NOC - Earnings call transcript Q2 2019 | Northrop Grumman Corporation

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Operator

Good day, ladies and gentlemen and welcome to Northrop Grumman’s Second Quarter 2019 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. [Operator Instructions]

to call like host, to now Mr. would turn over the your I and Relations. President, Movius, Vice Steve Treasurer Investor Mr. Movius, please proceed.

Steve Movius

Thanks, Natalia, call. conference second quarter and welcome to Northrop Grumman’s XXXX

Before of federal on laws. matters statements, understand to securities we constitute pursuant provisions call forward-looking discussed Harbor Safe start, please today’s that

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

On the At President; this Kathy Kathy. the our CFO. and like I’d CEO to to turn call and today are time, call our Ken Bedingfield, over Warden,

Kathy Warden

want the enable call. remainder the quality Thank board, you, outlook cash. and and year, increasing We team. across we quarter and Northrop for deliver business excellent including are of advancement. guidance. Based performance Steve. sales, the human the results second security on Hello, particularly which an everyone, of earnings today’s services, to our our backlog to to had growth, products Grumman capture, innovative, strong and our ability and thank global I’m welcome proud I XXXX

manned XXth flights with of landing, nation’s nation’s we each to-date. Starting our supporting anniversary are strong celebrate as space Space, Apollo we our the of proud our of XX lunar legacy in

Artemis through the forward, which continue moon Looking flight manned expected NASA’s XXXX. program, to to we are humans by poised is space return to supporting

Costs synergies the our are across on with the Company our benefiting rates passed and one-year making. as delighted sector, acquisition. Innovation the from fourth and has Systems addition, we’re are margin I’m since the track operational synergies quarter, realized its this In and progress anniversary

We than are expected. realizing sooner revenue we synergies also

booked in first This quarter strong portfolio our multiple during our restricted to demonstrates the customers. success quarter. national our $X.X work synergies solutions the to continues billion Company a level, restricted across entire million restricted as to share leverage and innovative growing create of of is grow revenue. the our alignment work. for and our A awards the revenue capturing strategy total domains second our $XXX ability in to of We in percent indicator defense good space At

booked billion in We $XX.X net of billion second the and awards quarter $XX.X year-to-date.

net total backlog up long-term XX% awards building sales sustainable large our $XX the awards the for are Now, to across billion. approximately X.X are are we blocks and times multi-year capturing The Company growth. profitable is

balance and the of net with U.S. Navy’s billion $X.X backlog Systems. at at quarter, booked has Aerospace total for the since In next for deliverables, AS Hawkeyes increased booked was year-end. billion and $X.X $XX has Year-to-date, we associated Systems Approximately XX% approximately Advanced E-XD. Mission second awards booked billion XX the the awarded

of this to multi-year under contract addition anticipate In Aircraft, we E-XDs option the the quarter, year. currently for additional we U.S. E-XDs In nine delivered for for end Japan. includes by being the additional first Navy four an the And the nine under for Japan. the contract second

net and across On lots production awards agreement sectors. through the incremental the in booked billion, Aerospace center F-XX XX At $X over previous program, XX we of billion for to quarter of our we fuselage billion $X.X $X an finalized of Systems, units, award approximately funding. four booked

award production. $XXX And CNI and approximately for and of F-XX the scope their billion together, million TS DAS $X added were on additional program. IS Systems Mission awarded radar for

totaled approximately $X awards Innovation to billion. Systems, year-to-date Moving net

Hypersonic working awarded second program. Concept program Prompt Range is million Air-Breathing Lockheed Conventional our government to quarter, supporting addition or weapon Intermediate development we Strike Martin Raytheon us supporting efforts, systems and prime Raytheon In the on Martin HAWC of Lockheed In hypersonic also for role are IS Weapon $XXX U.S. program. the the and with

after Mission This our and $XXX a two ground Satellite production line provide million end production enhancing for contract of utilization infrastructure awarded customer efficiency critical Shortly affordability its activity Broadband of increases hot Arctic integrate IS manufacture base. Norway to satellites. and our the Space and the quarter, to design, across

In addition, developing space in highlights Aerospace which satellite, of for is on hosted the Space our Systems and Norway example This capability. revenue the is it end-to-end synergy will IS bus. industry-leading payloads the be another domain,

on a or performance our Systems. first quarter. threats G/ATOR costs. initial GaN of capability moving and a contract after a signed achieving fielded. begin is It full-rate operationally We system, the into Mission be to to systems legacy billion G/ATOR radar our strong ground-based operating gallium five see improving mission in customer degree real-time G/ATOR international against XXX situational Now nitride array we to broad provides the $X program production having single solution, for sales. opportunity combines and reducing awareness first

awarded build capabilities. capability. OTA win competitive signifies This entered critical agile Mission the initial integrated their software our XXX customers’ Systems An under Hawk and LRIP which with this Army to to is in accelerate ordered delivery Army plans suite of for new ability LRIP war kits were of supplying us also April. upgrade the Hawks with commitment in suite. IBCS the lastly, Black And avionic and the for confidence development XX this program, avionics Black an the upgraded fighting next our incremental

successful approximately $X The net G/ATOR, Black well year-end. totaled Mission as architecture IBCS thread multi-mission, as our our billion is through Hawk common year-to-date and Systems, open defense up next-generation backlog efforts is from approach to on modular running awards XX% electronics.

