[NOC] Northrop Grumman: Q3 2026 Earnings Test a $104.7B Backlog

Northrop Grumman (NOC) is one of the main US defense prime contractors: it builds the B-2 and B-21 stealth bombers, it is the prime contractor on Sentinel, the program that replaces the land-based intercontinental ballistic missile, and 84% of its 2025 sales came from the US government[1]. Northrop Grumman Q3 2026 earnings are scheduled for 2026-10-20, before the market opens, with a call at 9:30 a.m. ET, and they will cover the third quarter of 2026, ending September 30, 2026[2]. In the most recently reported second quarter, sales were $10,876 million, up 5% from a year earlier, and diluted earnings per share were $7.68, down 6%[3]; segment operating income was $1,158 million, down 5%[4], while backlog reached a record $104,692 million at the end of June[5]. On the July 21 call, management said third-quarter sales should grow at a mid- to high-single-digit rate year over year and raised full-year sales guidance to $43.75 billion to $44.25 billion[6]. It also raised full-year earnings per share guidance, which excludes pension mark-to-market effects, by $1.20 to $28.60 to $29.10[7] and reaffirmed full-year adjusted free cash flow of $3.1 billion to $3.5 billion[8]. On the analyst side, the TipRanks earnings page showed a third-quarter consensus earnings per share figure of $7.16 on September 20[9].

Three things are worth watching in this report. The first is the Aeronautics Systems margin now that B-21 production is accelerating: the segment earned a 10.3% margin in the second quarter[4], the company said after its review that it made no significant changes to the loss it had already recognized[10], and the remaining loss accrual stood at $1.0 billion at the end of June[11], so the third-quarter report will show whether the faster rate brings a new cost increase. The second is whether Defense Systems and Space Systems margins recover: unfavorable cost adjustments on the SiAW and GEM 63XL programs pushed their second-quarter margins down to 7.5%[12] and 8.6%[13], while management guided to a return above 11% in the second half[14], and the third quarter is the first test of that statement. The third is how fast backlog turns into sales and cash: first-half adjusted free cash flow was negative $845 million[15], the full-year guidance requires a large swing in the second half, and third-quarter sales growth and year-to-date cash flow will show whether that path is working.

Company Background and Business Structure

Almost all of Northrop Grumman's revenue comes from government defense procurement. Sales were $41,954 million in 2025[16], of which 84% came from the US government, a figure that includes work where the company is a subcontractor and the US government is the end customer[1]; international customers contributed $5,990 million, about 14%, most of it contracted through the US government's foreign military sales channel[17]. The way the customer buys sets the company's operating rhythm. Congress appropriates the money, the services buy through multi-year development contracts and production contracts awarded lot by lot, and a contract is first given a total value and then funded year by year, which is why backlog is split into funded and unfunded portions[18].

The company has four reportable segments, and management assesses each one on segment operating income and the related margin rate[19]. Aeronautics Systems had 2025 sales of $12,992 million and operating income of $813 million; it designs, builds and sustains manned and unmanned military aircraft, including the B-21, B-2, E-2D, Triton and E-130J TACAMO, as well as fuselage components for the F-35. Defense Systems had sales of $8,002 million and operating income of $871 million; its business covers strategic deterrence, missiles and ammunition, solid rocket motors and the IBCS air and missile defense command system, and the Sentinel program sits in this segment. Mission Systems had sales of $12,506 million and operating income of $1,827 million from airborne radar, electronic warfare, maritime systems and microelectronics; it is the highest-margin segment and also supplies the other segments, with intersegment sales of $1,434 million. Space Systems had sales of $10,771 million and operating income of $1,183 million from national security satellites, missile defense interceptors, launch vehicle boosters and NASA cargo missions[20].

The contract type decides who pays for a cost overrun. Cost-type and fixed-price contracts each made up about half of 2025 sales, at $20,944 million and $21,010 million[17]: under the first, the customer bears the cost and the company earns an agreed fee, which is typical of development work; under the second, the company bears any overrun, which is typical of production work. The company recognizes sales as costs are incurred, reviews each contract's estimate at completion (EAC) every quarter, and books a change in estimate in that quarter's profit through the cumulative catch-up method; in 2025 favorable adjustments were $1,696 million and unfavorable adjustments were $1,487 million, leaving a net figure of only $209 million, so the net number sits on top of much larger movements in both directions[21]. When a contract is expected to lose money, the entire loss is charged in the period in which it is identified[11].

The way the company gets paid concentrates its cash flow in the second half of the year. Cost-type contracts are billed monthly or twice a month, fixed-price contracts are paid through progress or milestone payments, and revenue recognized ahead of billing becomes unbilled receivables[22]; the increase in unbilled receivables absorbed $754 million of cash in 2025[23]. The company is also putting more of its own money into capacity: under the agreement it reached with the US Air Force in the first quarter of 2026, it plans to invest about $2.5 billion over several years to expand B-21 production capacity, in return for the opportunity to earn better returns on the low-rate initial production lots and the later not-to-exceed lots[24].

