Northrop Grumman’s Aerospace segment improves performance
Northrop Grumman: International defense needs rescue 2014 returns (Part 3 of 9)
Segment’s business overview
Northrop Grumman’s (NOC) aerospace segment focuses on the research, development, and production of “Unmanned Aircraft Systems, Space Systems such as James Webb Space Telescope, Military Aircraft Systems such as C4SIR, B-2 Spirit bombers, and various other advanced programs & technologies” that are primarily deployed by the US government and its agencies. The segment is the company’s highest revenue generator, contributing as much as 41% to total 2014 revenues.
The segment competes with the aerospace segments at Lockheed Martin (LMT), General Dynamics (GD), and Raytheon (RTN). The aerospace business respectively contributes 31%, 28%, and 25% of these companies’ overall revenues. NOC forms 1.91% of the iShares Select Dividend ETF (DVY).
Financial performance
In 4Q 2014, NOC’s Aerospace segment’s sales grew 4.1% year-over-year driven by the timing of volume across a number of programs. The company’s operating income grew 7.2% year-over-year to $299 million, and margins improved by 30 basis points to 11.8%. This is primarily due to higher sales volume and improved performance.
On an annual basis, 2014 revenues in this segment saw a slight decline over last year. Slightly lower sales volume in unmanned, space, and military aircraft programs caused the drop. Nevertheless, the company received $75 million in settlement payments related to certain legal claims having to do with the NOC’s intellectual property and a terminated program. This helped offset the revenue decline to a large extent. It also boosted operating income for the year to an increase of 8%. As well, the segment’s operating margin rate increased by 110 basis points to reach 13.2% at the end of 2014.
Overall, the segment saw lower sales volumes for the year. But this was offset by other legal income. Aerospace also improved its overall performance, which is reflected in the margins for both the quarter and the year.
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