of to advanced and as the technology as customer future well affordability, substantial the greater We performance ability address investments are rapidly to threats. the made reaping development benefit give we’ve solutions that support of

million Attack Services. enterprise Marine the on for Air an of sustainment million aircraft operations task the contract Hunter and booked to Pod Army million And Global Staff international a for Corps. Turning $XXX to to cyber a secured a $XX of provide unmanned Global Electronic program, $XX In Program, Logistics exercised the award system. Chiefs Modernization, we Upgrade our Force million PUP, option. Technology Joint and million training $XXX a for EA Services defense support order $XX the

has been outstanding Our expect we continue. to strong bookings business and capture year-to-date

across We robust expansion Space opportunity space, in have set warfare. radar with product in the and awards restricted Corporation GBSD airborne Launch, electronic line Security National large a potential and

In in meeting to May, launches scale in milestone OmegA the mandate on the Force on This first National Security a XXXX static new of test full program, and of and first congressional the requirements. our Launch Space begin Systems OmegA rocket. XXXX, Security payloads of Air launch conducted keeps track performance U.S. successfully National fire operational stage of Innovation

RFP We our has Grumman released evolving last critical threats capable, week. systems every nuclear highly was a forward and Northrop offering a engineering the nation’s deterrence trusted mission. and system addresses solution the for know, you ICBM for last as technically final measured to years. look new GBSD over fulfills that XX been And partner affordable

of Turning were At the up sales P&L. to the midpoint year, XX%.

As we accelerating is line indicated Technology Services. at Systems last the stabilizing growth and Mission sales is quarter, top

Looking of billion approximately ahead, expect sales to continue we $XX for XXXX.

solid cost generated rate, income segment In top operating results, quarter driven in basis XX% synergies. segment in increase XX increase performance by second margin a to addition and and strong our our point sectors line

XX% guidance $XX.XX we Year-to-date, our full-year to now $XX.XX. from basis between on and quarter points, earnings XX.X% range our per segment raising up expect EPS we OM the the are low-to-mid approximately to for share year is rose and XX and rate XX%.

Cash quarter. generation was also a highlight this

businesses capital $XXX totaled free flow $X.X of and million, $X.X billion Our billion. generated after cash expenditures approximately

this business. And $X.X grow For beyond to flow the cash the year, we strong to generating we continue of expect continue $X billion cash year, we billion. XXXX expect to free as

to cash We execute deployment strategy. continue a balanced

In million August. shares addition our in XX%, debt will in expenditures, quarterly to continued XXXX we $XXX our toward and we target, dividend retire we capital increased by repurchasing

turning U.S. budget. the Now to

Congress cuts in investment will to modernize are Administration believe agreement we We resources and nation’s the reached understand on technologies the and rapidly customers prevent key global provide stay the fiscal critical disruption. to capabilities. threats and We enabled face harmful funding our to to leaders have This and XXXX pleased act ahead Predictable an reports our increase budget threats. by XXXX. should years the advancing of needed necessary

Northrop Grumman long-term capabilities continues value to creation. enable in advanced to invest

approach success creating and value an structure, with Our that shareholders. that portfolio cost is demonstrate investments will customers believe our new innovation our franchise affordability. continue evidenced the for differentiators We programs competitive and and success, and leading our of combines that capture by technologies our business our

Now, I’ll of turn the discussion more financial call Ken? over to Ken guidance. detailed for a and results our

Ken Bedingfield

a second to quarter guidance. note for and our thank XXXX also bridge EPS the team quarter. presentation I’d and updated XXXX, includes from to that everyone. want strong an second our good Thanks, quarter second bridge EPS Kathy afternoon, I XXXX to our

a of with $X.XX, operational strong lower corporate on bridge full-year Slide can expected increase you As and from is reflecting by X, the the majority EPS see driven performance expense. expectations the primarily remaining unallocated the year-to-date

slightly the rate period. I by the comparable operating supplier will income X% impacted sales was comparable sales costs. were timing turn second Let’s also F-XX civil systems. in to in AS of space to year’s volume in quarter Autonomous quarter, unfavorably activity increased quarter. and rose Operating Manned prior Aircraft sectors. the space and note, to second were reflecting rose the Aerospace Systems margin last higher

the continue margin for in change mid-to-high to $XX rate. expect the XX% a range billion No with operating We sales guidance. year AS to high prior

program. and X% pro Defense rate. IS on higher quarter a due rate largest favorable At margin rose volume at structures $XXX risk volume [Audio growth increased XX.X%. vehicles. forma including on IS Systems rate reflects missiles, tactical grew Systems based Systems the higher adjustments second above Systems. Defense businesses volume Flight AARGM year-to-date operating Innovation sector the operating the had military Systems, with (XX:XX) comparisons, launch million Gap] was the margin and of and sales aerospace in had Flight to the of income sales strong several

growth we the Increased advanced airborne on programs growth. higher At such Cyber few. we accelerated ISR, space drove IBCS, ramp processing to us, a programs. discussed and on completion drove on at rate volume as sensors as growth G/ATOR, volume restricted programs, programs, F-XX, restricted With volume number and radar Systems just had up on headwinds CIRCM countermeasures, capabilities. previously has behind increased a and name program infrared And Mission of and

