NOC - Earnings call transcript Q2 2022 | Northrop Grumman Corporation

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Operator

Good day ladies and gentlemen and welcome to the Northrop Grumman's Second Quarter 2022 Conference Call. Today's call is being recorded. My name is Victor and I will be your operator today. [Operator Instructions] I would now like to turn the call over to your host, Mr. Todd Ernst, Treasurer and Vice President, Investor Relations. Mr. proceed. please Ernst,

Todd Ernst

web and Grumman's Victor to everyone welcome our and PowerPoint Thank quarter good XXXX Northrop IR to posted second that refer this conference to morning. presentation you, is morning, page call. a We'll

on start, securities company's statements XXXX the guidance call, we this forward-looking federal on based provisions to information including Before Safe the today's outlooks call. time constitute beyond, of our including pursuant Harbor discussed matters laws. reflect judgment and available at of They

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

Warden, to today like time, Kathy? this our CEO call CFO. Keffer, over and I'd David the are call President; Kathy. our the Chair, and On At to turn Kathy

Kathy Warden

joining and for space Thanks, like X and telescope everyone Webb extraordinary scientists just decades. Todd. incredible today's Good and James working Northrop to teams a partnership morning, again in the thank countless ago. engineers, images Grumman us. by the telescope This NASA weeks start cross-functional technicians, released I'd call highlighting few with for represents you over

we innovative toughest and our our This our position strategy the our the exemplifies created address strategy and team, and the images differentiates result, And be scientists our integrated one the In generation deployable addition advanced in with industry total spacecraft, innovators strengthened next to inspire customers' subsystems legacies. and Observatory defining to challenges. will believe system. of leading built we Webb to many develop portfolio priorities. we've a and the produce and and solutions of will as technology the designed of the market. business the it Sun Shield, the technology develop customers' aligns The we captures us characteristic Webb's provided

yield performance of areas ways. leadership, our growing in focus keeping and core profitably XX business, saw our In X the ratio deploying GEM driven reminder, our to for businesses awards restricted sustainably on F-XX, technology book-to-bill continues value-creating strategy by a programs. results. of As and focus second strategy demand and strong capital X.XX, are quarter, laser This a with across the a we

ratio of a All backlog in our our sequential billion. in quarter, now $XX businesses X% totals had driving X book-to-bill a the above which increase

from the customers' are Given labor challenges chain this we did sales backlog macroeconomic can a to growth we're more delays low this broader year. market and guiding the In we XXXX environment, including digits even our and budgets timing. priorities, the accelerate experience which impacted tight confident alignment continued single in from certain revenue and we supply our quarter,

in hiring to team the for we're make progress with continues trends However, the the sales our as these the pleased in and we half year. improved of quarter, progressed foundation second growth the laying through challenges addressing second

performance. cost our business This performance business. remain margin of we contributed efficiencies continued to driving across quarter focused and As grows, on focus solid another the

year-to-date. the rate is Grumman's momentarily on robust Webb like I'd first, cover QX of developed but in one results OM XX% a touch was quarterly will Northrop highlights stands update The James segment example guidance at Our our XX.X% some to and details for innovation. technology from Dave and further quarter. of

some close heard our of facilities. results. and solutions technology customers To digitally including generation and GBSD. are and particularly we digital programs, And example in transforming produce our how design, to largest next the test with we systems. the of are partnership investing affordable end, B-XX manufacturing for that In innovative and design customers, manufacture advanced using the our acknowledge you've with we Another how is capabilities customers. we're

automation this up latest the factories with our talent principles. to well modular in and facility work engineering world-class manufacturing, cycle operational the per production time manufacturing are of cost our investing optimizing as sells. we capacity state-of-the-art machine of future, support XXXX, announced in our digital Once learning chain in for will missiles year, latest weapon incorporate tactical reducing tools, and also quarter, And facility and in XXX digital this agile and bolstering Virginia as will quality marrying as which the including we are strike customers. supply We West

we've and years, know-how our priorities. areas mission-focused few are last leverage expertise few from in One the our capabilities opportunity approach These so year. to example that customers' aligned enterprise-wide space. want businesses. we our I areas see related of taken domain with For are security technology an the and Today, national high of across results and in is far this this a our them seen to highlight we've where

differently to customers vital missions it think Our space made that we have national underpins as recognize domain. evolving rapidly clear to a our many contested about that And we need space security.

focus include providing our based offerings We've a on Given LEO orbit recently the approach. seen also more of proliferated mix this, of satellites, as combination known together architecture. low resilient which this that in benefits solutions exquisite a earth is of constellations space with create

hypersonic also LEO contract threats, a contract which data high transport providing latency, missiles. missions close warning, advanced the and of to This builds satellites, low support designed For in example, after we constellation of for we quarter, SDA in of the XX were the is a February military of tracking LEO satellites volume the world. resilience, including is on which missile layer received U.S. awarded the layer around transport a second SDA constellation million targeting global XX of provide $XXX tracking

space another space we now restricted in awards and billion $XXX $XX.X booked of In these, have QX addition in million to backlog. restricted

of our strongest company. We area continue space to for security the see national as one drivers growth the

