Will Mission Systems Unit Drive Northrop's (NOC) Q2 Earnings?

Northrop Grumman Corp. NOC is scheduled to release second-quarter 2019 results on Jul 24, before the opening bell.

In the last reported quarter, the company delivered a positive earnings surprise of 10.24%. Impressively, Northrop Grumman surpassed the Zacks Consensus Estimate in the trailing four quarters, the average positive surprise being 18.5%.

Let's take a closer look at the factors influencing the company’s upcoming results.

Aerospace Systems: A Key Catalyst

The company’s Aerospace Systems segment has been a major revenue growth driver and is anticipated to retain the trend in the to-be-reported quarter. In particular, higher sales from manned aircraft and autonomous systems programs have been key catalysts behind the segment’s top-line growth. Anticipating a similar, we may expect the Aerospace Systems unit to generate solid revenue growth. In line with this, the Zacks Consensus Estimate for revenues of this unit in the second quarter is pegged at $3,496 million, indicating growth of 4.8% from the year-ago quarter’s reported figure.

Other Factors Under Consideration

The Mission Systems segment has been benefiting the company’s sales. We expect the upcoming quarterly results to reflect this trend, as the company continues to ramp up production in airborne and space-restricted programs, including the IBCS for Poland. In line with this, the Zacks Consensus Estimate for revenues of this unit in the second quarter is pegged at $3,025 million, implying growth of 5.25% from the figure reported in the year-ago quarter.

Additionally, Northrop Grumman continues to secure frequent contracts from Pentagon, which should drive revenues in the to-be-reported quarter. In line with this, the Zacks Consensus Estimate for the company’s second-quarter revenues is pegged at $8.4 billion, suggesting growth of approximately 18% from the year-ago quarter’s reported figure.

In May 2019, Northrop Grumman’s board of directors approved a 10% hike in its quarterly common stock dividend, taking the annualized payout to $5.28 per share from the prior level of $4.80. The raise indicates the company’s expectation of generating solid cash flow from operating activities in the to-be-reported quarterly results.

A View on Bottom Line

Buoyed by its strong performance in the first quarter, Northrop Grumman raised its earnings guidance for 2019. Management expects to deliver strong segmental margin and operating income growth in the remaining quarters. Moreover, the company expects to incur lower interest expenses for the rest of the year, starting from second quarter. This in turn should drive Northrop Grumman’s bottom line.  

Considering the increased revenue and earnings expectations along with lower expense projections, we may expect the company’s second-quarter results to reflect a solid bottom-line performance.

In line with this, the Zacks Consensus Estimate for second-quarter earnings is pegged at $4.64 per share, implying 18% growth from the year-ago quarter’s reported figure.

What the Zacks Model Unveils

Our proven model does not show that Northrop Grumman is likely to beat earnings estimates in the second quarter. This is because a stock needs to have both — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Northrop Grumman has an Earnings ESP of 0.00% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Please note that we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Northrop Grumman Corporation Price and EPS Surprise

Northrop Grumman Corporation Price and EPS Surprise

Northrop Grumman Corporation price-eps-surprise | Northrop Grumman Corporation Quote

Stocks to Consider

Here are some defense companies you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Lockheed Martin Corp. LMT is expected to report second-quarter 2019 results on Jul 23. The company has an Earnings ESP of +0.14% and a Zacks Rank #1.

The Boeing Company BA is scheduled to report second-quarter 2019 results on Jul 24. The company has an Earnings ESP of +2.72% and a Zacks Rank #3.

A Recent Defense Release

Textron Inc. TXT reported second-quarter 2019 earnings from continuing operations of 93 cents per share, which surpassed the Zacks Consensus Estimate of 85 cents by 9.4%. The bottom line also increased 6.9% from 87 cents in the year-ago quarter.

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