Financial History and Current Position

Sales grew steadily over the past three years, but profit was interrupted twice by the B-21. Sales rose from $39,290 million in 2023 to $41,033 million in 2024 and $41,954 million in 2025[16]. Segment operating income was only $2,760 million in 2023[20], the year in which the company recognized a $1.56 billion loss across the five B-21 low-rate initial production lots in the fourth quarter[25]; it recovered to $4,544 million in 2024 and then fell to $4,377 million in 2025, a 10.4% segment margin, after a further $477 million loss in the first quarter of 2025. Total operating income was $4,511 million in 2025, including a $231 million gain on the sale of the training services business[20].

On the cash side, 2025 operating cash flow was enough to cover investment and shareholder returns. Operating cash flow was $4,757 million, above $4,388 million in 2024 and $3,875 million in 2023, capital expenditures were $1,450 million and free cash flow was $3,307 million, while the company repurchased $1,624 million of stock and paid $1,293 million in dividends[23]. Cash and cash equivalents were $4.4 billion at year end, the $3.0 billion five-year credit facility was undrawn[26], and backlog was $95,681 million, up 5% from a year earlier[18].

In 2026, second-quarter sales and profit moved in opposite directions. Sales were $10,876 million, up 5%, segment operating income was $1,158 million, down 5%, and the segment margin fell from 11.8% to 10.6%[4] because of a combined $159 million of unfavorable cost adjustments on the GEM 63XL and SiAW programs[27]. Operating income was $1,096 million, down 23%, mainly because the prior-year quarter included the $231 million divestiture gain, and also because segment operating income was $61 million lower and the FAS/CAS pension operating adjustment was $56 million lower[28]. Diluted earnings per share were $7.68, down 6%, with an effective tax rate of only 6.3% in the quarter[3] and income tax expense $179 million below the prior-year quarter[29].

First-half cash flow was still a net outflow, while backlog set a record. First-half sales were $20,757 million and diluted earnings per share were $13.83, up 21%, mainly because the first quarter of the prior year carried the B-21 loss charge[3]. Operating activities used $376 million of cash in the first half, share repurchases were only $68 million against $891 million a year earlier, dividends were $684 million and debt repayment was $527 million[30]; adjusted free cash flow was negative $845 million, compared with negative $1,184 million a year earlier, and capital expenditures were $469 million[15]. Backlog was $104,692 million at the end of June, up 9% from the start of the year, of which $45,945 million was funded and $58,747 million was unfunded[5].

Operating Model

Sales are set by the amount of work performed on the backlog and by cost progress. The customer signs a multi-year contract, Congress funds it year by year, and the company recognizes sales as costs are incurred or deliveries are made, so bookings lead sales by a period that depends on the stage of the program. Of the $104,692 million of backlog at the end of June, the company expects to recognize about 35% as revenue over the next 12 months and about 55% over the next 24 months[22]. Near-term growth comes from the B-21 rate increase, the TACAMO ramp, Sentinel development work and missile defense programs; Aeronautics Systems sales grew 13% in the second quarter, mainly on the B-21 and other restricted programs, and TACAMO added $106 million[31].

Segment operating income equals sales times the contract margin, plus or minus net EAC adjustments and minus any new loss provisions. Cost-type contracts carry a lower fee rate but leave the overrun with the customer, while fixed-price contracts offer more room for profit but leave the overrun with the company; fixed-price contracts were 52% of second-quarter sales, up from 47% a year earlier[32], which means cost estimates now matter more to profit. EAC changes reach profit with no lag, in the quarter in which they are recognized: company-wide net EAC adjustments were $94 million in the second quarter, below $126 million a year earlier, made up of a positive $157 million at Aeronautics Systems, a negative $40 million at Defense Systems and a negative $91 million at Space Systems[33]. Total operating income also adds the FAS/CAS pension operating adjustment and subtracts unallocated corporate expense, and net earnings further depend on the non-operating pension benefit, which was $166 million in the second quarter, and on the tax rate[4].

Adjusted free cash flow equals operating cash flow less capital expenditures, and within a year it runs negative first and positive later. Revenue is recognized ahead of billing, working capital absorbs cash in the first half, and milestone payments bring it back in the second half: free cash flow was negative $1,184 million in the first half of 2025[15] and positive $3,307 million for the full year[23]. The cash goes to capital expenditures, dividends, share repurchases and debt repayment; the 2026 capital expenditure plan is about $1.85 billion, and management guided to about 4.5% of sales in 2027 and 2028 to support the B-21 production ramp[34]. The remaining $1.0 billion B-21 loss accrual is carried in other current liabilities and will turn into cash outflows over the delivery period[11].