We range a with approximately expect low-to-mid rate grow $XX guidance. to continue this prior to year the revenue billion change No XX%. to margin in of MS

were the operating TS comparable report I’m pleased increased rate margin to Services, points sales to prior Technology operating XXX profit basis period. year XX% increased to and At XX.X%.

headwinds sales program TS discussed completion moderate previously half, in we and second stabilize. ahead, the will to continue expect Looking

for prior XX% expect expect range XX%. half again, the to raising performance, margin versus are to And approximately low on guidance. now we operating continue low range, billion guidance a We based change of no prior TS rates. $X sales TS strong in first We guidance

approximately of increases, now sales As expect of billion, margin on increasing operating roll our rate lower XXXX and corporate segment the guidance $XX we Below that to OM, up, million guidance sector we unallocated continue performance million. versus we prior approximately guidance a the full-year XX.X%. guidance rate Higher expense along year-to-date and of $XXX operating all margin range. are for segment total based expect strong to with unallocated XX% segment total we expense, moves to high OM, corporate for $XXX

year, of effective Through this XX.X% versus last the rate our the time is at XX.X% year. first tax half

half Our research credits year-to-date the currently tax second of the higher reflects anticipate year. of rate than level a effective for we

XXXX to guidance for effective no change our tax rate. So

be to result $XX.XX. earnings average outstanding. per guidance to performance, are we on This our increasing mark-to-market adjusted million to $XX.XX range As a improved share approximately continues XXX weighted shares a of based of

It very a strong was quarter. to Turning cash.

from cash trade trade conversion of first recovery to a capital includes working quarter SAP of businesses. our a working capital instance billings ERP and quarter Improved resulted earnings. our of operations delayed that the improved Second reflects covering majority from single higher

and guidance $X to billion. to no For $X.X of flow, after cash billion the operations cash $X.X from capital expenditures free of to year, $X.X change of prior $X.X billion about billion billion

retire approximately discussed, debt continue share third million to plan market the about conditions. previously of intend we of We as to quarter. million this to $XXX in $XXX repurchases And year, subject

flows cash plans. pension well-funded earnings, growing in and a Beyond our some of this growing working capital, year, expect result as we improvements

As deployment. have a to result, value-creating we increasing capacity expect for capital

results it for summary, strong a of expect quarter, remainder a was strong good the year. half, In first the and we

think for I ready Steve? we’re Q&A.

Steve Movius

Thanks, Natalia, Q&A? you themselves would each limit open single line please Ken. question. for a participant to I would the to ask

Operator

is question Myles Walton of first the Your Instructions] line UBS. [Operator with from

Myles Walton

morning. good Thanks,

Kathy Warden

Good morning.

Ken Bedingfield

Hey Myles.

Myles Walton

months in as you XX% strong backlog, the opposed on I here and rate, XX Can of XX% indicative about next obviously, the the kind But about is half growth talk second was wondering for about quarters bookings the backlog that particularly years. quarter. extremely shows over the that growth burn front, acceleration I reduced filed, in accurate? your also to a think the of the first it burn slower in that’s not over couple you if next last the in how several a that months XX of given XX-Q of

Ken Bedingfield

I let in revenue. year. with been the the programs the just a happy really like to awards second do backlog these awards lots multiple Myles. F-XX I booking half been five-year XX, And the that, that a multi-year awards of point of year. strong continued are would half of start get E-XD, contract, many Yes, see B-XX, out to going years as in of the which XX of the say just would in me support we’ve we to number to able that is to expect see we that we’ve the Kathy the are mentioned, first

space And first year, well come. period those us and part being half ones year, growth number as in and to result for years first awards restricted give the F-XX strong to so activity, multi-year of a given good some into of we in a the the E-XD, in booked this particular, biggest visibility then sales really the as sales expect for of awards

And so any of to next turning our large, awards, not sales have that we guidance on have result those multi-year our see will think the the about of impact to into XXXX or XX% we pause given you any does months of it XXXX any we average given – with and respect But XX%. we those with we us in backlog XX given where sales about indication do can those versus previous in about give be kind as sales.

and remind think range opportunity I’ll of awards in we mid-single a end given And see we front that just in for range us, the on we we’ve XXXX, activity opportunities you, talked but higher to digit be of our XXXX. the got about

level think it’s been business. this supports, story we long we’ve for sales new while really visibility have growth and we of a the this about good So – some again, into range talking

Myles Walton

Thank great Ken. you, That’s color.