Missile of phase role contract missile our focus program. Agency on where expertise is Counter complements most glide awarded the maintains capable are the the missile ensuring Defense and a second the NGI, systems Another defense continue were States HBTSS capability United and modernization defense from we will the and development and Hypersonics. across This area we central in interceptor GPI missile portfolio IBCS. already and from pulling missile to threats. underway work In advanced quarter, reliable defeating defense a of outpacing play the evolving

supporting have to We been missile international modernize their also customers defense system.

example, medium-range last IBCS centers defense of For system. Poland's production week, and delivered the the first for missile X we engagement operation air

out also an part deployment the you. strategy just for Our important I laid capital approach is of

we is strategy. value. long-term priority our sustainable creating of investing first our are a executing to digital our who are leadership, our people source factories, in By Our and in design key tools invest business technology

returning consecutive cash free second shareholders XX%, to committed year. increase. to also least our at our XXth this quarter, We increased of XXX% marking annual by remain we dividend flow the In

Our nearly the we new double the be will quarterly in of beginning level paid XXXX. dividend

continue We are in least and also repurchases year. $X.X target this returning repurchases capital we billion to to at through shareholders stock

Before results, a Dave our particularly global shift about national commitment shares of defense resources more in in and I'd details environment. defense briefly We've for to like seen financial the talk fundamental demand about Europe. security,

has and state both countries support the Arm has for and we've their membership the Committee budget. Services European increase further Just president U.S., in Finland the bipartisan In FY deterrent. their NATO many seen this requirement Sweden geopolitical progress spending also support for defense bill defense plans of defense highlighted increases with defense bipartisan their has to resulted budget. defense this version environment marked or 'XX The and providing increase in in above strong spending. Congressional the their for up Recently, increased an year,

of GBSD, for U.S. the Grumman, Congress. F-XX recent so additional of funding FY well we've a become like and seen a TXX, alignment Northrop outlook there proposed For defense our ups Triton. for we 'XX I this support the request for OPIR F-XX reflection budget our budget environment. have in that strong in included IBCS, The probability customers for plus E-XD, is And opportunity norm my the there that NGI, has is positioned year of strong next-generation starting company that reinforces is confidence a key will GATOR, on as an our are this note the we years, with from But programs CR, base and in fiscal and anticipated XXXX. high for

call with and closing over a turn Dave? to Q&A. remarks to turn the Dave few then before that, I'll have we I'll So

Dave Keffer

Thanks, themes the wins We to backlog Okay. similar a setting aeronautics tight volume highest than in and stage good of but due Kathy a Near-term sector. by the QX. customers' to to for with large driven our growth, $XX awards, few and latest morning, awards this was side second and everyone. quarter solid including another demand excellent F-XX had expected we continues supply of generated in the with a longer-term competitive alignment higher be and have outstanding quarter, market awards block priorities, pressures persisted quite success. strong with environment Overall, the timing our new billion labor

book-to-bill year-to-date to now than higher is we previous our to award result approximately X.XX, as of volume strong full be year, a expect for bookings, sales our now the Our equal projections.

for year QX, low slightly over below business chain $X billion down in employees our first, sales continue after adding and forward, global the These QX and mid-$X half in These billion and near of labor going of as manage full in figures these our QX the stronger came in end the to new toward expansion hiring we in in half in challenges. than trends sales guidance billion. first receipts. headcount While us as outlook In the second year-over-year current and expectations metrics range. our growth incremental being slightly QX. results QX $X.X sales a X,XXX and represent continued in slightly point position growth with supply half QX total improvements quarter the first market much nearly through progressed, material net drove we requiring sales

performance in keeping particularly we've higher driving end there. by environment approach cost and on efficiencies laser efforts that management affordability foundation into of and toward Our were the in of line half Segment growing momentum backlog with the year second our to factors, a rates, driving our experienced along material starts and and rates It year, the will is delivering negotiating inflationary elements level our doesn't program top strong These XXXX. growth to terms demand. than revenue our it includes timing of strategy. also years. be in based also XX.X%, Even our disciplined in weighted the having in important a second line continue strong margins provides from high structure. with temporal forecast for good the These expect are headwinds, business with a remained of faster execution optimizing last focus the program key cost It of but QX year recent risk receipts in on performance quarter. half we the

non-operational in were quarter example, quarter, X% $XX $X.XX recognized compared our For property our a full diluted compared due down the to of XX.X% items, was earnings per year second York expectation largely on to income for and it XXXX. Bethpage, $X.XX, pension of a million sold to New QX the rate while year. the securities results, our Continuing we net share headwinds gain. last with was tax And was in unfavorable above our EPS marketable lower, and QX year. year, lower last last quarter in contributed and returns than lower of QX

full to year few estimates. updates with sector a to I'll Turning start guidance. our

market. capabilities Space that another quarter record backlog, sales including bookings, we excellent to deliver continues to of the growth demonstrating Our of bring and diversity business