This model has several blind spots. Financial data for restricted programs and for the B-21 and Sentinel as individual programs are not disclosed, and the production and deployment phases of Sentinel have not been priced, so its long-term profitability cannot be judged today; net EAC is a figure after offsets, individual adjustments are listed only when the company considers them significant, and 10-Q cash flows are year-to-date totals, so a single quarter has to be derived by subtracting one period from another. Mission Systems earned a 15.4% margin in the second quarter and $934 million of operating income in the first half, which makes it the stable source of profit[4], and management raised its full-year margin expectation for that segment to about 15%[14]. Management has also set a goal of doubling annual international sales to $10 billion by 2031[35], but that target runs over too many years to be checked quarter by quarter.

Industry and Competitive Position

Competition among defense prime contractors centers on bids for long-cycle programs. The 10-K names The Boeing Company, General Dynamics, L3Harris Technologies, Lockheed Martin and RTX as the main competitors and adds that new entrants and startups are increasingly present; the industry is marked by long operating cycles, intense bidding and frequent protests of government awards by losing bidders. Work on major programs is usually shared among several companies, so a company that is a rival on one program may be a supplier or a customer on another[36].

Northrop Grumman itself plays several of these roles at once. It is a principal subcontractor on the F-35, which accounted for $1.0 billion of second-quarter awards, alongside $4.3 billion for restricted programs and $0.8 billion for the Glide Phase Interceptor (GPI)[37]. In June 2026 it also completed qualification as a solid rocket motor supplier for Lockheed Martin's PAC-3 missile, which shows that solid rocket motors are both a product line of its own and a way into supplying its competitors.

The company's unusual position is that it carries two of the modernization programs in the US nuclear triad at the same time, the B-21 bomber and the Sentinel missile. Both programs have high budget priority, and the further definition of Sentinel's scope alone added $7.6 billion to backlog in the second quarter[38], but they are also where the company's cost risk is most concentrated, with about $2.0 billion of cumulative loss already recognized on the B-21[11]. The scope for comparison is limited: the available disclosures contain no like-for-like market share or margin comparison with competitors, and data on restricted programs are not public, so the company's relative position can be observed only through awards and program roles, not derived from a financial comparison.

Core Debates

Can Aeronautics hold its margin as B-21 production accelerates, without another loss charge?

Aeronautics Systems is one of the company's largest segments, and the fixed-price B-21 lots are the main source of swings in its profit. The segment had 2025 sales of $12,992 million[16]. The five B-21 low-rate initial production lots are largely fixed price, and the company has recognized about $2.0 billion of losses on them: $1.56 billion in the fourth quarter of 2023 and a further $477 million in the first quarter of 2025[25], the second of which took the segment's operating income for that year from $1,236 million to $813 million[20]. In the first quarter of 2026 the company agreed with the Air Force to raise the production rate and plans to invest about $2.5 billion over several years to expand capacity[24]; once output is higher, another error in the cost estimate on the same fixed-price contract would cost more.

Through the second quarter, the Aeronautics Systems margin has held above guidance. Second-quarter segment sales were $3,519 million, up 13%[31], operating income was $362 million, the margin was 10.3%, and the first-half margin was 9.8%[4]; the company therefore raised segment sales guidance for the year to about $14 billion[39] and raised the full-year margin guidance to the mid- to high-9% range[40]. After its reviews in both the first and second quarters, the company said it made no significant changes to the loss already recognized[10], and the remaining loss accrual was $1.0 billion at the end of June[11].

The direction of the financial transmission depends on whether the cost estimate holds. The B-21 rate increase and the TACAMO ramp lift Aeronautics Systems sales, and the added work is mostly fixed price; if the estimates for supplier prices and production costs stay where they are, the remaining $1.0 billion accrual is consumed as aircraft are delivered and the segment margin stays in the mid- to high-9% range; if the estimate at completion rises again, the company has to add to the loss accrual in a single quarter, and segment operating income and company earnings per share fall together. What remains unresolved is that the estimate is still moving: after the rate agreement, costs were reallocated among lots, the first four lots showed a $157 million unfavorable adjustment in the first quarter and a favorable adjustment in the second quarter, and both were offset by opposite changes in the loss accrual[27]. The 10-Q also states that the estimate still depends on the outcome of discussions with suppliers[10], and the final terms, quantity and pricing of the later not-to-exceed lots have not been fully negotiated[24].

