Northrop Grumman Conference Call Highlights

Northrop Grumman Corporation NOC reported its third quarter earnings on Tuesday. Shares of the company were down 1 percent.
Below are some key highlights from its conference call.

Performance and Results:

• Our team's focus on execution continues to deliver strong performance, as by this quarter's earnings, cash flows, and backlog expansion.
• Earnings per share increased 6% to $2.26.
• In addition to strong operating performance, we had two items that affected results in the quarter.
• Third quarter EPS was reduced by $0.30 to reflect passage of the Highway and
• Transportation Funding Act of 2014.
• We also realized $75 million for settlements of certain legal claims, which increased EPS by $0.23.
• Based on our year-to-date results, we're increasing our EPS guidance to a range of $9.40 to $9.50 from our prior range of $9.15 to $9.35.
• This is an increase of approximately 13% over 2013 EPS.
• We're also increasing our 2014 sales guidance to approximately $23.8 billion, the high-end of our prior range.
• Growth in our international business continues to partially offset the impact of domestic budget pressures.
• Cash from operations totaled $933 million for the quarter.
• Free cash flow totaled $824 million and we ended the quarter with a cash balance of approximately $3.4 billion.
• Based on these results, we remain comfortable with our free cash flow guidance of $1.7 billion to $2 billion for the year.
• As you're aware, the fourth quarter is typically our strongest in terms of cash collections.
• We're particularly pleased to report that total backlog increased 8% from $35.6 billion at the end of the second quarter to $38.5 billion.
• Book-to-bill for the quarter was 150% and book-to-bill for the nine months was 107%.
• Third quarter bookings included a $3.6 billion contract for 25 E-2D advanced Hawkeye aircraft, which was the primary driver of the strong book-to-bill.
• We also received a $354 million award for three additional Global Hawks and a $422 million contract for the sensor payloads for the fifth and sixth separate satellites.
• We repurchased 6 million shares for $753 million, bringing year-to-date repurchases to nearly 17 million at a cost of $2.1 billion.
• Over the last six quarters, we bought back 37.7 million shares or more than 60% toward our goal of returning 60 million shares by the end of 2015, market conditions permitting.
• We take a long-term view of the company's value and continue to view share repurchases in combination with competitive dividend, as an effective way to deploy our cash and to create shareholder value.
• Before these items, third quarter EPS would have been $2.33 or 9% higher than last year's third quarter due to the strong operating performance and share repurchases.

Guidance:

• For the year, we expect ES sales of approximately $6.9 billion, and we now expect an ES operating margin rate of approximately 16% for the year.
• Information systems third quarter sales declined by 7%, lower government funding levels, and in-theater troop drawdowns continued to impact sales particularly for our commanded control programs.
• Operating income at IS decline in line with sales and IS continued a strong operating margin rate.
• For the year, we expect IS sales were approximately $6.2 billion at the high-end of our prior guidance range with a margin rate in the high 9% range, which is unchanged from our prior guidance.
• Moving to Technical services. Third quarter sales declined due to ramp downs in the ICBM and Combined Tactical Training Range programs and most partially offset by higher international sales.
• For the year, we're now increasing sales guidance to approximately $2.8 billion for TS versus our prior guidance of $2.7 billion.
• And we're increasing our operating margin rate guidance to the low 9% range.