (XX:XX) (XX:XX) Rajeev, its if look as performing historically, tended would benchmark say of the have the at sector. I then you also and margin the certainly growing just in nice of AS we opportunities on and some we with to look terms would be XXs being the that. And, XX programs, rates some single low sort both to last say, I question, over larger rate on do that development side our on Aerospace additional over had, some we AS the we've your for top of on make are all compression largest even to forward, AS seen To the growth performance margin seen last programs the driving

and same there. to the just where all page we're on has sure all level on make us been of So, set AS kind

Operator

the next Arment of is Baird. Peter Your with from line question

Peter J. Arment

Wes, afternoon. Yeah. luck Thanks. Good of best with everything.

Wesley G. Bush

Peter. Thanks,

Peter J. Arment

some timeline maybe be can some any you just when Thanks. or portfolio the Kathy, give maybe you anticipate shaping will TS. you of completed? out give us how that the – Do updates consolidation mentioned for at looks us actions

Kathy J. Warden

Yes.

XXXX. creating at we focused innovation and new a on implementing that the aimed of So, organization TS at beginning better affordability, are and at the structure is

third are of somewhat most of of compare this a quarter years of year, we in achieving TS continue journey the next be of have we you that the on to it'll growing. know, tough majority a rates. many at portfolio. as the those over the TS commodity-based services been to And in As a we've work of new couple is But portfolio programs are All VITA winning the margin TS new and segments through year. had business work, logistics strong eliminate

have solid long-term So, foundation for the we really services a and in program performance. we healthy that a see now has growth business that

to we'll do January, optimize really to beginning the that's and down we're what from this that working of through we'll so, two. at three divisions restructuring go And

Operator

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

Sheila Kahyaoglu

afternoon, Wes, congratulations. and Good Hi.

Wesley G. Bush

Thanks, Sheila.

Sheila Kahyaoglu

whole just driver, program to Kathy, in you areas F-XX about that longer-term of think opportunities could are remarks, outside higher how Northrop? growth? mentioned prepared opportunities or you point a and you have been And the maybe progress. growth of programs significant significant do your restricted of of I host guess, profile a some of

Kathy J. Warden

Yes. Sheila. Thanks,

prospects to are for made proxy I the of I'm comparison about as years. multiple think long-term, in we talking the I our the So, growth. comment the typically growth about what which our over the investment And think accounts, when

for be programs I awarded that XXXX. so, full-force we're payload down-select as well pipeline. you examples, the we were things are payload in and asked, give have satellite the And And our XXXX the both as the Polar, OPIR the about the many to GEO OPIR as the made in will program Polar that timeframe. We GEO you talked OPIR few of awards pursuing programs, a in

handful programs, pursuing. restricted We isn't one and of as as space a also are that the we of collection have any number material the of them

over all earlier. several IBCS years. the talked also comments my CIRCM Systems, about two the awards represent are in but years. full-rate and and Those significant in full-rate production I programs production Mission in all We next all G/ATOR two have next

are We OmegA down-select in today. areas. a talked I for about competing of number

down-select, we GBSD Next-Gen and it You band. and the competing on through also made down-selected low are all have Jammer we for have been first know

that pursue over those we'll all couple next the competitions are of So of years.

have And their full our businesses, the robust up Aero, Systems, are programs that Technology so, as that as, pipeline as ramping you can well still see, it's potential, and we on Innovation Mission to Services like across that have you of Systems current F-XX. as a we growth noted, all

Operator

of Your the next Keay line Hunter question from with comes Research. Wolfe

Hunter K. Keay

kind for an question, you going curious is are to we Wes, you of off-beat you? next? passionate to again? here, from Are I'm suppose, Where know Thank might next what's I you. but about? What hear This we you see

Wesley G. Bush

focus lot passion, to much opportunity can question, others. Unlikely looking sort interest I others. that helpful do a of a and find hopefully, of energies to of out appreciate to to time for being me, do little just both forward things to our I where figure – things those my be But in Hunter. that. that of want to to I I'm involved that out, industry, be things been all helpful great on bit level my the But good are to have the disappear. other fun It's but long. to very to this personal in that outside a I'm hopefully, some number going I'll of just so a I of to terms and, take And exactly will

Operator

line Vertical the from Stallard Rob comes question of Research. with next Your

Robert Stallard

Good much. afternoon. Thanks so

Wesley G. Bush

Hey, Rob.