As challenges. a a year billion certain tweaking expectations well result, programs to our again billion the to range. sales full ramp mid-$X $XX staffing the increasing DS, as on we're At slower on we're as broader its guidance based high

in increasing margin based in based better-than-expected DS success estimates sales, are reduction the XX% in new rate, OM in results. to expect increases And our maintaining level, earnings softness few sales programs. a be year ranges company pieces. full the rate per likely Within MS strength. Offsetting those margin strong a that are at our share their at development currently guidance we're offset moving operating outlook is we on by margin For rate, cash. for these we segment winning and our Embedded to any ranges, are space approximately EPS year-to-date on AS, and

to corporate First, lower state is estimates. from guidance benefits There now expense. our are experienced that half lower net interest incremental these to our are impact other $XXX and second mark-to-market prior modestly Offsetting due of unfavorable we've million, no securities trends unallocated $XX an for assumed year. impacts the is the in marketable also million year-to-date. projecting We're our projected be corporate from This expenses. costs favorable tax down our

we'll we paid was recognized a to which is program in collections quarter of is and million. on millions in outflow law cash about average of roughly to and the to outlook. amortization, collected project quarter that to end noted always, Absent R&D costs, hundreds day generate expected of QX. The compared amortization the we of $XXX is execution offset any breakeven that of flow the R&D instead flow second the would With cash cash free deferred. stronger quarter respect good was As drive disbursements timing our several last including regarding in to efficiencies large have the our an associated issues capital focus corporate as taxes and dollars spike working this year A collections toward high tax QX cash with portion further first an achieve of of ongoing in flows seasonality the continue expected the in But our unallocated second half collected to keep July. our state due $XXX the on of QX, than free million working taxes cash, such onetime been much need were with delta first. the

on Our to refunds receiving scenario and deferral X payments continues on for include to made based guidance X scenarios: date. tax current law predicated the

to income while moment our earnings performance. component our contribute pension the wanted about deck in earnings mentioned I Slide consider this our Next, of to I Last we take pension FAS/CAS plans quarter, far non-operational GAAP we've talk pension of illustration year. not XX earnings, a company's something the provides a GAAP is on plans. an assessing experienced the our that when so headwind that and

asset toward we return rates in year, our would of volatility look our the headwind below been long-term we a rate performance markets. As Year-to-date, and financial to has on expect this rise. recent have based had expected next historic discount grow

our significantly experiencing our very line. GAAP If primarily FAS quarter these the status but a the projected over CAS earnings increase at aren't plans a recoveries the conditions end, in net Partially headwind required be in years income translate we pension XX%. remain our lower unique contributions pension for would funded remains modest this next in forward, course, line Of pension macroeconomic offsetting low cash at these and going would market several snap nonoperating would to healthy trends.

from course So modestly in earnings a the A could to impact specific over sensitivity earnings that multiyear you the perspective, financial the the the would Kathy. point wait GAAP a your or provided cash over headwind, the year. with while in changes January for I'll to And modeling the be economic the our until year, so favorable. be purposes. of we'll later to change lot can I'd provide table projections that, more back we pension turn call in deck you, markets

Kathy Warden

Thanks, Dave.

the expectation in into of and for So growth creating growth supports that backlog demand our momentum and remains for saw robust remainder the demand accelerating we and and in quarter this This year bookings is outstanding summary, next. year-to-date.

deployment for Additionally, today contributing believe is program already shareholders. supporting our long-term in our strategy we digital growth operating and our are tools value and of aimed making We and stronger at results. performance factories the to the investments future enabling are capital creating

our execute the strategy for of incredibly as success. company long-term I'm and proud Northrop team we the Grumman So position

for ready with So that, Q&A. we're

Operator

first Ron Our Bank America. Instructions] the line [Operator from question of from of Epstein come will

Mariana Perez

Perez This for today. Mariana on Ron is Mora

you describe you these tight it on managing color second on seen are and pressure challenges Most please the that us half. give experiencing seems Could navigate labor even improvements from of significant to And better some and in these what is doing market. the some are So a labor. challenges? industry you

Kathy Warden

far. growing strategy know seeing attracting in hiring across is has we're the Well, really market that to enterprise, in all-hands-on-deck will It the soften. thanks, to we say that and started the seen Grumman as both also people of that that And our conditions -- I starting July to also efforts. start so in are hiring. been first take retain traction. to we in a Mariana. latter significant in We've ensure good is conditions our have talent hire role are We that and having But to working retention the company. we the Northrop in And is and play headwinds absolutely results those to see noted taking and that actions we're half. success people second and company's the market we've have ability retain seen any and ease to quarter doing what comments, the even labor we the aggressively part an

