Will Soft Segmental Sales Hurt Northrop's (NOC) Q2 Earnings?

Northrop Grumman Corporation NOC is scheduled to report second-quarter 2022 results on Jul 28 before market open.

Northrop has a four-quarter earnings surprise of 6.70%, on average. The company’s top line might have been dampened by moderate growth in the majority of its segment sales in the second quarter.

Aeronautics Systems – a Drag on Revenues

Lower volumes from manned aircraft and autonomous systems might have unfavorably contributed to the second-quarter revenue performance of the Aeronautics segment. Moreover, lower volumes from the E-2, Triton and F/A-18 production programs are likely to have negatively impacted this segment’s performance in the soon-to-be-reported quarter. This, in turn, might have resulted in lower revenues from the segment in the second quarter.

The Zacks Consensus Estimate for Aeronautics Systems’ revenues in the second quarter is pegged at $2,736 million, indicating a decline of 6.1% from the revenues reported in the year-ago quarter.

Moderate Growth in Defense Systems

Higher volumes from the international weapons program are expected to have favorably contributed to Defense Systems’ second-quarter revenues. However, the negative impact of a reduction in sales due to the IT services divestiture might have partially dented the revenue performance of the segment in the soon-to-be-reported quarter.

The Zacks Consensus Estimate for the Defense Systems segment’s revenues in the second quarter is pegged at $1,455 million, indicating growth of 2% from the revenues reported in the year-ago quarter.

Key Programs to Aid Mission Systems’Sales Performance

Northrop’s Mission Systems segment may reflect the impact of the reduction in sales related to the IT services divestiture and lower volumes from some programs, which, in turn, might have impacted the Mission Systems segment’s sales performance in the second quarter. However, higher volumes from the Ground/Air Task-Oriented Radar program and the Ground Based Strategic Deterrent program are expected to have offset the aforementioned negative impact on the revenue performance in the soon-to-be-reported quarter.

The Zacks Consensus Estimate for Mission System’s revenues in the second quarter is pegged at $2,615 million, indicating a rise of 1% from the revenues reported in the year-ago quarter.

Space Systems – a Key Contributor

Revenues from the Space Systems business unit are expected to have gained from higher sales from the Launch & Strategic Missiles and Space business areas. This, in turn, must have boosted the segment’s revenues in the soon-to-be-reported quarter.

The Zacks Consensus Estimate for Space Systems’ revenues in the second quarter is pegged at $2,915.9 million, indicating an increase of 6.1% from the revenues reported in the year-ago quarter.

Northrop Grumman Corporation Price and EPS Surprise

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

Second-Quarter Estimates

With the majority of NOC’s segments likely to report moderate sales growth, one might remain skeptical about the company’s top line in the soon-to-be-reported quarter. The Zacks Consensus Estimate for second-quarter sales is pegged at $9.12 billion, indicating a decrease of 0.4% from the prior-year reported figure.

Northrop’s second-quarter earnings might have been negatively impacted by lower net FAS/CAS pension, the performance of marketable securities and a poor top line in the soon-to-be-reported quarter.

The Zacks Consensus Estimate for second-quarter earningsis pegged at $6.03 per share, indicating a decrease of 6.1% from the prior-year reported figure.

What the Zacks Model Unveils

Our proven model does not conclusively predict an earnings beat for NOC this time. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat, which is not the case here.

Northrop has an Earnings ESP of 0.00% and a Zacks Rank #3. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks to Consider

Here are three defense players you may want to consider as they have the right combination of elements to post an earnings beat this season:

Spire Global, Inc. SPIR has an Earnings ESP of +9.43% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Spire delivered an earnings surprise of 7.7% in the last reported quarter. The Zacks Consensus Estimate for SPIR’s second-quarter sales is pegged at $18.93 billion.

L3Harris Technologies, Inc. LHX has an Earnings ESP of +1.01% and a Zacks Rank #3. It has a four-quarter average earnings surprise of 2.32%.

The long-term earnings growth rate of LHX stands at 4.4%. In the last reported quarter, the company delivered an earnings surprise of 3.31%.

CAE CAE has an Earnings ESP of +2.27% and a Zacks Rank #3. CAE delivered a four-quarter average earnings surprise of 7.67%.

The long-term earnings growth rate of CAE is pegged at 16.9%. The Zacks Consensus Estimate for CAE’s second-quarter earnings is pegged at 18 cents per share, suggesting growth of 20% from the prior-year reported figure.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.