The B-21 paragraph in the third-quarter 10-Q is the most direct thing to check. The points to look for are whether the company still writes that it made "no significant changes" to the recognized loss, whether the Aeronautics Systems margin is at least 9.5%, whether the segment's net EAC is positive (it was a positive $157 million in the second quarter[33]), and whether the terms of the later not-to-exceed lots have been settled. If the company adds to the B-21 loss accrual again in the third quarter, or if the Aeronautics Systems margin drops below 9.5% and the company lowers the segment's full-year margin guidance, or if the segment's net EAC turns negative and the 10-Q attributes it to higher costs on the B-21 or other restricted programs, then the faster rate has magnified the cost risk of the fixed-price contract rather than diluted it.

Were the missile and rocket-motor charges one-offs, or will they keep eating into profit?

The gap between sales and profit in the second quarter came almost entirely from two programs. Company sales grew 5% while segment operating income fell 5%, and the segment margin dropped from 11.8% to 10.6%[4]; the Defense Systems margin fell from 12.7% to 7.5%[12] and the Space Systems margin fell from 10.6% to 8.6%[13]. The company kept its full-year segment operating income guidance[6], which puts the whole job of repair on the second half.

The 10-Q lists two unfavorable adjustments separately, and they turned net EAC at both segments from positive to negative. The GEM 63XL adjustment was $91 million in the second quarter, largely because of increases in the projected cost and quantity of material needed to complete the program, on top of $71 million in the first quarter; the SiAW adjustment was $68 million in the second quarter, from higher projected costs to develop and qualify the weapon[27]. Defense Systems net EAC was a negative $40 million in the second quarter against a positive $83 million a year earlier; Space Systems was a negative $91 million against a positive $13 million a year earlier, and a cumulative negative $129 million for the first half[33]. Management said on the call that the rest of Defense Systems earned about 11% excluding SiAW, that the rest of Space Systems earned more than 11% excluding GEM 63XL, and that it guided both segments above 11% in the second half[14]; the redesigned GEM 63XL component has passed a static fire test, and management guided to deliveries of the redesigned motors beginning by the end of the year[41].

There is already evidence for both directions of this transmission chain. The company took on development and production-transition programs in order to become a tactical missile prime contractor and a solid rocket motor supplier, test delays and higher material usage raised the estimates at completion, and the unfavorable adjustments cut segment margins in a single quarter, by about 3 percentage points at each of the two segments in the second quarter; if qualification testing and corrective actions finish on plan, the adjustments stop and the margins return to the roughly 11% earned by the rest of each business, and if they recur, the full-year segment operating income guidance comes under pressure. The opposite reading is that the costs have not finished moving: GEM 63XL has now had cost increases in two consecutive quarters, and the 10-Q also states that the company projects higher costs to mature production on AARGM-ER[12], while cost estimates on development-stage programs are often not settled in one step. The company also lowered its full-year Space Systems margin guidance to the low-10% range[42], which shows that the first-half loss will not be recovered.

The list of significant EAC adjustments in the third-quarter 10-Q is the basis for judging this debate. The points to check are whether GEM 63XL, SiAW or AARGM-ER appears on that list again, whether both the Defense Systems and Space Systems margins are back above 11%, and whether the company still reaffirms its full-year segment operating income guidance. If the third quarter again lists unfavorable adjustments on these programs, or if either segment's margin is below 10% and the company lowers that segment's full-year margin guidance, or if deliveries of the redesigned GEM 63XL motor slip beyond 2026, then the statement that the rest of the business earns about 11% is not enough to support the full-year guidance.

When does a $104.7 billion backlog turn into sales and cash?

The company raised its full-year guidance on the strength of bookings, and those bookings have not yet shown up in sales or cash. Net awards were $20.0 billion in the second quarter and $29.8 billion in the first half[37], backlog rose to a record $104,692 million[5], and management guided to a full-year book-to-bill ratio of at least 1.25 times[35]. First-half sales, however, grew only 5%[3], adjusted free cash flow was negative $845 million[15], and the full-year cash flow guidance is $3.1 billion to $3.5 billion[8], so whether the guidance is met depends on how fast backlog turns into sales and collections in the second half.

The path management describes is a step-up in the second half, and that path has a precedent. Management guided to mid- to high-single-digit year-over-year sales growth in the third quarter and said the second-half step-up resembles last year's profile[6]; free cash flow was negative $1,184 million in the first half of 2025 and positive $3,307 million for the full year[23]. Simple arithmetic on the company's own numbers shows that the $3.1 billion to $3.5 billion guidance requires about $3.95 billion to $4.35 billion of cash to come back in the second half, which is a conversion of the guidance and not a prediction. Management also explained that adjusted free cash flow includes several hundred million dollars it plans to collect this year from the sale of a B-21 test asset, a transaction that accelerated the related receipts but shifted other payments on the program beyond this year[8].