Operator

the of of Your with Ron question next from is Epstein America. Bank line

Ron Epstein

guys. are feel you that on and afternoon, through morning, Good of question, good understanding for about Quick Can came it any thoughts Hey, what RFP actually. – you share my the next the phase out guys thinking GBSD. it? it’s how you about

Kathy Warden

the which as to This to seeing Ron. did look out Thanks, see Air and ago, to able noted the Company Kathy. system our XX Yes. we the a come I week been positioned are as and requirements RFP, remarks, supporting my is are Monday, And at we a really we support view be years. own over expected what this we as for U.S. in we ICBM for have opportunity Force strong

response is in and have will U.S. year an to that. for be late still we to part a submitting of the a So the forward knowledge and we XXX-day look needed proposal doing expect the the There this strong so award the period, offer mid-to-late expertise XXXX. Air and put together we Force,

Ron Epstein

very much. you Thank Great.

Operator

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

Peter Arment

see faster? of some or on to layer Hi, there. rate just talk you it it. way Kathy, that expect that guys. the to really described, synergies book. the the is happens Ken just lot burn flows start been growth. mentioned to afternoon, But restricted, starting color Kathy, so Thank Do that revenue backlog a we Maybe that Good to about about wanted you’re through to in you. you something has Obviously, talk I how can’t kind Ken. the

Kathy Warden

restricted last seeing sooner mentioned synergy to XXXX, had starting we and see slow this in a really as largely, kick of They well talked revenue efforts you not to synergies XXXX. we earnest in as call, on revenue about in that are are one, developmental revenue those as ramp and are quarter’s Yes. that We expected. therefore, fairly than and that

the talked in XXXX more previously. it as XXXX materially frame time see You’ll happening about and we’ve

restricted demonstrates the integrated that providing Systems payloads that and about, Space it’s then and ground, noted, we unclassified and and I it with the bus today in the that in talk how satellite. the building and are award is that’s AS Innovation you together, Systems working space case for because shared Aerospace can IS As Norway something the

that to kinds space to other going opportunities our that than pulling end-to-end domain. we’re But across so more And continue seeing of in are of those we’re multiple capabilities see in from mission any sectors together areas. various certainly,

Peter Arment

you. color. the Thank Appreciate

Operator

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

Doug Harnett

same to the that of gone Thank XX%. you. cost-type you performance reported to quarter. XX% had as the you from margin Innovation in very up Systems, good we and work At time, consider what would had the percentage be

business you driving at Innovation So you that look that about and Systems? continue what’s about – synergies, the Systems there? do the can performance then Mission as first, other talk forward link margin to And to ensure of when revenue to think you Aerospace good performance improve can you how and you to you look it take parts capture to good that been – – margin and how

Kathy Warden

is also in more let me on the we which and provide won’t Company. But that in Doug, color impact realizing a synergies on performance cost the performance, margins. margin IS I’m part be the the positive first Systems to ask strong to broadly, due half are some So recurring, we’re some to start Ken then year, have did their the to that part activities good at seeing across the in of going Innovation and

and that. other utilize more a able footprint that sectors to business across have infrastructure are the the IS the we facilities, we’re from the benefiting and that whole, And as the

referred the to some but operational impact well. taking as margins that a having the as to positive So also just synergy realize cost it’s out of we’re that’s synergy, not that I costs on starting

our of first were terms in expect that to to margins. couple for some the performance But – their we there continue. In light operating events as And of half I’ll you outlook noted, strong shed ask share IS, that. Ken, that a on I increased

Ken Bedingfield

And some occur that some expected would planned largely, negotiations – QX some talked had positive second add up. we half first look work some but margin additional had of half of the we in which we in adjustments just than we you contribution Yes, on manage so I to at margin earlier XXXX, full year, Doug, remember, realize the year a drove may fill we commercial successful to the of to the risk that real it and the about to that had to to as upside need to the the obviously, driving but continue QX in drive will and contracts our we’ve first occurred quarter, margin then year. rate, hard of we And for in rate. far, try opportunities still

terms three In XX%, activity. XX% weeks the question just of previous-year plus of versus about I remind the the about the only that period specifically included would you

probably a revenue adjustments material But perform now. we cost-type on EAC as well. as certainly contracts So of the terms in revenue versus can not then drive there change and favorably

Doug Harnett

good. you. Very great. Thank Okay,

Ken Bedingfield

Doug. Thanks,

Operator

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

Seth Seifman

leg-up quarter, step done in see Systems, and about sales afternoon. you’ve the I next first revenue? and stay Thanks that implies to up When end very that Aerospace the a about in the do billion going In the much, good the of in we of in at first $X.X to Aerospace we through sort guidance the saw and half guess, level we’re what year.