You without even company seeing an or article can't a talking layoffs. read that's about up pick online a or newspaper these freezes hiring days

impact will an the on in And confident months. leads experienced prepandemic second we expect will X the the softening to look and to experience result we've have continued so of second more more our than labor that market us last in a half as that XX feel like half the which what that

Mariana Perez

how out then provide on times? have do you have or or to agreements kind visibility chain, flexibility And Do -- long-term Perfect. future inventories any in disruptions? to what of improve material increasing supply to or potential advance tools your reach you lead

Kathy Warden

speaking in half, what a same That the don't earlier and will host it aerospace we're peers deeply a are impact see factors those I result have still the we Well, half. heard notably to noted our labor lead labor but which I'm we a be of would bit. call, market week. of the we are available in us. the it believe longer being on it fact of times you've the a those seeing do expect I we I industry degree in soften embedded timing the we in that with while headwind sales. the were as including tools manufacturing, know say numerous basing defense be to But is, this would just second And And from this so first -- do And suppliers. that about availability we

site We have Northrop Grumman them. with people on

variety believe rest our of based for we've material we and demand component that good handle flare but of know And XX today. on year seen cost in supply. the so an have of the timing around months, we've volatility on what we can And a last estimating the into course, as it's smaller incorporated up, delivery and fluctuations issues thinking and COVID timing we of a

So our feel very teams while we this challenging would in be that at of guide, we done for of exceptionally midpoint we our the was very which first are managing XX.X% like I short well. were this half. estimating slightly projections well about own revenue our have tight the market. said a QX in variability

material of So We're add? have a Dave, to detailed and anything reviews you deliver what we timing. the have handle would a mitigation in half. we second working on very daily on strategies need basis we

Dave Keffer

to more the second toward as a timing demand this year weighted first at program to to at think confident to also in bit deliver year. weighted the more the level last happened our in being year that's level, of Kathy, more I the toward characterized, opposed when addition timing is half of ability of in well the second be a the demand half a program half,

year-over-year contributes of outlook to stronger too second growth the this that year. for So the half

Operator

come Richard of the Safran Seaport Global. will question from line from Our next

Richard Safran

is I the Orbital. to So, FTC about you about the wanted ask news, making

when initially would at This probably expecting Aerojet. was this, least out were was I Lockheed You brought buying guess.

FTC want briefly the on. you So to if to know could that issues is talk focusing I the

know speculate comment of bit discuss outcomes difficult could a be? if might could there would Any range impact. you And give always I on you be If you would the what it's but appreciated. the

Kathy Warden

Rich. Thanks, Yes.

approve months and to me the before of Department XXXX the spent start ATK any deals, by many acquire FTC they many intent deal. in So which issue. the at on the some and looking context let aspects are providing there of anticompetitive risk pro-competitive and of announced We our the Defense Orbital

concern so during motors. rocket the government this around was X and period, it identified And solid only

agreed that order so to And we address to a consent concern.

X the past of government compliance line extensive an the the with very Over we've in and years, executed terms closely with program the worked order.

filings. we the we've believe XX-K we knowledge, few continue not has X that in be But did this shared to in They with order. a been investigation So The we've raise And ago. concluded. our our compliance years were the to XX-Q and matter. -- FTC investigating and

you speculation possible can I point we to don't attempt that broad to might the for to say of now will government some details see continue there's matter. question, particular both next So on a to have that know precedent we And believe this the been our that the investigation of we of to of the take. those I'll status steps recent scenarios. your matter that adverse of material refer for or range company. But don't that a maintain most merit impact those And and

isn't what be speculate we I and the it X material. won't size be believe certainly So on will because could

Richard Safran

that Okay, helps.

-- flow then with a know think want look we that's about that's commercial the interest comments As you a just increasing know the international, And that's little and on type if are translate the a expect here. for? a discuss On more should getting to follow-up here timing, could little higher-margin case? to you international bit want I if the I about What Could equipment into just if the P&L. old to how you most going that. quick contract? demand, of school you bit -- bit expand to your

Dave Keffer

Thanks, in evolving Rich. a This about of near-term one. lot I'll Dave. gotten the We've global given is months questions that last geopolitical situation few impact. the take

things will say international expect. IBCS like take products talking would financial to long as international have those mentioned and impact. areas with time customers call are engaged interest, the -- a about have I demand particular certainly as for as we business areas an defense we like particular today. a in it or ours, these impact. And is take to cycle But things a of on time reality the think I mission you'd U.S. missile

And the near so It's several you specifics to apprised opportunities over in I'd be of reality. may the term. hesitate any in become keep we'll that years what project as something those next

Operator

Our from Harned from Doug the Bernstein. comes question line next of

Doug Harned

When F-XX QX, B-XX complicated going given this you if in land up take mature Aeronautics, margins at but look we out a down lot been has ramping of sale gain, programs the were really as well below well looks revenues were pretty which like makes path challenging. in see talk XX%, Can -- about the you to HX guidance it how low you it HX?

