10-Q: Northrop Grumman Q2 2026 Earnings: Sales Up, Net Earnings Down

Northrop Grumman reports a 5% increase in Q2 2026 sales to $10.88 billion, but net earnings fell 7% to $1.09 billion, impacted by a prior year gain on divestiture.

Summary

• Northrop Grumman reported Q2 2026 sales of $10.88 billion, a 5% increase year-over-year, driven by growth across all four operating segments.
• Net earnings for the quarter were $1.09 billion, a decrease of 7% compared to Q2 2025, primarily due to a $231 million gain on the sale of the training services business in the prior year.
• Operating income decreased by 23% to $1.096 billion, impacted by the prior year's divestiture gain and lower segment operating income.
• Diluted earnings per share (EPS) were $7.68, down 6% from $8.15 in the prior year's quarter.
• For the first six months of 2026, sales increased 5% to $20.76 billion, while net earnings rose 19% to $1.97 billion.
• The company's backlog stood at $104.7 billion as of June 30, 2026, an increase of 9% from the end of 2025.
• Cash and cash equivalents were $2.31 billion at the end of the quarter.

Sentiment

Score: 6

Explanation: StockSavvy.ai views this as a neutral to slightly positive filing, with strong sales growth offset by a decline in net earnings due to non-recurring items from the prior year.

Positives

• Total sales increased by 5% to $10.88 billion for the second quarter of 2026.
• Sales for the first six months of 2026 increased by 5% to $20.76 billion.
• Operating income for the first six months of 2026 increased by 4% to $2.09 billion.
• Net earnings for the first six months of 2026 increased by 19% to $1.97 billion.
• Diluted EPS for the first six months of 2026 increased by 21% to $13.83.
• Backlog increased by 9% to $104.7 billion as of June 30, 2026.
• The company's effective tax rate decreased significantly to 6.3% in Q2 2026 from 17.7% in Q2 2025.
• Aeronautics Systems saw a 13% increase in Q2 sales and a 383% increase in operating income year-over-year due to the absence of a prior year B-21 loss provision.

Negatives

• Net earnings for the second quarter of 2026 decreased by 7% to $1.09 billion.
• Operating income for the second quarter of 2026 decreased by 23% to $1.096 billion.
• Diluted EPS for the second quarter of 2026 decreased by 6% to $7.68.
• Defense Systems operating income decreased by 38% in Q2 2026 due to lower net EAC adjustments.
• Space Systems operating income decreased by 16% in Q2 2026 due to a lower operating margin rate and unfavorable EAC adjustments.

Risks

• The company's dependence on the U.S. government for a substantial portion of its business.
• Potential for significant delays or reductions in appropriations and program funding from the U.S. government.
• Risks associated with estimating contract costs and revenues, including impacts from inflationary pressures, labor shortages, and supply chain challenges.
• Increased competition within the defense market and potential for bid protests.
• Uncertainty in the global security, U.S. political, budget, and regulatory environment.
• Potential for investigations, claims, disputes, and other legal proceedings.
• Cyber and other security threats or disruptions affecting the company, its customers, or suppliers.
• The performance and viability of subcontractors and suppliers, and the availability and pricing of raw materials.

Future Outlook

The company expects cash and cash equivalents and cash generated from operating activities, supplemented by borrowings under credit facilities, commercial paper, and/or capital markets, if needed, to be sufficient to provide liquidity in the short-term and long-term. The company is focused on competing and winning programs that enable continued growth, performing on commitments, and affordably delivering capability to customers.

Management Comments

• With the investments we've made in advanced technologies, combined with our talented workforce and digital transformation capabilities, Northrop Grumman is well positioned to meet our customers' needs today and in the future.
• We are actively evaluating both opportunities and risks associated with this environment and are moving with speed and at scale to deliver innovative solutions to our customers.
• We believe our capabilities, particularly in space, C4ISR, air and missile defense, battle management, solid rocket motors, advanced weapons, strategic deterrence, survivable aircraft, autonomous aircraft systems and mission systems should help our customers in the U.S. and globally defend against current and future threats and, as a result, continue to position us for long-term profitable business growth.

Industry Context

StockSavvy.ai notes that Northrop Grumman's performance reflects the ongoing dynamic global security environment, which drives demand for defense products and services. The company's focus on advanced technologies and strategic programs like the B-21 and Sentinel positions it to capitalize on increased defense spending.

Corporate Governance

Legal Proceedings

• Ongoing remediation-related disputes concerning historic operations at former U.S. Navy and Grumman facilities in Bethpage, New York.
• Lawsuits alleging personal injury and property damage related to legacy Bethpage environmental conditions (Bethpage EDNY cases).
• Continued engagement with the government regarding a civil investigative demand (CID) related to CAS pension expense interest rate assumptions.
• Company is a party to various other investigations, lawsuits, arbitration, claims, and enforcement actions arising in the ordinary course of business.

Related Party Transactions

• No material related party transactions were disclosed for all periods presented.

Stakeholder Impact

• Shareholders: Potential impact from fluctuations in net earnings and EPS, offset by continued share repurchase authorization and dividend payments.
• Employees: Continued focus on attracting and retaining a qualified workforce; stock-based compensation plans remain in place.
• U.S. Government Customers: Continued provision of critical defense and aerospace products and services, with ongoing program developments like B-21 and Sentinel.
• Suppliers: Potential impacts from supply chain challenges, material availability, and pricing pressures.

Next Steps

• Continue to monitor the impact of global economic and geopolitical events on business.
• Execute on expanded production capacity and increased aircraft production rate for the B-21 program.
• Continue progress on joint activities with the U.S. Air Force for the restructured Sentinel program.
• Evaluate the disclosure impact of upcoming accounting standards updates.

Key Dates

Recommendation

The company demonstrates strong sales growth and a robust backlog, indicating continued demand for its products and services. However, the decrease in quarterly net earnings and operating income, coupled with ongoing risks related to government contracts and market uncertainties, warrants a 'hold' recommendation pending further clarity on profitability trends and resolution of certain program cost estimates.

Keywords

Northrop Grumman, SEC Filing, 10-Q, Aerospace, Defense, Government Contracts, Financial Results, Quarterly Report