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    NOC
    Earnings call· Jun 2026(Q2 FY26)

    NORTHROP GRUMMAN CORP /DE/ NOC

    Jul 21, 2026 Source

    Executive summary

    Northrop Grumman Q2 FY26 — Record Backlog and Raised Full-Year Guidance

    Northrop Grumman delivered a strong second quarter, marked by robust bookings and a record backlog, leading to a raised full-year sales and EPS outlook. The company is strategically investing in production capacity and new capabilities to meet increasing global defense demand, despite some program-specific EAC adjustments impacting segment margins. Management remains confident in accelerated growth and improved profitability in the second half of the year, driven by key programs and international opportunities.

    Highlights

    5

    • Net awards of $20 billion in Q2 FY26, driving a book-to-bill ratio of 1.84x.

    • Record high backlog of $105 billion, up 17% year-over-year.

    • Sales increased by 5% year-over-year to $10.9 billion, with growth across all four segments.

    • Full-year adjusted EPS guidance raised by $1.20 to a range of $28.60 to $29.10.

    • Aeronautics segment sales increased 13% with a 10.3% margin rate, driven by B-21 and mature production programs.

    Concerns

    3

    • Lower operating margin rates in Defense Systems (7.5%) and Space (8.6%) due to negative EAC adjustments on SiAW ($68 million) and GEM 63XL programs.

    • GEM 63XL program experienced an anomaly in Q1, requiring component redesign and updated EAC position.

    • SiAW program recognized higher projected costs to complete qualification testing due to testing delays.

    Guidance & targets

    29
    CategoryTargetConfidence
    Full-year book-to-bill ratio
    at least 1.25x
    high materiality
    High
    Full-year sales
    $43.75 billion to $44.25 billion
    high materiality
    High
    Full-year segment margin performance
    maintaining expectations
    medium materiality
    High
    Full-year adjusted EPS
    $28.60 to $29.10
    high materiality
    High
    Full-year adjusted free cash flow
    $3.1 billion to $3.5 billion
    high materiality
    High
    Full-year CapEx
    $1.85 billion
    medium materiality
    High
    CapEx investments as % of sales
    around 4.5%
    medium materiality
    Medium
    Aeronautics Systems (AS) sales
    approximately $14 billion
    medium materiality
    High
    Aeronautics Systems (AS) operating margin rate
    mid- to high 9% range
    medium materiality
    High
    Defense Systems (DS) sales
    mid- to high $8 billion range
    medium materiality
    High
    Defense Systems (DS) margins
    approximately 10%
    medium materiality
    High
    Mission Systems (MS) sales
    high $12 billion
    medium materiality
    High
    Mission Systems (MS) margin rate
    approximately 15%
    medium materiality
    High
    Space sales
    approximately $11 billion
    medium materiality
    High
    Space margin rate
    low 10% range
    medium materiality
    High
    Intersegment eliminations
    approximately $2.7 billion
    low materiality
    High
    Intersegment OM rate
    mid-13% range
    low materiality
    High
    National security space business growth
    high single digits
    medium materiality
    High
    National security space sales
    over $7 billion
    medium materiality
    High
    Annual international sales
    $10 billion
    high materiality
    Medium
    MRV operational status
    operational
    low materiality
    High
    PAC-3 SRM production awards
    expected
    medium materiality
    High
    B-21 program of record decision
    conclusion on accelerating production
    high materiality
    Medium
    Defense Systems (DS) second half revenues
    step up more than $700 million
    medium materiality
    High
    Defense Systems (DS) second half margin rates
    over 11%
    medium materiality
    High
    Mission Systems (MS) second half sales increase
    more than $600 million
    medium materiality
    High
    Space second half sales
    increase significantly
    medium materiality
    High
    Space second half performance
    improved
    medium materiality
    High
    Q3 year-over-year sales growth
    mid- to high single-digit
    medium materiality
    High