Dave Keffer

aggregate, to In Sure, the quarter one, an on touch quarter, of nature we volume I'm where EACs happy business in net that a high year, of This the we as did a margin even Doug. Aeronautics, But unusually net the rate quarterly than on slightly side earlier previously. we light. stronger had second for were the is first favorable the is there described have in typical outlook we like EACs fluctuation.

outlook. EACs net and need toward in the fluctuations you quarterly overall past look to look through and So

well. On the as net sales EAC that side, through rolls fluctuation sales

that relatively quarter. comments where I'd first. half stable than it in see another material as described AS so projected a business, volume our in second and earlier And we the higher in we second note receipts was the is of the first

for a we've now. And very where think, providing ramp are second half of been consistent we the reasonable I with quarters projections today so couple a from and

Doug Harned

billion. $XX it's as huge I you've well, got switch pretty I a some backlog. revenues over in should But at to now of How we if I terms the mean look forecast a how growth here? to space, is mean see there should revenue know And good that of your over we move here. And follow-up, I the that conversion timing? years conversion backlog backlog

Dave Keffer

growth, we're that architecture we're supporting space and tracking in at multiple markets. transport mission products mentioned, doing, really the the you the examples programs of with multiple as incredibly security we've -- had in volume pleased of civilian work backlog the We're national the layers Sure. space are and great both there areas award like with layers multiple FDA

program, and growth in that award a -- volume to based. just its then last time, fastest-growing terms of our year is will backlog continue sales fastest-growing this and not been be how it over and terms GBSD volume down that anticipate time growth of business In it's over broader is contributor breaks any our obviously business or the year. to But X much large we

'XX, of so GBSD $X.X 'XX and GBSD our our volume should for grown forward. GBSD's actually of would growth and is in exceeding anticipate outside in dollar similar estimates a this has we growth on outside similar of while going And space. year show a basis growth about in billion GBSD growth

really just as converting in your outstanding point not in to broad-based backlog but sales So growth, well. to

Operator

comes of Rumohr question next Our from line the Cai von from Cowen.

Cai von Rumohr

Yes.

better any sole So And interceptor, do goes are list of what is if source? think and there acrosses phase interceptor. the you make positioned source? chances your it an selected read partner all goes the on glide NGI MGI for in an you Are to were you for interceptor that's NGI terms having it one that would

Kathy Warden

base. question draw a So and to I is be always. supporting beneficial certainly, Cai, understanding, a missions very as it can technology these common would therefore, And how systems say from insightful like that multiple

are that Given I'm that. respect and won't more anything you than sure competition in say both I

would what area more of of a outlined all bear opportunities. say broad terms of In defense simply on we broadly, Grumman only we're And comments, capabilities how in does about of to U.S. mean approach Northrop the as these internationally. is this that enterprise best in but missile thinking taking an the spring to great not my I I importance,

days needs. to balanced of positioned broad what think we're support a there a is government need all our in do feel we missile view, the so And defense well we I industrial however, programs. that

think how the base that longer carry to extend that that point, making what's some matter appetite is goes. it best capacity. Grumman supportive we we And until won't seeing as government And providers about of further in may and sole-source. so their no just NGI is And there expect I likely support growth industrial forward multiple your we to XXXX for or happen for down-select even are go Northrop in those decisions

Cai von Rumohr

had opportunities are second number in also alluded the LEO you there you keep of -- a Can area. look eye any bids? you major secondly, should as at competitive wins And on half, to our you the we

Kathy Warden

we're a to in is book half expect of what competitive $X.X awarded see much the states. We of And award AS few, we mostly about as competitive same to more within second a are one out, be over $X billion our improvement then to we billion outlook competitive which to to of There Dave do new full awards bill the that bill. expecting to pointed FDA year awards. of space, close a our now like than see look year in I it's mentioned anticipated. the of close and the we've about as at the book the half But do have be day not new restricted more because smaller in as significant up sole to fairly one to of to we things been in having with beginning expectation lot X success the second had year, that the any add awards class in in we source

Operator

from the line Kristine Our from next Liwag of question comes Morgan Stanley.