talked three Manned, on bit I Kathy, Space. about call, detail And the a little fourth you and then, think more in pieces, the Unmanned quarter

these for for now few maybe that under years talk so of you got next of qualitatively about if your could words those? belt outlook, each the of more And a couple you’ve the

Kathy Warden

going ask the of our start to talk outlook of I’m you and view segments. the the I’ll to then overall Ken the remainder with giving for three year, to

Ken Bedingfield

Yes.

that half would my comments, in I AS. I for some have QX that. bit QX referenced a had from of couple costs top for guess, rate we of of just year. growth, that little the a I AS some XX% the would of a supplier have tough the that did make of relatively second moves before We did Seth, say into QX the XX% XXXX remarks, compare I timing So grown as which on

comfortable growing AS and solidly to been So a it continue look that has as continues business we be we grow to forward.

in our more full-year going let about the we let AS, good years. few within kind AS. with comment I’ll divisions I’ll comment – Kathy where for specifically to is of the guidance comfortable where are feel going business on We’re that and and And next be

Kathy Warden

Yes.

across quarter So each we’ve three of Manned, bit. that segments been a and the seeing and Unmanned growth AS varies Space,

slight This quarter, of deliveries up were largely declines that just some Space offsetting Manned Unmanned, business. and and in timing

it’s over forward look likely segment area synergies entire the growing budget the portfolio. In and that the long-term, and that identifying where we we key we executing of see Aerospace. in revenue as As a across increases fastest Space area, see we’re

do Company see segments being time. So over in our growing I that of fastest one the

see Manned in continues continue by programs like growth that that to there F-XX that course, well. some benefit then from franchise U.S. be And it additional I a we of work the with the with of as Navy, with growth E-XD, decent will Japan. we fueled also but Manned number key international noted the would say to segment

take will you up early Australia know too, as to be Germany a some time have as there operating capability year. and has international going with Triton we over ramping on in units nice outlook interest we production also Unmanned to later this as We’ll demand But strong growth program well. and that

opportunity across the elements all see portfolio. So for I Aerospace three really nice

Seth Seifman

Great. Thank much. you very

Operator

next of with Research. Your from is line question Robert Stallard Vertical the

Robert Stallard

much. so Thanks Good afternoon.

Kathy Warden

afternoon. Good

Robert Stallard

more pre-funding there? capital have the some your might might up wondering I be in was what for priorities have pension deployment. area, whether that should agenda the you year flexibility next that mentioned you Ken, moved value-added and

Ken Bedingfield

note I’m as I consistent probably guidance XXXX, like give to for would might Sure. say I that probably capital reference but until not we out been repurchaser things I’ll our we like to profile what In investment number allocation our that. and you many we that. look past going actually would looks We’ve specifics what lay our over that we’ve We expect in invest CapEx the of deployment like. of years, comment for R&D to to certainly Certainly, would XXXX. look talked technology continue. continue dating at years. XXXX I back on for particular, opportunities, the the that to through about value-creating shares

seen funding back you so terms of our pension, perspective. on have say years think I would the us solid rise haven’t for In on radar point. from couple if funding of a my at discussion, pension, a previous really whole And I high screen think this high should pre-funding, returns on radar not pension help that year-to-date of next I too that to that required we’ve screen. we had pretty my didn’t necessarily required and lot

EBITDA look My in to forward previous cash our BBB+ then we debt after at we August rating commentary flows, point. opportunity pay the year, growing get the off pay-off back we on at our that that of we expect preferred that credit and have this and do to

growing is. optionality managing we I of what most see that capital to lots the sheet, of of say, balance So of set about think again flows and perspective opportunity deployment kind as lots from cash just on would value-creating the a

Robert Stallard

Thank That’s great. you.

Operator

Spingarn Robert of line the from is question Credit Suisse. next with Your

Robert Spingarn

Good afternoon.

Ken Bedingfield

Rob. Hey,

Robert Spingarn

the the end awards, there. that expectations. XXXX multi-year just set strength be of and growing So at could the of – revenues cash hey talked flows, on high earlier of that Ken, you about

for free flow is the per cash growth clear becoming double-digit it’s possible. So share

do growth I cash flow ahead far know So you share? per the I don’t feel wanted XXXX about consensus how for to to implied in $XX free get the want of XX% you but of yourself, – to XX% too

Ken Bedingfield

Great. Thanks question. the for

not as for previously, of But drivers be the cash of through a to business clear give let clear think look a we be just this mentioned me that generator XXXX a walk And that few will and point. is I I’ll that we’ve beyond. XXXX I strong forward. and ready we’re for to continue this guidance at As been of

given alignment also you and First, growth and needs to strong multiple by – continue evidenced to to that’s customers’ changing our and as see mentioned, portfolio threats, backlog. years, the our expect we for what solid our as

to invested moderate curve We to those We into frank. are continue expect years. some funded the of and industry, our in of to we best be convert Rob’s in plans previously, margins question Pension continue ahead future well the generate to cash. expect CapEx funded and margins to strong plans will

we we look bit more opportunity in a think and the XXXX, forward, with capital as to And working continue that years. starting out moderate should in

with argue your thoughts, and So cash issues framework, right hitting right I the you’re of kind I or on think flow the or growth. wouldn’t with that on thesis assumptions solid free

Robert Spingarn

you. Thank Okay.