Two doubts need to be kept in view, and both point to conversion running slower than bookings growth. First, $7.6 billion of the second-quarter additions came from the further definition of Sentinel's scope[38], which is long-cycle work, and the share of backlog the company expects to convert over the next 12 months fell from about 40% to about 35% as a result, or about $36.6 billion on the end-of-June backlog[22]. Second, capital expenditures are rising: the full-year plan is $1.85 billion, only $469 million was spent in the first half[15], the guided level for 2027 and 2028 is about 4.5% of sales[34], and the company said it will give its view of free cash flow for 2027 and beyond with third-quarter results. The financial transmission therefore has two parts: appropriations and contract awards push net awards above sales and enlarge backlog, and the concentration of work and milestone receipts in the second half accelerates sales and releases working capital; but long-cycle awards and the capital spending for B-21 expansion can make sales and free cash flow grow more slowly than backlog itself.

The third quarter offers four observations that can be checked directly. They are whether year-over-year sales growth is at least about 5%, whether cumulative adjusted free cash flow for the first nine months turns positive, whether net awards still exceed sales, and what the company says about free cash flow in 2027 and 2028. If third-quarter sales growth is below about 4% and the company lowers full-year sales guidance, or if nine-month cash flow is still negative and the company lowers the $3.1 billion to $3.5 billion guidance, or if net awards fall below the quarter's sales and the company lowers its full-year book-to-bill expectation of at least 1.25 times, then bookings growth is not turning into sales and cash at the guided pace.

Risks and Falsifiers

Dependence on a single customer exposes both the company's sales and its cost environment to US government decisions. The US government accounted for 84% of 2025 sales[1]; the 10-K notes that the Administration has issued executive orders addressing contractor underperformance, insufficient investment in production capacity and executive incentive compensation metrics, and says their implementation could create a more challenging or costly operating environment[43]. The exposed lines are the appropriation timing behind sales and the company's capital return arrangements; if fiscal 2027 appropriations pass on schedule, the company reaffirms full-year guidance and it discloses no change to capital returns because of the executive orders, this concern is weakened.

Non-operating items make up a growing share of earnings per share, and a low tax rate and pension income have masked the decline in segment profit. Second-quarter segment operating income fell $61 million from a year earlier[28], while income tax expense fell $179 million and the non-operating pension benefit rose $29 million[29], with an effective tax rate of only 6.3%[3]. Full-year earnings per share guidance went up by $1.20 while segment operating income guidance was merely maintained, and management said the increase reflects second-half segment performance and an effective tax rate in the mid-14% range[7]. If third-quarter segment operating income grows year over year and the improvement in earnings per share comes mainly from segment profit rather than the tax rate, this reading does not hold.

If the estimate at completion on the fixed-price B-21 lots rises again, the company will have to add to its loss accrual again. The two earlier additions were $1.56 billion and $477 million, and each was charged to Aeronautics Systems operating income in a single quarter[25]; the remaining accrual of $1.0 billion at the end of June is carried in other current liabilities and will be consumed as cash outflows over the following years[11]. If the third-quarter 10-Q states that the review produced no significant changes and the Aeronautics Systems margin is at least 9.5%, this risk did not materialize in the quarter.

Missile and rocket-motor programs in development and production transition may keep raising their estimates at completion. In the first half of 2026 the cumulative unfavorable adjustments were $162 million on GEM 63XL[13] and $68 million on SiAW[27], a combined $230 million, or about 10% of first-half segment operating income of $2,230 million[4], and each was charged to segment operating income in a single quarter. If the third-quarter 10-Q lists no new unfavorable adjustments on these programs and both the Defense Systems and Space Systems margins are at least 11%, this risk is falsified.

If federal budget and appropriation progress or contract award timing runs later than planned, the conversion of backlog into sales and collections will be delayed. Backlog includes $58,747 million that is not yet funded[5], and the full-year cash flow guidance of $3.1 billion to $3.5 billion requires about $3.95 billion to $4.35 billion to come back in the second half[8]; the 10-K also warns that initiatives to reduce government spending, federal budget action and debt ceiling action could materially affect defense spending and the company's programs[43]. Third-quarter sales growth of at least about 5% and positive cumulative adjusted free cash flow for the first nine months would signal that this risk has not materialized.