Kristine Liwag

budgets is defense for the a in under weaker been support there's And come defense spending. and that U.S. federal earlier emerge economic budgets and shift mentioned fundamental have other pressure. European historically, environment when You

time? And this you for So different will what's defense do think support long persist? how the

Kathy Warden

pacing threat and And recent like or within recognizing national the a Thanks that in in defense in for a right? what of specific planned see that imminent environment been and it's plan just say needs, is sense and Europe Europe, was few addressed shift fundamental would spending more to the fact threat that toward defense and so truly in sales That is weeks now, a environment is years, think committed longer-term take ours. in the I would have across threat but real increases working perhaps been in question, European that we're by companies I the for you're of years into security several translate is the I seeing nations. spending I appropriate most a ago. horizon there's does Kristine. the

priorities. a economic that I But a on there inflection based and defense isn't I don't that view might So expect being spending see priority. factors do another high some spending to back be there point other modulation broader

see it So ensuring. I just fairly

Kristine Liwag

follow-up, as the with translate landscape? conversations to revenue these security urgency demand the when do you customers signals much address from growth? to And is might there And think a how your

Kathy Warden

Yes.

despite noted, even of if at generally specific systems it program. XX it's programs something certain XX longer So buy production it take takes that does wanting developmental customer translate not to if quantity a months And production. little as is least in x the to to I urgency, a intent in it's into aspirations,

X, years. be can X X, so And that

revenues think U.S. don't and I on impact we obviously, as do it address the material months. companies to a with is I demands insights in be just customers priority now about in advising Europe, their the but time on other or So for the landscape having us as can what highest see next AMC XX

more more XXXX we So horizon forward have in a would time it's material I'd impact. that say the look to

Operator

from Vertical. Stallard from line of comes question the Our Rob next

Robert Stallard

have way X the Kathy, I you environment? to you things this question the whether you ago and any higher to just was are over versus do structural in inflation And making how actually last follow on I changes like evolved we considering price I the fixed inflation quarter about asked your contracts. wondering expectations? business, months up are

Kathy Warden

question. Yes, good

I with certainly quarter first the So of in line what in not are inflation. much today it impacts view -- very and to was our immune would we is

that structural plus mix are characteristics of these of of allow impacts. to that about naturally on like to business this funding to government that cost system FY with There budget defense we're allow versus inflation the us we're X short the our in some those based mitigate conditions and including Dave reprice. to within relatively government price deal structure. And is acquire the to of impacts So end, to for us clauses renegotiate managers are 'XX them years things includes program and the them. appropriate And working current to some contract escalation the with work talked to price, very mitigate quantify ensuring is X importance to that Congress to work fixed duration their funding in environment. contracts that some support offset see in our These that cases, pleased markup. of fixed this needed inflationary available national our

in looking overall forceful working terms, deals are impact. escalation the our we are supplier As within being terms the clauses we're in we're then are sure terms those as that matching our including offset contract now contract also, new organization we mitigate our what at more making impact. to our with that entering And we we're of examples some differently doing to

impact costs, today, the supply affordability, where not noted as diligent footprint second haven't suppliers basis, feel modulate. addressing starting material a continue watching closely sure we while to if I this own managing overhead it doesn't far to managing financials seen includes looking costs suppliers are be estate are a areas year an earlier we at to that this affordability, is And chain we so have our see something including on but inflation to inflation in our become we we're that real of reducing daily is so to impact. very say we to would make So

would that, the starting that data happen watching indications are. to as Our you we're but is just be

Robert Stallard

Okay. the in, just all is Global yesterday retire report its looking XXXX. news think, There Hawks that And a then was to Force a follow-up. I Air quick

think this I your in is with expectations? line

Kathy Warden

until yes, this And expecting we've franchise we don't been Block you the a as this. And Global for is over while were we the It is and phased XXs note, that be about retire out what XXXX. time. -- Hawk talking would

or and is the expectations. that's our any an doesn't impact projections we've in with line future bit a longer-term it next outlined but this for So have out that year in on

Operator

Kahyaoglu Sheila from Jefferies. question next from Our

Sheila Kahyaoglu

it big about F-XX outlook lead within some puts Maybe takes impact are how and could some talk the reset if is the we just Mission of Kathy. today? about versus does program, just on the and on thinking given what And AS. cadence And times How and content shifts that production, the Northrop? of for

Kathy Warden

sales XX% So about aspects all total of be our in the continues it program. annual across Sheila, to of to our contribution

outlook have through our new we into the new a in even and result we Lot we factored demand intact XX see around the 'XX through of XX, contract as demand. for components Lockheed for expectations As our that our 'XX worked for still and has have

phase see production longer being the As volume fastest-growing support volume. And Systems the Mission around program being that in a revenue we the Block as the because is have a supporting revenue of The is production over look DAS our because of Mission And IV. notably most element Systems. of increased sustainment Systems, lion's period which combination also share the even of fairly and we for we upgrades. stable that we're Mission program. Block development see time, IV revenue Mission out of is We in Systems still of our to we contribution

Sheila Kahyaoglu

Great. maybe And a follow-up. just then

positive how You had and I quarter. Poland first IBC, Maybe other Army to us in the some the remind movement think, potential if you to deliveries opportunities. that sizing versus timing you're program could international

Dave Keffer

point But bringing meet mission going X% mission Sure. jump critical by out, central a and IBCS and modern that is equally both kind sales opportunity and international previously sensors attaching set, new range. our to one, Happy of think can today capability to systems and it's really you Certainly, that capability which they to aggregate, international well. that domestic and to shooters disconnected domestically of a you importantly, the of set as forward that the disparate components abroad. in important that as In on are can in franchise Sheila.