Operator

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

Sheila Kahyaoglu

Thank Ken. you. Good afternoon, Kathy and

Kathy Warden

Sheila. Hi,

Sheila Kahyaoglu

do of you going about today? market maybe big about missiles the And focus technology Just on think exposure? Maybe you terms the been your a the opportunities what can share how it’s lately. market, in talk forward Orbital ATK, it’s and and incrementally thought

Kathy Warden

Thanks.

partnering look our pointed to on hypersonic I today’s we been And the us as noted to as select space. of provider the clearly is that be some for the missile continue well. Raytheon we I traditional there then and weapons key example, missile. call, prior opportunity as for in with instances space a where in are we’ve more is good the cruise are missile and we discussions, those at suppliers And continue to prime So to which space, there Lockheed, some in doing AARGM-ER

have the specialization propulsion other we that and but provide delivery prime missile for systems. and also capability, full can integration We clearly

we for select growing and can provide the in we for of propulsion that other the but our ourselves we structures, guidance offering. think offer not other so the own through it And IS, really business, elements systems, our only focus we that on well. prime ability when do the to technology about continuing as evolve to the composite see provide We to see the instances, or as growing area primes in the others system,

think so that in of the for us opportunity plenty is we And of there arena. market that three

Sheila Kahyaoglu

Thanks.

Operator

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

David Strauss

win XXXX? could of as and your Thanks. competitive rate think going within on also in you address Thanks, to within whole, good address sense whether afternoon. Kathy, TS, could a return can that’s TS you there? growth your still LTAM’s competition And you a that and positioning

Kathy Warden

Sure.

me Let start with Technology Services.

win that The for of in on the defend plan business know, have in you that stopped business been we’re the trajectory we’ve as Our year, that a particularly business. is beginning we that at first the actions stabilized the also executing the rate able team very been to laid because rate we line have. and there quite to And has that we’ve of year top out solid, recompete you’ll for half that – the see taken the well. increasing the margin

As flattish headwinds part and still sustainment Global year Services the indicates, the and return for is expect having largely we still by I going driven be the that, global the some that the to sector business. of our growth while the exited programs sector remainder It’s of modernization from XXXX. the growing in that will portfolio, guidance of we expect that to are have TS part

well. for platforms us And support we to that I cycle life also that want systems just build note and affordable as is providing TS and modernization

for we affordable have an execution component options us offer so that of the for services part many And of programs bid. program they’re and integral the that they of the

And now, GaN that is confident to technology. to an question have that part active turning mature competition based bid. there on of offer your So in and an LTAMs, competitive with feel are is we submit we we the second around

is be Army able wait in thinks. we’ll offer. certainly and forward a are see we participate to the that what we to competition bring But what to So think good pleased

Steve Movius

question. next Natalia, Hey,

Operator

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

Jon Raviv

very know Kathy, important for Good thesis are a and Northrop. you. investments afternoon, differentiator part I of Thank everyone. the

has your part would their where is say, thesis One too. also near investment of in engagement M&A a peers of

thoughts any on importance and So, competitive in light scale some those the and size market? and in going moves size of the of forward perspectives M&A defense or in being of scale

Kathy Warden

is a and how in the Innovation areas. to market, strategy. we let certainly well portfolio, see the aligned we but of with think about of portfolio Systems, have our I We’re assessing share customers’ the implications addition investment our consolidation that own strong now priority especially the our highest me

creation. Systems we’re now have a We’ve investment As investments. in we’ve of and I that had investing open those you programs result we Mission as example Systems the one in Mission in a technology. Electronics stream to of been some today, investing gave winning of been value support noted, multi-year

of aerospace cost the some a have structure done need. been we the last and that we’ve excellence recent seen the of fighting our have of We, expansion witnessed several in cost other by you of our in And over investing centers and of wins across years. equipment we at as have advantages course, facilities Palmdale our the and those. competitive Many

to when business So look we at I are capture. and have that today, basis where strong support a portfolio we

strong investment future. allow current to at also have to a sheet our us And going We optionality and demonstrated continue scale. to this balance into and improving the ability the that’s we’ve win compete

And size looking So the I to of good often the strategy, positioned. a I even investment choices than we itself. well with more we’re are where important that about the that at feel focused strategy, investments where quality investment see aligned of pure is

Jon Raviv

you. Thank

Operator

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

George Shapiro

backlog Yes, or you jump good if afternoon. of I unfunded are wondering Kathy in some backlog big the that go Ken, this of that was since part a in the programs through for was Aerospace, could quarter?