What to Watch Next

• B-21 margin after the rate increase: the Aeronautics Systems margin was 10.3% in the second quarter of 2026 and 9.8% in the first half. Watch whether it stays at or above 9.5%; a lower figure together with a cut to the segment's full-year margin guidance would falsify the current reading.
• B-21 loss accrual and 10-Q wording: the remaining accrual was $1.0 billion at the end of June, and the first- and second-quarter filings both said "no significant changes." Another addition falsifies; the same wording confirms.
• Aeronautics Systems net EAC: it was a positive $157 million in the second quarter. A negative figure that the 10-Q attributes to B-21 or restricted program costs would falsify.
• Defense Systems margin: 7.5% in the second quarter against 12.7% a year earlier. Watch for a return above 11%; a margin below 10% together with a guidance cut for the segment would falsify.
• Space Systems margin: 8.6% in the second quarter against 10.6% a year earlier. Watch for a return above 11%; a margin below 10% together with a guidance cut for the segment would falsify.
• Significant EAC list: first-half unfavorable adjustments were $162 million on GEM 63XL and $68 million on SiAW. A new listing of GEM 63XL, SiAW or AARGM-ER falsifies; redesigned motor deliveries starting by the end of the year confirm.
• Sales growth: second-quarter sales were $10,876 million, up 5%. Watch whether third-quarter growth is at least about 5%; growth below about 4% together with a cut to full-year sales guidance would falsify.
• Cumulative adjusted free cash flow: negative $845 million in the first half. Watch whether the nine-month figure turns positive; a still-negative figure together with a cut to the $3.1 billion to $3.5 billion guidance would falsify.
• Net awards and backlog: net awards were $20.0 billion in the second quarter and backlog was $104,692 million. Net awards below the quarter's sales together with a cut to the 1.25 times book-to-bill expectation would falsify.

Conclusion

Northrop Grumman's business is driven by three things, defense appropriations, backlog and contract cost estimates, and today backlog is the strongest of them while profit and cash are the weakest. Backlog was $104,692 million at the end of June, up 9% from the start of the year[5], second-quarter sales grew 5% while segment operating income fell 5%[4], and first-half adjusted free cash flow was negative $845 million[15]; the company raised its full-year sales and earnings per share guidance and maintained its segment operating income and cash flow guidance. The central unresolved relationship is whether a record backlog can turn into segment profit and cash at the second-half pace management describes, without another large cost increase.

The two outside readings published after the results both focus on execution rather than bookings, but with different emphasis. Gian Estrada at TIKR reads the second quarter as an earnings beat of reduced quality: $7.68 was about 13% above the $6.82 market estimate he cites, but it was helped by a lower tax rate tied to a remeasurement of uncertain tax positions, and the 8.6% Space Systems and 7.5% Defense Systems margins were held back by GEM 63XL and SiAW; the piece also puts quarterly free cash flow at $978 million, up about 54% from a year earlier but a third below the roughly $1,462 million market estimate it cites, and argues that once the two programs clear testing, the full-year earnings per share guidance of $28.60 to $29.10 becomes a new starting point rather than the ceiling[44]. Those single-quarter cash flow figures come from that piece, because the 10-Q discloses only the first-half cumulative amount. The Investing.com report records how the market reacted on the day: despite the earnings beat and the raised guidance, the shares fell 2.5% to $510.84, which the report attributes to investors weighing program execution challenges against the growth outlook, and it relays management's statement that Space Systems margins should exceed 11% in the second half[45]. Both pieces point to the debate over program cost overruns, and TIKR also touches on cash arriving more slowly than bookings; they differ in that TIKR treats the cost problem as something that can be left behind once testing is passed, while the share price reaction on the day shows the market did not accept that. They are outside interpretations, not findings of fact and not a vote on the third-quarter result.

The combination that would materially strengthen the current understanding is a third-quarter 10-Q that still reports no significant changes on the B-21 with an Aeronautics Systems margin of at least 9.5%, a significant EAC list with no GEM 63XL, SiAW or AARGM-ER and Defense Systems and Space Systems margins back above 11%, together with sales growth of at least about 5% and positive cumulative adjusted free cash flow for the first nine months. The opposite combination would weaken it: another B-21 loss or another separately listed unfavorable adjustment on the missile and motor programs, a margin below 10% at either segment accompanied by a guidance cut, or cash flow that is still negative while the company lowers the $3.1 billion to $3.5 billion guidance. If the improvement in earnings per share still comes mainly from the tax rate rather than segment profit, then even earnings per share above the market estimate would leave the link from backlog to profit unverified.