competitive really should our the for we We're of franchise. past of part year. half a that the There Defense to be again, Systems growth program. second look some And in So pleased critical with franchise. awards the be a it's growing

Operator

Our comes Strauss question line from Barclays. David the next of from

David Strauss

consensus which is next you to still the there on would GBSD for be that Is billion. on revenue to revenue get estimate right and it think Kathy, kind way of call, year? I I $XX you growth. about And XXXX seem last the around would the think B-XX current pretty think trajectory endorsed able like much the

what ex and look does portfolio the So of are growth? you like terms GBSD in of assuming, B-XX the next rest year

Kathy Warden

our range next developed. toward which So rate to we year is being growth we continue how can accelerate is mid-single-digit believe the consensus

I demand that. environment would And it call. the the affirm strong, as outlined is on so And

So that would provide some tailwinds.

as am trends I XXXX about However, could mitigate detail we year, not for looks what if provide thinking would October the more we we'll supply to caution are they we on prepare you this certainly growth the facing side I that it give constraints. as throughout and when delivering as higher real. side supply that depends half challenges in this outlook second year you And to and just be into how this going those are that like revenue

really able into your even for are to us to and to the it have growth but So the isn't budgets labor XXXX the a And that deliver we question. further point, enough materials. demand on strong growth to be accelerated with need

like October And to into very able that of trends a better looks give so monitoring we're you closely to what that have be XXXX. data we'll in and sense

David Strauss

of lot Okay. guys, of And moving you on the with and a that. for with pension. Dave, thanks all Obviously color pieces mark-to-market the

previously of hundred more versus on Are you you help at I we in total, us think, are relatively based I I at mean, couple has versus 'XX said flat 'XX. FAS 'XX a today, 'XX. like things looking relatively, had I think headwind in dollar mean all? million can

Dave Keffer

I we a January. appreciate topic that We noted to that your you every the direct sensitivity for provide slide raising attention on follow-up. pension the call we

increase So most rate year approaching a for feel approximate we returns points began. perhaps you the FAS/CAS in end of today, of the effect impacts certain were of to a degree. rate give XXX a since or discount decrease rate increase the discount The significant to basis level if an year a XXX, is of asset increase well even on discount we've seen income the see would over that or

nonoperating or FAS/CAS as impact on at XX that more in They're basis a end year every the expected are flow drivers. noted noted, on of the up not impact forward. to tick we If have points substantial anything, these the we mark-to-market slightly. going sensitivity slide, as Again, amounts. GAAP CAS billion and cash are income reimbursements so earnings And $X can the

sense where a GAAP you outlook. next to From benefit 'XX course, there. we'll final of and perspective, the perspective, would over to discount draw earnings more sensitivities. a your a rate And the an moves small economic the of FAS/CAS market return X give the from see so asset And attention months there's

Operator

question line Seifman JPMorgan. next Our of will from from come the Seth

Seth Seifman

question insurance plan and ask Dave, everyone you we've on to their offloading they're and a talk about a to could keep wonder benefit companies. lot I riveted, just Maybe of seen pension. Lockheed and follow-up their picture conceptually, on if thinking liability defined big I'll And just

You have DB. guys still It's not huge.

most service cost $XXX you about as particularly million. do term, when government framework, to makes think this the Northrop, do for contractor longer term? you what under But what a want with I allowable what the you think and sense cost want should be year do to long

Dave Keffer

Thanks, Seth. Sure.

the value few had things. our point XX expectations. you pension period So I the that, the that We're over on the both One, out customers. really has to outstanding and that look assets return that, generated any we've historically, proud last would and government of above returns over a market to is at years, company our well benefit

the the level We expect. market asset in As as that offset about changes fluctuates were again, slightly funded than interest better XX% the you'd today in by given of we returns very that well today. movements. talked But year, a given day-to-day, position the funded we funded result, in changes even are rate status of first environment we're a the this

funded we under a a So It's the And the been burning today any to working. at to has are way. you the of the period government. the pleased that aggregate, change with long But asset along moving the result, it's over and we'll pieces lot with as of our from status time. need a It make keep and surface. Pleased returns a long-term any this changes company, a to in assess point, that strategy. results over continue something to there's participants been to But if certainly don't we'll there to apprised continue we're value feel to time,

Seth Seifman

to earlier I kind about talked Great. absence Aeronautics, just maybe the follow in you on of the And up, of the EACs know then quarter.

guess I quarters. they a negative. look several back slight we were think last if I over the

others. EACs visibility coming play when size versus think we of light give the the about time, years. over of the margin And team EACs up relative segment does on how in to that programs the segment the that? margin you of the segment, in What expansion Given picking in framework relatively kind into this underlying how

Dave Keffer

net typical Sure. some OM year, year, would in in In have aggregate, a favorable for volume a typical a sector EAC we healthy underlying would expect, have to AS, like And we rate. of a adjustments.