    Segment performance

    4
    SegmentRevenueYoYQoQMargin
    Aeronautics Systems (AS)
    Outstanding operational performance with double-digit sales and margin growth. Strong performance across production and sustainment programs.
    B-21 performance: strong executionMature production programs: favorable EAC adjustments
    		—13%—10.3%
    Defense Systems (DS)
    Higher sales driven by continued ramp on Sentinel and missile defense programs. Operating margin partially offset by $68 million unfavorable adjustment on SiAW. Rest of DS portfolio contributed an 11% OM rate excluding SiAW EACs. Second half revenues expected to step up more than $700 million, driven by higher ammunition sales, production timings, Sentinel, and IBCS. Second half margin rates expected to improve to over 11%.
    Backlog: nearly $35 billionSentinel backlog increase: $7.6 billion
    		—5%—7.5%
    Mission Systems (MS)
    Strong execution across the portfolio. Sales supported by higher volume on marine programs, F-35 sensors, and restricted airborne radar programs. Margin rates improved due to strong performance and higher net favorable EAC adjustments. Second half sales expected to increase by more than $600 million, driven by higher sales volumes on production programs and new awards.
    		—3%—15.4%
    Space
    Sales driven by higher volume on NASA's commercial resupply service mission and missile defense programs. Operating margins included an unfavorable EAC adjustment on GEM 63XL. Rest of space portfolio contributed an OM rate of over 11%. Second half sales expected to increase significantly, primarily driven by higher volumes on national security space programs, new awards, and improved performance on GEM 63XL.
    		—4%—8.6%

    Operational metrics

    15
    Segment operating income (Q2 2025 comparison)
    $76 millionfavorable EAC adjustment
    Q2 FY25

    Benefited from a $76 million favorable EAC adjustment on Sentinel in Q2 2025, impacting year-over-year comparison for Q2 2026 segment operating income.

    SiAW EAC adjustment
    $68 millionunfavorable adjustment
    Q2 FY26

    Related to an increase in projected cost to support the design and qualification of the system.

    GEM 63XL EAC adjustment
    unfavorable adjustment
    Q2 FY26

    Related to increases in the estimated cost and quantity of materials needed to complete the program.

    Effective tax rate (Q2 EPS driver)
    lower
    Q2 FY26

    Benefiting Q2 EPS due to remeasurement of uncertain tax positions.

    EPS increase (Q2 YoY, normalized)
    $0.57increased
    Q2 FY26

    Normalized for the training services divestiture transaction.

    National security space revenue as % of total
    15%
    FY26

    Projected to account for more than 15% of company revenues.

    Organic sales growth
    7%YoY
    Q2 FY26

    Organic sales growth for Defense Systems.

    Sales growth (sequential)
    10%sequential
    Q2 FY26

    Sequential sales up 10% from Q1.

    Sales growth (YoY)
    5%YoY
    Q2 FY26

    Year-over-year sales up 5%.

    International sales growth target
    double
    annual

    Multiyear goal to double annual international sales to $10 billion by 2031.

    PAC-3 framework agreement
    $2 billion
    multiyear

    Framework agreement with the Department of War and Lockheed Martin for PAC-3 SRM production.

    Tactical missile sales opportunity
    $10 billion
    next 7 years

    Across 10 multiyear agreements for missile acceleration.

    Sentinel existing facility size
    1.1 million
    current

    Existing space purpose-built for Sentinel in Utah.

    B-21 asset sale cash receipts
    several hundred million dollars
    FY26

    Expected to be collected this year, accelerating cash receipts but shifting other payments beyond this year.

    Training services divestiture benefit
    $1.04
    Q2 FY25

    Prior period included a benefit of $1.04 associated with the training services divestiture.

    Industry KPIs

    5
    MetricValueDetails
    Book to bill ratio1.84xx
    Total company backlog$105 billionUSD
    Defense program awards$2 billionUSD
    Program segment backlog$7.6 billionUSD
    Program margins eac charges$68 millionUSD

    Orderbook & backlog

    3
    Total company backlog$105 billionQ2 FY26

    up 17% year-over-year

    Sentinel program backlog$7.6 billion increaseQ2 FY26

    increased

    Due to further definitization and authorization to execute additional program elements.

    National security space backlogover $16 billionQ2 FY26

    Includes programs like GPI, GWS and restricted efforts.

    Product announcements

    1
    ProductTypeDetails
    Mission Robotic Vehicle (MRV)launch

    Deals & partnerships

    4
    KuwaitAuthorization for IBCS systems

    Received authorization from the State Department for 6 IBCS systems.

    AustraliaEstablish in-country solid rocket motor manufacturing facility

    Selected to establish an in-country solid rocket motor manufacturing facility.

    NATOTriton autonomous aircraft

    NATO allies pledged additional investments, including a commitment for Northrop Grumman's Triton autonomous aircraft, with expectations to be on contract next year for up to 5 units.