Sources

[1] NOC 10-K filed 2026-01-27 · customer concentration · 2026-01-27 · 10-K · https://www.sec.gov/Archives/edgar/data/1133421/000113342126000003/

[2] Drillr earnings calendar · NOC earnings call scheduled 2026-10-20 (calendar last updated 2026-09-20); Northrop Grumman's 2026-09-17 news release gives the same date, results before the market opens and a 9:30 a.m. ET call · 2026-09-20 · Drillr earnings calendar

[3] NOC 10-Q filed 2026-07-21 · 2Q26 consolidated operating results · 2026-07-21 · 10-Q · https://www.sec.gov/Archives/edgar/data/1133421/000113342126000034/

[4] NOC 10-Q filed 2026-07-21 · 2Q26 segment sales and operating income · 2026-07-21 · 10-Q · https://www.sec.gov/Archives/edgar/data/1133421/000113342126000034/

[5] NOC 10-Q filed 2026-07-21 · backlog by segment at June 30, 2026 · 2026-07-21 · 10-Q · https://www.sec.gov/Archives/edgar/data/1133421/000113342126000034/

[6] NOC 2Q26 earnings call 2026-07-21 · 2026 sales guidance and third-quarter growth · 2026-07-21 · earnings-call · https://investor.northropgrumman.com/static-files/a48b12f6-1fae-46a4-890f-973b42c3aac4

[7] NOC 2Q26 earnings call 2026-07-21 · 2026 MTM-adjusted EPS guidance · 2026-07-21 · earnings-call · https://investor.northropgrumman.com/static-files/a48b12f6-1fae-46a4-890f-973b42c3aac4

[8] NOC 2Q26 earnings call 2026-07-21 · 2026 adjusted free cash flow guidance · 2026-07-21 · earnings-call · https://investor.northropgrumman.com/static-files/a48b12f6-1fae-46a4-890f-973b42c3aac4

[9] TipRanks NOC earnings page (accessed 2026-09-20) · 3Q26 consensus EPS · 2026-09-20 · TipRanks · https://www.tipranks.com/stocks/noc/earnings

[10] NOC 10-Q filed 2026-07-21 · 2Q26 B-21 profitability review · 2026-07-21 · 10-Q · https://www.sec.gov/Archives/edgar/data/1133421/000113342126000034/

[11] NOC 10-Q filed 2026-07-21 · B-21 cumulative loss and remaining accrual · 2026-07-21 · 10-Q · https://www.sec.gov/Archives/edgar/data/1133421/000113342126000034/

[12] NOC 10-Q filed 2026-07-21 · 2Q26 Defense Systems operating income · 2026-07-21 · 10-Q · https://www.sec.gov/Archives/edgar/data/1133421/000113342126000034/

[13] NOC 10-Q filed 2026-07-21 · 2Q26 Space Systems operating income · 2026-07-21 · 10-Q · https://www.sec.gov/Archives/edgar/data/1133421/000113342126000034/

[14] NOC 2Q26 earnings call 2026-07-21 · Defense Systems second-half guidance · 2026-07-21 · earnings-call · https://investor.northropgrumman.com/static-files/a48b12f6-1fae-46a4-890f-973b42c3aac4

[15] NOC 10-Q filed 2026-07-21 · adjusted free cash flow reconciliation · 2026-07-21 · 10-Q · https://www.sec.gov/Archives/edgar/data/1133421/000113342126000034/

[16] NOC 10-K filed 2026-01-27 · segment sales 2023-2025 · 2026-01-27 · 10-K · https://www.sec.gov/Archives/edgar/data/1133421/000113342126000003/

[17] NOC 10-K filed 2026-01-27 · 2025 sales by contract type and customer · 2026-01-27 · 10-K · https://www.sec.gov/Archives/edgar/data/1133421/000113342126000003/

[18] NOC 10-K filed 2026-01-27 · backlog at December 31, 2025 · 2026-01-27 · 10-K · https://www.sec.gov/Archives/edgar/data/1133421/000113342126000003/

[19] NOC 10-K filed 2026-01-27 · four reportable segments and segment profit measure · 2026-01-27 · 10-K · https://www.sec.gov/Archives/edgar/data/1133421/000113342126000003/

[20] NOC 10-K filed 2026-01-27 · segment operating income 2023-2025 · 2026-01-27 · 10-K · https://www.sec.gov/Archives/edgar/data/1133421/000113342126000003/

[21] NOC 10-K filed 2026-01-27 · favorable and unfavorable EAC adjustments 2023-2025 · 2026-01-27 · 10-K · https://www.sec.gov/Archives/edgar/data/1133421/000113342126000003/

[22] NOC 10-Q filed 2026-07-21 · backlog conversion schedule · 2026-07-21 · 10-Q · https://www.sec.gov/Archives/edgar/data/1133421/000113342126000034/

[23] NOC 10-K filed 2026-01-27 · consolidated statements of cash flows · 2026-01-27 · 10-K · https://www.sec.gov/Archives/edgar/data/1133421/000113342126000003/

[24] NOC 10-Q filed 2026-04-21 · B-21 production-rate agreement and $2.5 billion investment · 2026-04-21 · 10-Q · https://www.sec.gov/Archives/edgar/data/1133421/000113342126000016/

[25] NOC 10-K filed 2026-01-27 · B-21 LRIP loss history · 2026-01-27 · 10-K · https://www.sec.gov/Archives/edgar/data/1133421/000113342126000003/

