Northrop Grumman reported solid QQ2 2025 results, underscoring the companyβs defensive positioning in a stable, government-led defense budget environment. Revenue reached $10.351 billion, up modestly YoY, with gross profit of $2.21 billion and a gross margin of 21.35%. Operating income was $1.425 billion, yielding an operating margin of 13.77%, while net income totaled $1.174 billion for an EPS of $8.17 (diluted $8.15).
The company generated $868 million of operating cash flow and $637 million of free cash flow, supporting capital allocation in the form of dividends ($332 million) and share repurchases ($411 million). Balance sheet stability is evident with total assets of $49.45 billion and total equity of $15.47 billion, though reported total debt of $17.52 billion results in a notable net debt position of roughly $15.62 billion. Liquidity remains adequate (current ratio 1.03, quick ratio 0.91), and valuation metrics imply a reasonable entry point given the quality of cash generation.
Overall, Northrop Grumman demonstrates resilient profitability and robust cash generation within a diversified defense portfolio, but investors should monitor leverage discipline, defense spending cycles, program execution risk, and any shifts in DoD procurement policies that could impact revenue visibility.
Key Performance Indicators
Revenue
10.35B
QoQ: 9.33% | YoY:1.30%
Gross Profit
2.21B
21.35% margin
QoQ: 39.87% | YoY:0.87%
Operating Income
1.43B
QoQ: 148.69% | YoY:30.73%
Net Income
1.17B
QoQ: 144.07% | YoY:24.89%
EPS
8.17
QoQ: 145.35% | YoY:28.26%
Revenue Trend
Margin Analysis
Key Insights
Total Assets: $49.45B; Total Liabilities: $33.98B; Total Equity: $15.47B
Cash & Equivalents: $1.90B; Debt: $17.52B; Net Debt: $15.62B
Current Ratio: 1.03; Quick Ratio: 0.91; Debt/Equity: 1.13; Debt/Capitalization: 0.531
No earnings call transcript data provided for QQ2 2025. As a result, management-specific quotes and thematic takeaways could not be extracted from the dataset. The analysis relies on disclosed financials and customary industry considerations.
β
β
Forward Guidance
No explicit QQ2 2025 forward-looking guidance was published in the provided data. In a defense-heavy environment, management commentary typically centers on continued DoD budget support, program execution risk, and platform modernization timelines. Investors should monitor: (1) the trajectory of DoD budgeting and related award cadence, (2) program execution and potential schedule shifts affecting revenue recognition, and (3) capacity to sustain free cash flow given ongoing capital returns and potential pension or other obligations. Given the current cash flow generation, Northrop Grumman appears positioned to fund shareholder returns while gradually deleveraging if cash flow remains robust; however, the high net debt balance warrants attention to refinancing risk and interest coverage in a rising rate environment.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
0K92.L Focus
21.35%
13.80%
7.59%
15.30%
0K3H.L
51.10%
25.00%
26.10%
34.03%
0R3E.L
4.04%
4.12%
6.41%
79.05%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Northrop Grumman exhibits defensible profitability and robust cash generation, underpinned by a diversified defense portfolio. The QQ2 2025 results show resilient top-line growth, meaningful margin retention, and solid free cash flow, supporting ongoing shareholder value creation through dividends and buybacks. Valuation is reasonable relative to earnings power (P/E around 15.3x) and the company trades with a solid asset base (P/B ~4.6x). However, investors should remain mindful of the elevated net debt load and the sensitivity of DoD-revenue to budgetary and policy shifts. A cautious to moderately constructive stance is warranted: the stock could re-rate if visibility on long-cycle programs improves and management maintains disciplined capital allocation aimed at gradually deleveraging while preserving cash returns.
Key Investment Factors
Growth Potential
Diversified exposure across Aeronautics, Defense Systems, Mission Systems, and Space positions Northrop Grumman to benefit from sustained DoD modernization and space infrastructure investments. Potential upside from program wins in space systems and advanced cyber/ISR capabilities could expand revenue mix and margins over time.
Profitability Risk
Key risks include governmentbudget volatility and potential shifts in procurement priorities, program execution delays, and the requirement to manage high leverage (net debt ~$15.6B) relative to EBITDA. Geopolitical developments, export controls, and supply chain disruptions could also impact earnings visibility.
Financial Position
Solid cash generation supports shareholder returns (dividends and buybacks) and capex; however, leverage remains elevated (net debt/EBITDA β 8x based on reported EBITDA) and warrants ongoing monitoring. The balance sheet shows ample liquidity (cash β$1.9B) but requires disciplined capital allocation to gradually reduce indebtedness.
SWOT Analysis
Strengths
Diversified, multi-segment portfolio across Aeronautics, Defense Systems, Mission Systems, and Space to mitigate concentration risk.
Consistent free cash flow generation supports shareholder returns and capital allocation flexibility.
Solid operating margins (~13.8%) and robust EBITDA base underpin earnings quality.
Weaknesses
Elevated leverage (net debt ~$15.6B) relative to peers could constrain financial flexibility and increase sensitivity to rate shocks.
Significant exposure to government contracts; revenue and profitability can be affected by DoD budget cycles and policy changes.
Working capital dynamics show moderate DSO and CCC, indicating working capital intensity.
Opportunities
Growth in space systems, missile defense, cyber, and ISR capabilities aligns with long-term DoD modernization priorities.
Continued capital return flexibility (dividends and buybacks) supported by strong FCF.
Potential efficiency gains and technology upgrades across platforms to improve margins over time.
Threats
Defense budget fluctuations and potential procurement policy changes can impact revenue visibility.
Program delays or cancellations could affect short-term earnings and cash flow.
Macro concerns such as rising interest costs and geopolitical tensions could influence defense spending.