    Lockheed Martin / Department of WarPAC-3 SRM production framework agreement$2 billion

    Reached a $2 billion framework agreement for PAC-3 SRM production awards, expected later this year, after completing qualification activities.

    Capital programs

    2
    B-21 production ramp infrastructureunderway

    CapEx investments of around 4.5% of sales in 2027 and 2028 are expected to invest in infrastructure to support the B-21 production ramp.

    Utah advanced facility for Sentinel productionunderway
    Start: Q2 FY26

    Benefit: support the production phase

    Broke ground on a new advanced facility at the Utah campus, adding to existing 1.1 million square feet, to support Sentinel production starting later this decade.

    Risks & headwinds

    3
    Negative EAC adjustments on SiAW and GEM 63XL programsQ2 FY26

    $68 million unfavorable adjustment on SiAW; unfavorable EAC adjustment on GEM 63XL

    Mitigation: Investing in more resources and integration lab facilities to accelerate testing and delivery for SiAW; component redesign proven in successful static fire test for GEM 63XL, with deliveries expected by year-end.

    Program life cycle dynamics in microelectronics businessFY26

    lower growth this year

    Mitigation: Underlying demand still robust; temporary year-over-year comparison after strong growth last year.

    HALO program revenue reductionFY26

    reduced revenue this year

    Mitigation: Working with NASA to restructure the contract and extend technology deliverables over a longer period for future gateway plans.

    What to watch in Q3 FY26

    5

    B-21 Program of Record Expansion

    by year-end (2026)
    CurrentAir Force undertaking analysis
    TargetConclusion on accelerating production beyond 100 units

    Why it matters

    Potential for significant long-term revenue growth and increased production rates for a flagship program.

    I expect that by year-end, they will come to a conclusion on that, and we'll certainly keep you updated.

    Q&A highlights

    7

    Is the $1.20 EPS increase solely due to lower taxes and higher sales?

    John Greene clarified that while tax had an impact, the EPS increase is driven by a balance of factors including sales execution, strong second-half margins, the tax benefit, and managing operating costs. Operations are strong, and a strong second half is expected.

    “But really, what we're trying to get across on this call is the operations are strong, and we expect to deliver a really strong second half of the year.”

    asked by Unknown Analyst · answered by John Greene

    2 min read5 chapters

    Detailed Narrative

    01

    Defense Budget & Global Demand

    The U.S. government shows bipartisan support for defense investment, with House and Senate Armed Services Committees supporting $1.1 trillion in the base budget for the Department of War, a nearly 10% increase from FY26. The administration also requested a $67 billion supplemental for operational costs and a $350 billion reconciliation package to modernize military capabilities. Globally, NATO allies pledged $50 billion in additional investments, and there's increased international demand for systems like Triton autonomous aircraft and IBCS, with Kuwait receiving authorization for 6 IBCS systems.

    02

    Sentinel Program Progress

    The Sentinel program saw a $7.6 billion increase in program backlog due to further definitization and authorization. Key milestones achieved include an acoustic test of the missile, validating its ability to withstand silo launch conditions, and solid rocket motors for the first 5 flight tests are in production. A new advanced facility was broken ground in Utah to support production starting later this decade, complementing the existing 1.1 million square feet.

    03

    Tactical Missile Strategy & Capacity

    Northrop Grumman is investing in tactical missiles, including SiAW and AARGM Extended Range. The company completed qualification activities to become a supplier on PAC-3, reaching a $2 billion framework agreement with the Department of War and Lockheed Martin for SRM production awards expected later this year. The company has 10 multiyear agreements for missile acceleration, representing up to $10 billion in sales opportunity over the next 7 years.

    04

    National Security Space & Commercial Opportunities

    The national security space backlog exceeds $16 billion, driven by programs like GPI, GWS, and restricted efforts. This business is projected to grow high single digits and generate over $7 billion in sales, accounting for more than 15% of company revenues. The company is also applying its expertise to commercial opportunities, such as its Mission Robotic Vehicle (MRV), a commercial robotics spacecraft capable of repairing and servicing satellites in geosynchronous orbit, with its first launch scheduled.

    05

    Microelectronics and Marine Business

    The microelectronics business, while experiencing temporary program life cycle dynamics leading to lower growth this year, remains a critical enabler for both government and commercial customers, with robust underlying demand. The marine business, particularly propulsion for nuclear modernization, is a significant growth and performance driver, moving from development to production with strong execution.

    AI-generated summary of the company’s earnings call. Not investment advice.