Kathy J. Warden

afternoon. Good

Robert Stallard

good the the First you time. future, a of all, best all Wes. have hope I for

Wesley G. Bush

you. Thank

Robert Stallard

looking then, was mentioned do strong in export think Kathy, secondly, you And I how growth the year-to-date markets. sustainable wondering that you growth forward? very rate is

Kathy J. Warden

countries will that seeing of kind the capability, also are today in additional Japan growth the rate we products strong spoke seeking that including and other that sustainment I growth pipeline for a HALE, that to as we're well continue that units. that that as of specifically growth we also, see worldwide. there as E-XD about, in opportunities Global the we're for are as delivering well those we as pursuing, anticipate sustainable that continue Rob, then number

those are examples Europe. but Aircraft, some that still as in, programs well across Autonomous, Manned are Space, just notable that strong Asia-Pacific, so, those few the seeing of particularly, go areas, potential Sensors as our on all a And we Cyber, also in aircraft, growth

Operator

question Your Wells from Pearlstein next comes Fargo. with Sam

Samuel J. Pearlstein

Good afternoon.

Wesley G. Bush

Sam. Hi,

Samuel J. Pearlstein

wondering a was bit talk you if little could about I performance.

release, highlight EACs behind that? unfavorable Advanced you – didn't which the us is of that James Webb an last are issues one programs Capabilities on and And guess, is, particular $XXX the issues quarter. up the up can the move can from in update you in you to might the no, program? Can despite the have any there You did performance from last guess, – give million headline quarter, been I I quarter, say, the some

Kenneth L. Bedingfield

Sure, Sam.

rates of would We EAC well. a there downs. not comment referenced to and in can second and to were the in margin start the we some some negative negative sectors of would I those you're booking remind were of ups with chart. EAC the Let do perspective, to mean the not quite Kathy I with they some not quarter, and looking that then middle quarter, going recorded to some not the a the And because diverse nothing therefore, exercised performing that's have as question, that's going that say, adjustments part road. frankly, me are take that adjustments from going And quite exceedingly to optimistic, and, ups diverse headwinds programs. programs that exceedingly have And at had ours. point particularly negative of not as on some program second satisfied; were we been options solid a performance to a and, always respect of would the with approach adjustment for conservative, there's portfolio try all we're I that to. maybe complicated downs, have and but the the that you as of large

to a comment just themselves, I I'll turn over And on so, no And nothing would say to performance that, on programs Kathy. from with concerns. perspective. And negatively the it

Kathy J. Warden

Quite the contrary.

have VITA. We out the good performance contract closing on

exceedingly so, process well. has gone that And

laid executing have in year earlier been James INT through progressing Webb, the team that on NASA, out we with also, is We to the this well. according conjunction quite plan and

those quarter. So, efforts, delivered anticipated through as the third just of on we both we have

Operator

next Your comes the from question of Barclays. Strauss line with David

David Strauss

Thanks. Good afternoon.

Wesley G. Bush

Hi, David.

David Strauss

one to it previously, the going in on higher. about you were think you just be expecting I why here. worse than different working also but of XX% terms capital think pension. this on And the All XXXX, we XXXX year of talk think actually Wanted for go here? like XX%, about And question you've took a the forward timeframe? what's and gets CapEx, about CAS said like we real trending range. Thanks. then, that that about in from think from of how I pension, expect that, you there? the little the moving pieces to you're opportunity, up all kind should conversion number, get going a to looks quick would you It ask I Ken, a CAS FAS looks what free-cash-flow side you. how bit Can should going in

Kenneth L. Bedingfield

I the the we From of can like question. items quarter Appreciate a you we with respect I in in and items Sure. you free-cash-flow tax conversion future guess have to tax percentage. that some in had savings perspective, had cost going result these lumpiness in are say result your some cash certainly would claim some when this the that some opportunities not necessarily cash year, they for conversion to in cash, get

free this had particular, terms we as we well of, kind if terms, years that cash mentioned in see generates we year should as margin in either to be look then, of our sales flow say, we cash one-time or that moderate, look as the should and some strong, as over to should also a a as year tax that look benefits. both be heavier – another as forward. as largely, couple flow. And In XXXX dollar forward flow thing generate increasing conversion in is important forward, forward. the this as the both start we've business capital the we business operating you as of exclude we of focus well and on be And that look expenditures, would we've percentage think heavy cash forward. this to And of, look items terms I some free of cash I should ability past

free should conversion flow that from cash a So help perspective.

increased got, number assumptions when CAS to I CAS and cash on perspective. CAS, call pension would it, a the see, we to is And should certainly as look think say continue returns a cash XXXX that through would result we've say CAS XX. I not break-even sensitive will free going what year, than line. us on mentioned But you're September less that the forward, your is necessarily be for or that of Additionally, That some flow I to that's as headwind we we question roughly in seeing is. a this something FAS from

We continue should to of where see a be funding. CAS excess profile required our our in

fair should time of bit a managing operating overall, excellence business. strong, be continue of to So aspects would cash look say amount trail might as should cash even look a I our little conversion generating of we be all this we forward. the although just always when means drive to And that the

Operator

with Cowen comes Rumohr line question von Cai next Company. of from and Your the

Cai von Rumohr

Yes. Thank you much. very

Lockheed So that and they for done cited fact budget the their XXXX got for next guide this and early. the Martin year, year FY sales increased

