Northrop Grumman Corporation
Analysis
Northrop is turning a record demand wave into signed contracts and new factories, but it is paying for the build out of its own pocket before the revenue arrives, and two development programs just showed how fast costs can outrun plans.
- The demand is now contracted, not just promised.
Book-to-bill hit 1.84 in Q2 FY2026 and backlog set a record, with the restructured Sentinel program adding $7.6 billion of it. Management also agreed to build the B-21 faster, shifting the job from winning work to delivering it. How much of the Sentinel backlog turns into sales this decade?
- Cash is going out years before the sales that pay for it.
Capital spending rises to $1.85 billion this year and to about 4.5% of sales in the next two years, while free cash flow guidance stays where it was. The company is funding the build from the business rather than slowing it down. How much of 2026 capital spending is B-21 versus missile capacity?
- Two programs are costing more than management planned.
Cost increases on GEM 63XL and SiAW pulled segment margins down in Q2 FY2026 and cut the Space margin outlook to the low 10% range. Management says the rest ran above 11%, so the year turns on whether those two stay contained. Are other development programs at similar risk of overruns?
- The faster B-21 build earns better returns than the original deal. Northrop pays to speed the line up in return for more money per plane, so the same jets earn more if delivery holds.
- The second-half margin recovery management promised shows up. Defense Systems and Space are guided back above 11%, which would show the overruns were one-off, not a habit.
- The missile capacity already built turns into firm production contracts. The factories are already built and qualified, so work won this year earns money now rather than years from now.
- A third program books an unexpected cost increase. Each takes tens of millions straight off profit, and a third would suggest it still cannot build new things to budget.
- The B-21 factory build costs more or runs past the planned dates. The money is spent years before the extra planes arrive, so any delay pushes the payoff out while the costs keep coming.
- Cash from the business stays flat while the build keeps getting bigger. Money the company earns keeps going into buildings instead of back to shareholders, and no one can say when that stops.
| Politician | Transaction | Amount | Traded | Filed |
|---|---|---|---|---|
Donald Trump Republican · Executive | Purchase | ≥$15K | Jul 23 | Sep 22 |
Donald Trump Republican · Executive | Sale | ≥$250K | Jul 20 | Sep 22 |
Donald Trump Republican · Executive | Sale | ≥$15K | Jun 24 | Aug 22 |
Donald Trump Republican · Executive | Purchase | ≥$1K | Jun 23 | Aug 22 |
Donald Trump Republican · Executive | Sale | ≥$1K | Jun 12 | Aug 22 |
Congressional trading data provided by QuiverQuant
How Northrop Grumman turned $42.0B of revenue into $4.5B of operating income.
| Revenue | ||
|---|---|---|
| Aeronautics Systems | $13.0B | ▲ 8.00% YoY |
| Mission Systems | $12.5B | ▲ 9.71% YoY |
| Space Systems | $10.8B | ▼ 8.18% YoY |
| Defense Systems | $8.0B | ▼ 6.52% YoY |
| Total revenue | $42.0B | |
| Gross profit | $8.3B | 19.8% |
| Operating income | $4.5B | 10.8% |