Ken Bedingfield

on so you there Is with on front today. to in data that that don’t be wanted one, have call I’d me, with have you honest the of follow-up to through? go George, specifics another after Steve question, I get you the to to to the

George Shapiro

versus – have in was much down it what as by been Yes. EACs why negative last quarter, XX down The was? talk you it the through in XX were as year. might Can Aerospace or were

Ken Bedingfield

were go I’d I that negatives happy think significant consequence really George. Yes, don’t year’s there to this through be second quarter. any in of

quarter, restricted a You may last second about did positive $XX we million on of – adjustments an pick EAC up remember of that programs. year’s a have couple

And last really, that think a positives if second is EAC baseline than year’s rates it was So at about this the was if you second similar it tell would quarter. we’re year’s that more you quarter. for year’s rate, stronger second you underlying in booking margin quarter that with look it, at last

and to much we fluctuations important into we continue are. always the about put adjustments, ups I’m EAC is, too we to So timing downs. good always careful and And perform. feel because credence the there’s thing think most where and I

strong negative seen We have of deliver adjustments the in and consistent, sectors. to each not an uptick at continue performance

George Shapiro

thanks. Okay,

Operator

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

Rajeev Lalwani

Kathy. Hi, Hi, Ken.

Ken Bedingfield

Hey, Rajeev.

Kathy Warden

Hi.

Rajeev Lalwani

as How Just it’s your it margin of down biggest an they create rolling getting one follow-up, of a XX are you that price next could and/or is on programs. ahead? looking the the highlight F-XX at noise, as months are over that to if revenue XX successfully down contracts seems rates maybe given question, little will, months, faltering months, can Lockheed’s doing that moving like And been you six we side? start about pretty growth just any the that and so, you a vocal bit

Ken Bedingfield

a do start we’ve from can now perspective, across one, performing We and say TS to or number – an been of are Kathy and activity any on than logistics and actually four four that have But schedule. more Rajeev. product just see sectors, sustainment. contracts IS the more F-XX we ahead would on than with some Sure, then add of that well, contracts of starting I time have I’ll color. quality we delivering

the that price So been it’s that established a a our is seeing. our to cost reduction to support clearly working Lockheed program customer as hard our that is part for of from as unit we’ve and significant well cost a really And to Martin, U.S. has perspective. been target deliver government per the customer us

And program we’re where solid point. feel on performance that we So at and operational where is really are we’ve that this pleased and with... we then about seen good program with really

Kathy Warden

second to half year, was your the that up any Rajeev, recompetes is think I of related the question coming second in right?

Rajeev Lalwani

Yep, or got you just simply Yes, that right rolling contracts off. idea. are the

Kathy Warden

Right.

is and Ammunition expected economic have this and have that Lake for and of in XX% currently revenue City Systems it from be state contract headwinds Plant about our contract Virginia of Innovation third outsourcing year. the Innovation have to sector, would that the be is TS a the remaining we the then in we Systems value. quarter, awarded still does That through September in not So in

a impact, the are are we next that but couple contract positioning to would and in profit not compete be of hear months. there So expecting for to

Ken Bedingfield

the add Ammunition just about, bit contract a would a that of that talked most I contracts. has Kathy longer phasing than

XXXX, So we’ll part to of it and mid-to-late see probably we’ve would confidence a start together business. continue our be transition got to that kind a that production lot – in competitive bid put of although we’ve a start of

about of I And had half in impact it on second only we VITA, as more at the that and headwind would just first significant it’s TS. of half see say look really year $XX million a the the for we

that a of set move not us. contracts So of against significant sort could

Rajeev Lalwani

you. Thank

Operator

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

Hunter Keay

science Thanks. the they you your RFP, the to when phrase of tell work the you. about on think follow-up for being technology looking mature" would a of did And proven Kathy, suggest sort Is talking basically, us in including that Good review the sustainment then nitpicky, the question you that opportunity as that you’re of less the opposed in include also, I’ve the afternoon. the there got anything project, got a "technically for the about that prepared me now more program, offering GBSD. this why is And but as of if there some Thank Can a help customer nature frame work? long-term too remarks? chance is to will? I’m award? you’ve development is please you ambitious

Kathy Warden

part So years capability production the and you, development production – out produce RFP and the scope sustainment. actually to phase with over the moves of number to a the is this phase then and really the development opportunity frame it would move into the to offering. for modernized it’s system the contract about for then sustainment. and a the But ICBM starts of transition That’s clearly to of not of that sustainment

and some for phrasing to mature of do that several through feel years reduction and My out we’ve maturation in because that of process, wrung on risk this able and we’re executing of tech offering, identified have have is on program early that stage offer been has "technically been so risk risk to designed last offerings. really the able our we our we mature" retire that GBSD. point we would the concept our time, at what at And

Hunter Keay

Thanks.