Of and course, programs at retire into opportunities our come know in perform which risks factored any our well time, those improvements need we EACs. we've given to may we drive in and because from don't order current those to risks EACs and

and the we'll a well, EAC the restricted So continue and in of able But over much I'd be be portfolios, to will our healthy again, of to top drive continue efficiencies with execute time. within one unrestricted to It's on have to that reticent net driver to a need proud be the of volume of key of to look or we we're and programs certainly, those that. rate to underlying on we critical key program segment think some to point less execution business. EAC particular any continue programs in pickups some segment whose OM build every benefits

Operator

Our Poponak Noah next question Goldman comes from from the line of Sachs.

Noah Poponak

pace large of a budget such variance DoD authorization? budget DoD currently is there versus outlay Why the between

Kathy Warden

not don't be be could supply can know timing. it additional chain may a may happening. funding, just a temporal of constraints, few just are So why. that so things need I as issue I One, speculate honestly seeing contracts we no, these

is government that the constraints labor we're faces facing, well. Another the as

part. at not did you you I that exceptionally So speculation that why. done invoice some as a payment in from had quarter. to but we tell tell I as can have second We get impacted work shortage I noted, for factor of be we just that book-to-bill, Northrop anything people has What strong where my outlays timing would seen to on is X.XX. can't see Grumman,

on time staying expectations. We line in relatively have our with being outlays acquisitions seen and awards and

Noah Poponak

discussions customer But a authorization the see supply down outlays it's higher it's Okay. chain the maybe you you, It's then pulsed that really future supply strange to that's it humming in that's a so being then double Yes, just uncommon digits. up their and dynamic. the chain knows and factor. of along -- for it's think bigger sounds And issue. like then possible the and

checks So as as they isn't normally fast cutting would.

Kathy Warden

a funding trigger we're on are with government we know many provide let could have and and see certain will been. the to would Right. trailing Without increment. of programs expectation lays, companies that just reaching they've them that programs against be threshold their the next that existing outlaid It spending that timing the funds we when generally

that seeing industry. results in the the across You're

Obviously, just to have trend because your that's so do all didn't And see the point, we the they reverse, is quarter. the there. to want need a funding the outlays to in

Operator

will come the of from question Next Rob Melius. line Spingarn from

Robert Spingarn

but competing expensive pinch revenue labor that's intensely talent. going despite do slightly. in and held just point the noted you pretty a half but pressure if catching In Lockheed the Palmdale particular in for you And be that because more guide about be AS, I the ask down coming the you've the you've the the there second first And Dave up what's half, a what margins to to it might as little margin. maybe like labor and are wanted earlier does talked out to extent behind that are seem is and to

Kathy Warden

then Dave second me in can the on join half start the Let question half. with of first the and

year, seeing We get are more competitive. Labor our been on able across that us. absenteeism no there more need line been has execute the Palmdale to than this competitive country with for where What the challenge be to but towards seen as last COVID impacted program. is and and bigger Palmdale that it market. we're to staffing F-XX the labor markets we different all end flows operating of other have not are the a particularly about we've is talked we so we ebbs

more aren't taken That need Even So has of latest this disruptions, same mitigating even COVID steps. started was with consistently be set some that there we aren't of the to to out. we they creating have we've disruption us. because not they seen as able have the if level for productive impact but workforce we because

place other up thing has hire onboard that we and programs. is that skilled people in provide the we've so can and allows training opened our labor needed the production recruit. training to It The them from in in. We that more coming need. skills facility quickly put Palmdale provide done to us our we the lesser they own can pool which

we lines versa. aren't talent So people's just and other taking production vice from

that the things results. of done those So we've we're are seeing and good some

Robert Spingarn

helpful. to a sorry, okay. going just I'm one, high-level And was just very if I And it's ask --

Kathy Warden

ahead. Go

Robert Spingarn

I to NGAD? for ask characterize positioning you to your wanted just

Kathy Warden

Yes.

So that first that's the process think in to sixth-generation building about to us fantastic as lessons given those other we believe some aircraft. of B-XX the and can aircraft, apply and we we of experience we sixth-generation are

positioned competitor. a And as we're so

prime as our to able industrial be have are capacities large be these I we base, and contender. to capabilities think opportunities to And have we our that investing government a been possible. desires own to building broad and able clear a

Todd Ernst

for leave I this have closing to turn remarks. over morning. there it it you to Kathy,

Kathy Warden

future. today. accomplishments for thank feel you again the this team the Thanks, I I momentum Great. to our for joining Todd the our year all and call that extraordinary creating want is acknowledge and already by

I we each summer of speaking enjoy remainder forward look to your the with Thanks you you and again. of hope October. in So

Operator

day. call. today's have this Everyone, conference and great concludes gentlemen, a Ladies

Northrop Grumman (NOC) 28 Jul 222022 Q2 Earnings call transcript