FY the XXXX the early. also some for an threw Congress on programs and F-XX which the have are We a participant. more budget you in money F-XX pot

revenue ago? growth does your year, to look better today at did it months As next than four you three look

Kathy J. Warden

to programs that programs the through noted, seen has two the have with had particularly of throughout looking forward budget, the that So, the January of But and noted this we Cai, of through will well-supported our that year. into XXXX. we end to of into the you feel TS question. experienced get fourth headwinds the at And remind I'll some that reduce the in programs that as you three kinds take that quarter will XXXX. do I'll the end that been we call XXXX Ken XXXX, we'll Mission in approaching have start give growth this And have full also if guidance as in will XXXX call are I the XXXX, we we that in and mentioned we in see we we year Systems the continue and headwinds

place also state going seen in XXXX have we more very favorable So that in But the terms was XXXX. head into historically solid. XXXX will of we I be compares, a growth we into will as to that

like grow strong So of of there. growth that there the I we continue if add you'd in to well. is off prior know to as years don't And, Ken, anything sectors

Kenneth L. Bedingfield

on I ups downs, some again, the right system think portfolio, we've going way and and the working hit that there's this their been some No, And be have have we diverse programs have of point always out year. there, you Kathy. that seen to some – we it a it's seen and

a compare should themselves kind have XXXX. Some earlier I'm early part impact out year of of but in in year-over-year those And of, little part next you. the largely of, bit the of work with of will from the

ability the this how positive we think feel we're feel business grow I really very positioned. and we to have like about

that, with Jamie, just one Now last think I question. take we'll maybe

Operator

final question from Your Harned comes Bernstein. with line the of Doug

Douglas Stuart Harned

Good you. afternoon. Thank

Wesley G. Bush

Doug. Hey,

Kathy J. Warden

Hi, Doug.

Douglas Stuart Harned

And, will going Wes, I'm miss you're things good but do, to sure find plenty you of we to here.

Wesley G. Bush

you, Doug. Thank you. Thank

Douglas Stuart Harned

or time, Orbital I groups segment, and have three look, you've you've synergies these the got Mission And around significantly got Aerospace, organization where as that. think about the up over would to get organizations question a with acquisition. really around with Systems to Innovation to change there, when optimize you one that set you and

of and things them? And out are you to the timeframe So, of evolving at that? get to kind my need question you pull about in most is together value terms organizations, how are these the you for thinking of looking what

Kathy J. Warden

Doug. Thanks,

course make my is of XXXX look portfolio. clearly, evaluations, focus to the those primary the So, at over

ensure take thinking around our way value execute Systems a And what my rate opportunity lot Northrop the XXXX likewise, is best and want as Innovation full operates. have as operationalize we achieve in way the those that to work are as we We the also team is But make opportunities, our synergy of opportunities. how need will we There developing organize we through value implementing transparency in we are, about to will that said, get the of those as XXXX, revenue we bringing we from terms inform and well true. the that synergy opposite cost sector I synergies by models for is as I standalone to to established. that to Grumman the run of in sure a both on

help and realizing have we to the better I achieve mentality, a us so that, of really on have we on next the year about they then of had changes so, that through best thinking we're solid performance, those and my want inform integration on synergies synergies, any best-of-both executing to the operational And plan focus part cost both, look that executing revenue might well-thought ensuring to make.

Stephen C. Movius

like would At to time, Wes in comments. you. the over to point turn some Thank for this call final I

Wesley G. Bush

have to customer are every people the asked brilliant this opportunity you portfolio to especially do that to All back deeply absolutely many many many work the to it had it, our of our so serving a way to critical the really in I and all me to want a years. roles community with and opportunity the thanks, to so people, been you privilege of who publicly my with and and XXXX. for I'm our team I with the experience a years global working community. how the I with our globe, pose analysts the end right. committed about. CFO do with value community to It's And better. became in express up company Steve the to ever take financial around security. time I to I the thank those I of you serve of and you genuinely call as humbling we my you can the roles call company to earnings Northrop as of for team customers in you The since I I've you the save and in frame with we appreciation and few the Steve. do company. perform, our enjoyed in so want say wrap I make rises it's that care people chance work you little customers objectives research the a do is work amazing real in companies sincerely that incredible Grumman. that serve, sincerely challenge, a will Well, at all say such last our the advancing so in I've we grateful managers. and are to what tell over engage questions words help had to opportunity you where

looking forward. So, do more is to actually excited backwards while looking about I'm periodically, important

for company fortunate Northrop CEO Our exceptional and leader the is that as an I'm the ahead confident to us. new years are of our years have Grumman best

So, for thanks and on thanks continuing for joining us in company. the call, our your interest

Operator

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

Northrop Grumman (NOC) 24 Oct 182018 Q3 Earnings call transcript