Operator

from line next Pete of the Your is Skibitski question Global. with Alembic

Pete Skibitski

Administration that, could UAV with help get kind to I at thoughts your idea Kathy, on we’ve to the early afternoon. got on that reform this Good export from wanted look of in exports. control

could controlling seen it Regime guys did progress of So kind think terms the to is in I table was fall you priority just opportunity Administration? for be for of to Technology initially wondering, or come, a a other big that Missile I or I maybe it some you major gets off thought the or on the guys. that it Control still agreement. have it

Kathy Warden

Pete, certainly table. off the fallen it hasn’t

would say put us at State It countries is interest for request and And ideas to expressed the that develop with table. areas and that slow have capability. systems also actual I dialog forward looking unmanned from to and have actively to come that approval some and have export. that into specifically our engaged opening department on at we the those We’re MTCR, much still requested certain looking more with see

a that we’re so, still a working for to requires And steps us get of lot process through there.

at also multi-national to make that look engagement a to And requires change so – MTCR policy.

are So time. some too, and we that’ll that expected take seeing

Pete Skibitski

Okay.

So that we should on patient be front.

guys. Okay, thanks

Kathy Warden

are We but being patient. not patient,

pushing. We’re

Operator

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

Cai von Rumohr

much. Thank you very

a if capability looked guidance. Are your not, And an bigger talks market. you’re one the area that peers like also capability? Is hypersonics you have as and why peers a that bigger on, of you have not? your prime So about IS, there you’re yourself also, you capability now Kathy, propulsion, and you defensive to because two focused you have technology and mentioned hypersonics. supporting you aspiring With of become on

Kathy Warden

ourselves second the I in of with we prime. the as the of Why because part your counter-hypersonics are question, start part market, the don’t establishing Yes.

We relevant have counter-hypersonics. today believe capabilities Defense the regime in to Regime we and that space be in the Missile highly will

that pursuing. are an is that So area aggressively we

systems the hypersonics, of themselves. of case thinking weapon of In offense the

effort. prime have do we today, noted I As

important that’s our also strategy. Raytheon, are Lockheed and both supporting We of part and an

to We to and committed are programs agreements those people have brightest done a and supplier our Northrop and to uphold to We support them on and prior an and certain continue Orbital with best into Grumman, got we agreements been very had Raytheon them technology. joining ATK support Lockheed. to merchant

we the Lockheed that pursue well, new perhaps over continue pursue a Raytheon, or would partnerships will in have is through every at offer that and opportunity the as that a this us choosing to of marketplace. others one we is both, to prime who look capability it and decision, certainly to As make the for we everyone as prime emerge and look to forward space work long-term, right as or might

And so by those are one decisions one. we’ll take

a feel not the I certainly war fighter because are we big it’s an in that best three one parties a to take We looking fashion. said, and play, getting stance is it’s marketplace, technology enough for market we is that hands to adequately as we’re and aggressive make growing and into that want that of the giving to our them timely sure capabilities the in

with for competitors makes to work it our sense to do sometimes us And that.

Cai von Rumohr

much. very you Thank

Steve Movius

question. more one for time There’s

Cai von Rumohr

Thanks, Kathy.

Operator

Yes.

is Stifel question Joseph with of line DeNardi the the from final Nicholas. Your

Joseph DeNardi

Yes, flow generation the talked about in business kind Ken, capital deployment cash confidence strategy. you your the the and good of of afternoon.

components think about of two or you You a Thank more you. either can there a Obviously to about plans and dividend guys yields as deployed, how cash ambitious have industry. one for forward? percent of you going total flow of the have free kind you the talk equation. lowest But in dividend that that the capital whether

Ken Bedingfield

From yield. Sure, I’ll said, That seen our about talk – in and significant year we’ve perspective, increases years. I’d last chase be for the can’t being Joe. Thanks, dividend simply we guess number that. of start yield with dividend to every chase happy a I don’t

guess, it’s years or two been in XX% or XXXX, increases. with in plus XXXX. was increases increases. increases six it double-digit think XX% And fact, I I so two in

that kind continue said, So as in tended of – in deployment of future don’t pension our think say it an of be yield per we to going to will again, think We’ve of what us of increase being looking capital range a on important strategy. at in we’ve to would to middle adjusted XX% earnings. pack net as dividend been significant that our the think of increase And we’ve our But terms based chase you’re we XX% the to it our part – a certainly dividend our dividend about look that of and tended I like. of seeing our peers remains And share. to don’t measure.

to range a yield looking competitive a the perspective, we that sure pension in pretty And a a think in we’re terms we think dividend. so from at we again, adjusted our – But squarely relative making bit may be net from little low. that we have of earnings,

Joseph DeNardi

Thank you.

Steve Movius

Kathy, like I call would remarks. to final turn the for to you over

Kathy Warden

performance. thank I, once to want their our for Thanks, outstanding again, team Steve.

for October. concludes us joining to that I I that investments, you of remainder creation forward to the all and our business capture, hope opportunity fruitful our of our provide long-term shareholders. look customers you to the for today. again call value for talking to also and want backlog, your thank Natalia, the our enjoy continue Our in growing I our summer, call. they you for

Operator

and ladies gentlemen. This conference concludes you, today’s call. Thank

now may You disconnect.

Northrop Grumman (NOC) 24 Jul 192019 Q2 Earnings call transcript