[26] NOC 10-K filed 2026-01-27 · liquidity and capital resources · 2026-01-27 · 10-K · https://www.sec.gov/Archives/edgar/data/1133421/000113342126000003/

[27] NOC 10-Q filed 2026-07-21 · significant 2026 EAC adjustments (GEM 63XL, SiAW, B-21) · 2026-07-21 · 10-Q · https://www.sec.gov/Archives/edgar/data/1133421/000113342126000034/

[28] NOC 10-Q filed 2026-07-21 · 2Q26 operating income and margin rate · 2026-07-21 · 10-Q · https://www.sec.gov/Archives/edgar/data/1133421/000113342126000034/

[29] NOC 10-Q filed 2026-07-21 · 2Q26 net earnings drivers · 2026-07-21 · 10-Q · https://www.sec.gov/Archives/edgar/data/1133421/000113342126000034/

[30] NOC 10-Q filed 2026-07-21 · six-month statement of cash flows · 2026-07-21 · 10-Q · https://www.sec.gov/Archives/edgar/data/1133421/000113342126000034/

[31] NOC 10-Q filed 2026-07-21 · 2Q26 Aeronautics Systems sales · 2026-07-21 · 10-Q · https://www.sec.gov/Archives/edgar/data/1133421/000113342126000034/

[32] NOC 10-Q filed 2026-07-21 · 2Q26 sales by contract type · 2026-07-21 · 10-Q · https://www.sec.gov/Archives/edgar/data/1133421/000113342126000034/

[33] NOC 10-Q filed 2026-07-21 · 2Q26 net EAC adjustments by segment · 2026-07-21 · 10-Q · https://www.sec.gov/Archives/edgar/data/1133421/000113342126000034/

[34] NOC 2Q26 earnings call 2026-07-21 · 2026 capital expenditure plan · 2026-07-21 · earnings-call · https://investor.northropgrumman.com/static-files/a48b12f6-1fae-46a4-890f-973b42c3aac4

[35] NOC 2Q26 earnings call 2026-07-21 · full-year book-to-bill expectation · 2026-07-21 · earnings-call · https://investor.northropgrumman.com/static-files/a48b12f6-1fae-46a4-890f-973b42c3aac4

[36] NOC 10-K filed 2026-01-27 · competitive conditions · 2026-01-27 · 10-K · https://www.sec.gov/Archives/edgar/data/1133421/000113342126000003/

[37] NOC 10-Q filed 2026-07-21 · 2Q26 net awards · 2026-07-21 · 10-Q · https://www.sec.gov/Archives/edgar/data/1133421/000113342126000034/

[38] NOC 10-Q filed 2026-07-21 · Sentinel restructure and $7.6 billion backlog increase · 2026-07-21 · 10-Q · https://www.sec.gov/Archives/edgar/data/1133421/000113342126000034/

[39] NOC 2Q26 earnings call 2026-07-21 · Aeronautics Systems 2026 guidance · 2026-07-21 · earnings-call · https://investor.northropgrumman.com/static-files/a48b12f6-1fae-46a4-890f-973b42c3aac4

[40] NOC 2Q26 earnings call 2026-07-21 · Aeronautics Systems margin guidance · 2026-07-21 · earnings-call · https://investor.northropgrumman.com/static-files/a48b12f6-1fae-46a4-890f-973b42c3aac4

[41] NOC 2Q26 earnings call 2026-07-21 · GEM 63XL corrective actions · 2026-07-21 · earnings-call · https://investor.northropgrumman.com/static-files/a48b12f6-1fae-46a4-890f-973b42c3aac4

[42] NOC 2Q26 earnings call 2026-07-21 · Space Systems 2026 guidance · 2026-07-21 · earnings-call · https://investor.northropgrumman.com/static-files/a48b12f6-1fae-46a4-890f-973b42c3aac4

[43] NOC 10-K filed 2026-01-27 · U.S. political, budget and regulatory environment · 2026-01-27 · 10-K · https://www.sec.gov/Archives/edgar/data/1133421/000113342126000003/

[44] TIKR 2026-07-22 · Northrop Grumman's Q2 Earnings Beat on EPS by 13%. Two Program Charges Held It Back. · 2026-07-22 · TIKR · https://www.tikr.com/blog/northrop-grummans-q2-earnings-beat-on-eps-by-13-two-program-charges-held-it-back

[45] Investing.com 2026-07-21 · Northrop Grumman Q2 2026 slides: record backlog drives raised outlook · 2026-07-21 · Investing.com · https://www.investing.com/news/company-news/northrop-grumman-q2-2026-slides-record-backlog-drives-raised-outlook-93CH-4803774