Key financial results

  • Third quarter sales were $11.1 billion, representing a 7% increase year-over-year.Third quarter sales were $11.1 billion, up 7% year-over-year, driven by higher sales at all 4 segments.
  • The company reported a record backlog of $110 billion, which is a 20% increase compared to the third quarter of last year.backlog increased 20% to $110 billion compared to the third quarter of last year, driven by bookings of over $16 billion.
  • Diluted earnings per share were $7.89, an increase of 3% compared to the prior year.Earnings per share increased to $7.89 and up 3%, driven by higher top line segment operating income expansion and additional tax benefits.
  • Adjusted free cash flow for the period was $1.8 billion, up over 40% year-over-year.adjusted free cash flow was $1.8 billion in the period, up over 40% compared to the prior year
  • The book-to-bill ratio for the quarter was 1.5x.In the quarter, our book-to-bill was 1.5x, which drove a new record backlog of $110 billion
  • Capital expenditures for the quarter were $306 million.

Business segment results

  • Aeronautics: Aeronautics sales increased 14% due to higher production and sustainment volumes on the F-35 program and the B-21 ramp.sales increased by 14%, driven by higher production volumes and sustainment volumes on the F-35 program.
  • Aeronautics: Aeronautics operating margins were 10.5% for the quarter.Operating margins improved to 10.5%, enabled by product mix and disciplined program execution throughout the portfolio.
  • Defense Systems: Defense Systems sales reached $2.3 billion, a 12% increase driven by the Sentinel program and tactical solid rocket motors.Defense Systems third quarter sales accelerated to $2.3 billion, up 12% compared to the prior year.
  • Defense Systems: Defense Systems operating margin rate was 10.8%.Operating income increased to $250 million with third quarter segment operating margin rate of 10.8%
  • Mission Systems: Mission Systems sales increased 2% due to restricted airborne radar programs and higher volumes in Marine Systems.Sales increased 2%, primarily due to the ramp up on restricted airborne radar programs and higher volumes on Marine Systems.
  • Mission Systems: Mission Systems operating margin was 15.8%.Segment operating income was outstanding at 15.8%, driven by continued excellent portfolio execution.
  • Space: Space sales increased 2% driven by national security programs, partially offset by commercial resupply service timing.sales increased by 2%, driven by strength on national security programs, including restricted efforts and GPI
  • Space: Space operating margins improved to 11.3%.Margins improved to 11.3%, including stable performance on GEM 63 XL.

Capital allocation

  • The company invested $306 million in capital expenditures during the third quarter.Capital expenditures were $306 million, reflecting continued investment in our business to enable long-term profitable growth.
  • Management projects 2027 capital expenditures to be approximately $2.1 billion.In total, we expect approximately $2.1 billion in 2027 CapEx.
  • Capital allocation remains focused on strategic investments in the business and shareholder distributions.
  • The company notes an evolving threat environment that requires investment in both mass and exquisite capabilities.maintaining America's advantage requires significant and balanced investments in both the attributable mass that supports resilience and the exquisite capabilities
  • Global defense budgets are experiencing a multiyear secular upswing.Allied Defense budgets are in the midst of a multiyear secular upswing and we are responding by providing a range of ready-now capabilities
  • The company is currently operating under a continuing resolution in the United States.

Competitive landscape

  • Talon Blue: The company is collaborating with approximately half a dozen companies on cooperative integration projects for autonomous systems.we're working with about half a dozen companies who have come into our test bed and done cooperative integration projects with us.
  • The company maintains leadership roles in the strategic triad, space superiority, microelectronics, and homeland defense.

Macroeconomic environment

  • Management remains optimistic about bipartisan support for national security in the U.S. Congress.We remain optimistic about the strong bipartisan support in Congress for national security.
  • The company believes it is relatively insulated from incremental funding uncertainty due to its portfolio alignment with the U.S. base budget.

Growth opportunities and strategies

  • B-21: The B-21 Raider program is a key growth driver, with the company investing in acceleration capacity.This program is a key growth driver this year and throughout the 2030s as we complete the development and transition into production.
  • Sentinel: The Sentinel program is progressing as planned, with the first full vertical assembly of an inert missile completed.In the quarter, we completed the first full vertical assembly of an inert missile at Vandenberg Space for Space
  • The company aims to double international sales by 2031.These demand signals give us confidence in our goal to double international sales by 2031.
  • Rate Hunter: The company introduced Rate Hunter, a new counter UAS product line, to address short-range defense gaps.Rate Hunter is a cost-effective product line that's designed to close a critical short-range defense gap
  • Submarines: A new Virginia Class Block V submarine procurement award added $1.4 billion to the backlog.The award value adds $1.4 billion to backlog, supporting our partnership with the Navy through 2032.

Financial guidance and outlook

  • Full year 2026 sales guidance is reaffirmed at $43.75 billion to $44.25 billion.We continue to expect full year sales of $43.75 billion to $44.25 billion.
  • Segment operating income guidance was increased to a range of $4.94 billion to $5.04 billion.The updated guidance range of $4.94 billion to $5.04 billion, reflect a full year segment operating margin rate of approximately 11.3% at the midpoint.
  • The company projects 2027 sales growth between 5% and 7%.For 2027, we project sales growth between 5% and 7%, representing further acceleration from the growth expected this year
  • Adjusted free cash flow guidance for 2027 is expected to be in the range of $3.3 billion to $3.7 billion.We also expect a 2027 adjusted free cash flow in the range of $3.3 billion to $3.7 billion.

Microelectronics and Quantum Strategy

  • Fortitude: The company introduced Fortitude, a microelectronics chip that delivers 3x the power and 20x the signal quality of comparable solutions.This single chip, the size of a grain of rice, uses patented technology to deliver up to 3x the power and 20x the signal quality
  • Strategic Review: Management is evaluating strategic alternatives for its microelectronics and quantum computing capabilities, including potential separation or external investment.

Q3 2026 results

MetricResultChange
Revenue$11.1 billionup 7% year-over-year
Backlog$110 billionup 20% year-over-year
EPS$7.89up 3% year-over-year
Adjusted Free Cash Flow$1.8 billionup over 40% year-over-year
Book-to-bill1.5xNot stated

How management sounded

Positive (+45 on our -100 to +100 scale). Management raised full-year guidance for segment operating income and EPS, citing strong program execution and robust demand, while expressing optimism about future growth acceleration. Management sounded more upbeat than on 62% of the 302 calls we cover; most companies sound positive on their own calls, so the comparison says more than the label.

Read the analyst Q&A summary and guidance and outlook for this call.

What to watch before the next call

  • The timing of U.S. government appropriations and the impact of the continuing resolution on 2027 performance.
  • The outcome of the strategic review regarding the microelectronics foundry business and potential commercialization.
  • The pace of international contract awards and their contribution to growth in 2027 and beyond.

Earlier calls

  • Q2 2026 (Jul 21, 2026), tone Balanced: Northrop Grumman reported $10.9 billion in sales and raised its full-year EPS guidance by $1.20, supported by a record $105 billion backlog. While margin headwinds impacted specific programs, management expects accelerating growth in the second half of the year.