Northrop Grumman Raises 2026 Profit Outlook as Q3 Sales Rise 7%

Northrop Grumman raised its 2026 guidance for segment operating income and mark-to-market-adjusted earnings per share after third-quarter sales increased 7% and demand lifted backlog to a record of nearly $110 billion. Stronger execution at Aeronautics Systems and Mission Systems supported the revised outlook, while adjusted free cash flow rose 44% during the quarter.

Sales for the three months ended Sept. 30 reached $11.12 billion, up from $10.42 billion a year earlier. GAAP operating income increased to $1.27 billion from $1.24 billion, though the operating margin narrowed to 11.4% from 11.9%.

Non-GAAP segment operating income rose 5% to $1.35 billion. The segment operating margin was 12.1%, compared with 12.3% in the prior-year quarter. Diluted earnings per share increased 3% to $7.89. Segment performance and a lower federal tax rate supported the year-over-year EPS gain, partly offset by marketable-securities results.

Adjusted free cash flow increased to $1.81 billion from $1.26 billion. The 2026 figure included $371 million of proceeds from the sale of equipment to a customer. Net cash provided by operating activities was $1.75 billion, while capital expenditures totaled $306 million.

Demand produced a book-to-bill ratio of about 1.5 times, and backlog rose 20% to $109.60 billion from $91.45 billion. Northrop Grumman also said it added more than one million square feet of manufacturing and engineering space during the past three months as it expands capacity.

Aeronautics and Defense drive sales growth

Aeronautics Systems posted the strongest dollar increase among the company’s segments. Sales climbed 14% to $3.58 billion, driven by higher F-35 volume, the B-21 ramp-up and B-2 sustainment work. Operating income rose to $377 million from $305 million, lifting the segment margin to 10.5% from 9.7% as the company cited disciplined execution across the portfolio.

Defense Systems sales advanced 12% to $2.31 billion, reflecting the Sentinel program ramp and increased munitions and missile volume. Operating income increased to $250 million from $234 million, while the margin declined to 10.8% from 11.4% because of contract mix. The company completed the first vertical assembly of a full Sentinel missile and said the program is positioned for its first launch in 2027.

Mission Systems sales rose 2% to $3.16 billion, supported by higher volume in restricted airborne radar and marine systems. Operating income declined to $500 million from $515 million, and the margin fell to 15.8% from 16.7%. The prior-year result included a $68 million favorable estimate-at-completion adjustment in the restricted advanced microelectronics portfolio.

Space Systems generated sales of $2.75 billion, up 2%, as national security space programs continued to grow. Operating income increased to $312 million from $298 million, and the margin improved to 11.3% from 11.0%. Northrop Grumman also reported delivery of the first 21 Tranche 1 satellites for the Proliferated Warfighter Space Architecture.

2026 profit guidance increased

Northrop Grumman now expects 2026 segment operating income of $4.94 billion to $5.04 billion, compared with its prior range of $4.85 billion to $5.00 billion. The company raised its non-GAAP MTM-adjusted EPS forecast to $29.35 to $29.75 from $28.60 to $29.10.

Full-year sales are projected at $43.75 billion to $44.25 billion, while adjusted free cash flow is expected to range from $3.10 billion to $3.50 billion. GAAP operating income is forecast at $4.61 billion to $4.71 billion, and capital expenditures are expected to total about $1.85 billion.

At the segment level, management now expects Aeronautics Systems to produce a high-9% operating margin, compared with its previous mid- to high-9% forecast. Mission Systems is expected to deliver a mid-15% margin, versus approximately 15% previously. The company attributed the revisions to program execution in the two businesses.

For 2027, Northrop Grumman expects sales growth of 5% to 7% from the midpoint of its current 2026 guidance, along with a 10- to 20-basis-point expansion in the segment operating margin. Adjusted free cash flow is projected at $3.3 billion to $3.7 billion. The company also anticipates further sales-growth acceleration in 2028, although these forward-looking targets remain subject to the assumptions and uncertainties described in its guidance.

The outlook depends in part on U.S. government funding and continued support for major defense programs. Northrop Grumman identified potential appropriation and payment delays, government shutdowns, contract cost growth, inflation, labor constraints, supply-chain disruptions and extended material lead times as key risks. Cybersecurity threats, regulatory changes, geopolitical exposure, supplier performance and uncertainty surrounding pension assumptions could also cause actual results to differ from management’s expectations.