Northrop Grumman earnings increased in the third quarter of 2026 as sales grew across all four business segments and new awards lifted backlog to a record $109.6 billion. The defense company reported diluted earnings of $7.89 per share, up from $7.67 a year earlier, and raised its full-year profit guidance on October 20.
Key Takeaways
- Sales rose 7% to $11.1 billion, led by Aeronautics Systems and Defense Systems.
- Net awards of $16.4 billion exceeded quarterly sales, expanding the backlog.
- Higher 2026 profit guidance came despite narrower quarterly operating margins.
Table of Contents
- Northrop Grumman earnings grow despite margin pressure
- Aircraft and Sentinel programs lead sales growth
- New awards expand backlog as cash generation improves
- Higher profit guidance retains government-funding caveats
- Conclusion
Northrop Grumman earnings grow despite margin pressure
The company’s third-quarter 2026 results announcement showed net earnings of $1.124 billion for the three months ended September 30, compared with $1.100 billion a year earlier. Sales increased to $11.122 billion from $10.423 billion.
Operating income rose 2% to $1.269 billion, but the operating margin fell to 11.4% from 11.9%. Northrop Grumman attributed the margin decline principally to a smaller adjustment between financial-reporting and government-contract cost accounting for pensions.
Segment operating income, a non-GAAP measure, increased 5% to $1.345 billion. Its margin nevertheless declined to 12.1% from 12.3%, principally because the prior-year quarter included a $68 million favorable contract-estimate adjustment in Mission Systems.
A lower tax rate helped support net earnings. The effective income tax rate fell to 13.4% from 16.9%, principally because of higher research credits. Earnings before income taxes declined 2%, underscoring the difference between the quarter’s pre-tax and after-tax performance.
| Item | Details |
|---|---|
| 2026 sales guidance | $43.75 billion–$44.25 billion. |
| 2026 segment operating income guidance | $4.94 billion–$5.04 billion; previously $4.85 billion–$5.00 billion. Non-GAAP. |
| 2026 MTM-adjusted EPS guidance | $29.35–$29.75; previously $28.60–$29.10. Non-GAAP. |
| 2026 adjusted free cash flow guidance | $3.10 billion–$3.50 billion. Non-GAAP. |
Aircraft and Sentinel programs lead sales growth
Aeronautics Systems sales rose 14% to $3.575 billion. Growth included a $195 million increase on F-35 work, reflecting the timing of production material costs and greater sustainment volume, alongside higher B-21 sales and B-2 sustainment activity. The segment’s operating income increased 24%.
Defense Systems sales increased 12% to $2.307 billion, including a $180 million increase on Sentinel as the program continued to ramp up. Higher guided-rocket and tactical solid rocket motor activity also contributed. Its operating margin fell to 10.8% from 11.4% as the contract mix shifted toward more cost-type work.
Mission Systems and Space Systems each reported 2% sales growth. Mission Systems operating income declined 3%, while Space Systems operating income rose 5%. Space growth was partly offset by $136 million of lower Commercial Resupply Service sales because of launch timing.
New awards expand backlog as cash generation improves
The quarter’s book-to-bill ratio was 1.5 times, meaning new awards exceeded recognized sales. Significant awards included $4.6 billion for restricted programs, $2.0 billion for Sentinel, $1.4 billion for Virginia Class submarines, $1.3 billion for F-35 work at Aeronautics Systems and $1.0 billion for E-2.
Operating cash flow increased 12% to $1.745 billion, primarily because of improved trade working capital. Adjusted free cash flow, a non-GAAP measure, rose 44% to $1.810 billion.
The adjusted free cash flow increase also benefited from $371 million in proceeds from equipment sold to a customer. That contribution means the cash-flow improvement was not solely the result of stronger operating cash generation.
Higher profit guidance retains government-funding caveats
Northrop Grumman raised the midpoint of its 2026 segment operating income forecast by $65 million and its mark-to-market-adjusted earnings-per-share forecast by $0.70. Both are non-GAAP measures; the adjusted EPS forecast is distinct from reported quarterly diluted EPS.
Management said its outlook does not reflect the effects of a prolonged government shutdown, spending limits or other spending cuts. Changes in appropriations, procurement priorities and program support therefore remain risks to achieving the forecast.
Conclusion
The remaining fourth quarter will determine whether Northrop Grumman delivers its higher 2026 profit targets. The key operating test is converting the expanded backlog into sales and cash while managing contract mix and government-funding risks.
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