Northrop Grumman (NYSE:NOC) executives used the company’s fourth-quarter 2025 earnings call to highlight accelerating operating performance, record backlog, and a 2026 outlook that management described as a “balanced approach” amid what CEO Kathy Warden called a dynamic demand environment.
Record backlog and cash generation in 2025
Warden said the company ended 2025 with “over $95 billion in backlog,” which she described as a new company record, supported by “over $46 billion in net awards” during the year. She added that backlog has grown by nearly $20 billion since 2021 and that the company’s five-year average book-to-bill ratio is 1.1x.
Fourth-quarter results show sales acceleration and segment performance
Crews reported fourth-quarter sales of $11.7 billion, up 10% year-over-year, and said sales accelerated 12% sequentially, with the quarter representing 28% of full-year sales volume. For the full year, 2025 sales were $42 billion, up 3% organically and above the high end of the company’s guidance range provided in the third quarter.
On profitability, Crews said segment operating income rose 10% in the quarter, with segment operating margin of 11.2%. Fourth-quarter mark-to-market adjusted EPS was $7.23, up 13% from the prior year.
By segment, management highlighted the following fourth-quarter trends:
- Aeronautics Systems: Sales of $3.9 billion, up 18%, driven by material timing on F-35, TACAMO ramp, and higher B-21 volume enabled by inventory liquidation tied to LRIP Lot 3 and Lot 5 advanced procurement awards.
- Defense Systems: Sales up 7% on a GAAP basis and 12% organically, with growth including tactical solid rocket motors for GMLRS, higher missile defense (primarily IBCS), and increased Sentinel volume as the program ramps.
- Mission Systems: Double-digit sales growth driven by restricted programs, F-35, SEWIP, and international radar systems.
- Space: Returned to growth, with sales up 5%, driven by GEM 63 motors for Amazon’s Project Leo and increased volume on certain restricted programs. Crews said Space operating income rose 17% and margin was 11.3%, aided by net EAC adjustments and more favorable contract mix.
Crews also noted there were “no significant changes to the B-21 EAC” during the quarter.
Strategic focus: speed, capacity, and scaling production
Warden emphasized Northrop Grumman’s efforts to align with customer demand for faster fielding of capabilities, describing a push to balance “performance with affordability and speed to market.” She pointed to high-volume space production for the Space Development Agency, including a fourth-quarter award for 18 Tranche 3 Tracking Layer satellites that brought total SDA satellite backlog to 150.
In uncrewed systems, Warden discussed “Project Talon,” described as an evolution of the company’s collaborative combat aircraft Increment One design, built in under 24 months using its autonomous testbed ecosystem (Beacon, now “Talon IQ”). She said the U.S. Air Force awarded the aircraft a designator, YFQ-48A, in December. Warden also highlighted a teaming arrangement with Kratos, including a $231 million award late in 2025 to develop a collaborative combat aircraft for the Marines, and said the partners have completed more than 20 demonstrations in operationally relevant environments.
On industrial capacity, Warden said Northrop Grumman has doubled tactical solid rocket motor production capacity at its ABL facility in West Virginia since 2021 and is working to increase capacity by another 50%—effectively tripling output by early 2027. She also cited plans to expand capacity at Elkton, Maryland, with the goal of tripling capacity there by 2030.
B-21, Sentinel, international demand, and 2026 guidance
Warden said the B-21 program met key milestones, including the first flight of the second aircraft in 2025. She said the company received the LRIP Lot 3 contract in the fourth quarter and advanced procurement funding for Lot 5, and that Northrop Grumman is working with the Air Force on plans to increase the production rate. She said funding for acceleration has been approved as part of the reconciliation bill and that she was “optimistic” an agreement could be reached “this quarter.”
During Q&A, Warden said an accelerated B-21 production agreement would require $2 billion to $3 billion of investment over a multi-year period and that the “tremendous” impact would be more visible in 2027 through 2029, rather than 2026.
On Sentinel, Warden said the company is partnering with the Air Force to restructure the program, with ongoing work including missile progress, launch silo design maturation, and prototyping in the command and launch segment. She added that the program is expected to remain in development for several years and not transition into production until later in the decade, outside the company’s 2- to 3-year outlook window.
New CFO John Green (who joined earlier in January) provided 2026 guidance that he said was consistent with the outlook given in October and “does not yet include an accelerated B-21 production rate.” Management’s 2026 expectations include:
- Sales: $43.5 billion to $44.0 billion (mid-single-digit growth)
- Segment operating income: $4.85 billion to $5.0 billion (low- to mid-11% margin)
- Mark-to-market adjusted EPS: $27.40 to $27.90
- Free cash flow: $3.1 billion to $3.5 billion
- Capital expenditures: $1.65 billion (about 4% of sales), up from prior expectations
At the segment level, Green guided to Aeronautics sales in the “mid $13 billion” range with low- to mid-9% margins, citing mix impacts from B-21 (which executives noted has a 0% margin profile in LRIP) and other development work such as TACAMO. Defense Systems sales were expected to rise low double digits organically to the mid-to-high $8 billion range with margins around 10%. Mission Systems sales were expected in the high $12 billion range with margins improving into the high 14% range. Space sales were expected to grow to about $11 billion with operating income in the 11% range, with stable GEM 63 volumes and “modest headwinds” on NASA programs.
Internationally, Warden said international sales rose 20% in 2025 and that demand signals remain strong. She noted formal requests to acquire IBCS from “over 20 countries” and said the company expects “another two or three” IBCS awards to be announced in 2026, with others to follow. She also described strength in international demand for munitions and radars, although she cautioned that some anticipated radar awards would have more sales impact in 2027 than in 2026.
Capital allocation: higher investment, debt maturity, and buybacks
In capital deployment remarks, Green said $527 million of fixed-rate debt matures in March and the company intends to pay it down with cash on hand. In response to questions on buybacks and dividends, management said the company plans to keep share count flat and is not planning additional buybacks beyond the end of January. Executives said Northrop Grumman expects to continue paying dividends, with the board set to review the annual dividend increase in May, with an update expected around second-quarter earnings.
Management also said 2025 ended with pension asset returns of 11.3% and funding status of 106%, with 2026 cash recoveries forecast at $245 million and minimal annual cash contributions expected over the next several years.
About Northrop Grumman (NYSE:NOC)
Northrop Grumman Corporation (NYSE: NOC) is a leading U.S.-based aerospace and defense company that designs, builds and sustains advanced systems, products and technologies for government and commercial customers. Formed through the combination of Northrop and Grumman businesses in the 1990s, the company’s portfolio spans manned and unmanned aircraft, space systems, missile defense, radar and sensor systems, and integrated command, control, communications, computers, intelligence, surveillance and reconnaissance (C4ISR) solutions.
The company’s work includes airframe and platform manufacturing, space hardware and satellite systems, advanced mission systems and cybersecurity services, as well as logistics, sustainment and modernization programs.
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