Northrop Grumman Crashes Most Since Dot-Com Era On “Unexpected” Stealth Bomber Charge

Update (1440ET):

Northrop Grumman shares are down around 14.5% in late afternoon trading—the steepest intraday decline since a 14.6% decline on March 9, 1998—following dismal first-quarter earnings and a downgraded outlook driven by surging costs tied to its B-21 stealth bomber program.

Shares have traded between $550 and $400 since Russia invaded Ukraine in early 2022, driven by expectations of surging weapons sales. One major problem for the military-industrial complex: If Trump resolves the conflict in Eastern Europe, it could spell trouble for defense stocks that have soared over the past few decades.

Here’s the latest commentary on Northrop’s earnings from Wall Street analysts (courtesy of Bloomberg):

Seaport Research analyst Richard Safran (buy, $599 price target)

• “We were neutral into the print, but NOC’s 1Q25 print was an overall disappointment due to an operating miss and a lower 2025 guide”

• “We don’t see much of a read-through to other defense names from NOC’s 1Q25 print, and we think most of the issues were specific to NOC”

• “Despite two fewer working days in the quarter, the 1Q25 print was disappointing all around with an unexpected charge on the B-21 program on higher than expected costs for the first LRIP lots. Investor sentiment on NOC was fairly positive into the print”

RBC Capital Markets analyst Ken Herbert (outperform, $575 price target)

• “With the change in manufacturing process to eventually increase production, we expect investors to be focused on the potential for the B-21 program”

• “We also expect a focus on new contract opportunities (e.g. F/A-XX) and NOC’s international exposure, as well as NOC’s portfolio positioning ahead of the FY26 presidential budget request”

JPMorgan analyst Seth Seifman (neutral, $515 price target)

• Notes that NOC’s sales miss was mainly driven by aeronautics

For Goldman’s first take on the earnings … scroll to the end of the note. 

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Northrop Grumman shares plunged in premarket trading—much like the U.S. MQ-9 drones downed by Iran-backed Houthis—after the aerospace and defense contractor posted dismal first-quarter results and slashed its 2025 earnings forecast.

Northrop posted a profit of $481 million, or $3.32 per share, for the first quarter, down from $944 million, or $6.32 per share, in the same quarter one year ago. The staggering 47% per share profit drop was primarily due to loss provisions tied to the first production batch of B-21 stealth bombers. 

Northrop explained more in an earnings release:

During the first quarter of 2025, we recognized a pre-tax loss of $477 million ($397 million after-tax or $2.74 per diluted share) across the five low-rate initial production (LRIP) options on the B-21 program at Aeronautics Systems. The loss largely relates to higher manufacturing costs primarily resulting from a process change made by the company to enable an accelerated production ramp, as well as increases in the projected cost and quantity of general procurement materials.

Sales for the quarter slid about 7% to $9.47 billion, missing the Bloomberg consensus projection of $9.93 billion. 

Here’s a snapshot of Northrop’s weaker-than-expected results across most divisions, with a significant miss on EPS, free cash flow, and aeronautics margins… 

EPS: $3.32 vs. $6.32 last year; missed estimate of $6.28

Revenue: $9.47B, down 6.6% y/y; missed estimate of $9.93B

Free Cash Flow: -$1.82B; well below estimate of -$599.3M

CapEx: $256M, down 5.2% y/y; missed estimate of $310.7M

Backlog: $92.8B

Segment Performance:

• Sales: $2.81B, down 5.2% y/y; missed $3.12B estimate

• Operating Loss: -$183M vs. $297M profit y/y; estimate was +$300.1M

Defense Systems:

• Sales: $1.81B, up 28% y/y; slightly missed $1.86B estimate

• Operating Income: $179M, +1.1% y/y; in line with $180.4M estimate

Mission Systems:

• Sales: $2.81B, up 5.6% y/y; beat $2.77B estimate

• Operating Income: $361M, down 4.5% y/y; missed $398M estimate

Space Systems:

• Sales: $2.57B, down 30% y/y; missed $2.71B estimate

• Operating Income: $283M, down 15% y/y; missed $293.5M estimate

Management also attributed the sales miss to a “previously disclosed wind-down of work on certain Space Systems programs,” adding, “These decreases were partially offset by higher sales at Mission Systems and Defense Systems.” 

For the full year, Northrop reduced its outlook for operating income from a previous forecast but kept revenue guidance: 

• Adjusted EPS forecast: Cut to $24.95–$25.35 from $27.85–$28.25; below Bloomberg consensus of $28.12

• Revenue forecast: Maintained at $42.00–$42.50 billion; in line with estimate of $42.32 billion

In premarket trading, Northrop shares plunged as much as 10%. If losses extend into the cash session, it would mark the stock’s worst day since the early days of the Covid. Should losses exceed -10.15%, it would be the steepest single-day drop since October 10, 2008, when shares fell 13.45%.

Goldman’s Noah Poponak, Anthony Valentini, and Connor Dessert provided clients with their first take on the earnings report:

Bottom Line: NOC 1Q25 results are below consensus. The company recorded a $(477)mn pre-tax loss in Aeronautics for the five LRIP options on the B-21 program. Total company segment EBIT excluding that charge is still below consensus. The company reiterated 2025 revenue guidance, and reiterated free cash, while reducing segment EBIT and EPS.

Details: 1Q25 fully adjusted EPS of $6.06 compares to FactSet consensus at $6.26 and our $6.53. Reported EPS is $3.32. Fully adjusted segment EBIT of $1.05bn is 3% below consensus. Revenue of $9.5bn is 5% below consensus with a slight beat in MS, but all other segments missed by MSD%+. The adjusted segment operating margin of 11.0% is 10bps below our estimate and 20bps below consensus. All segments beat on margin except Mission Systems, which missed by 160bps. NOC updated its 2025 guidance, including revenue of $42.0-$42.5bn (reiterated, vs. consensus at $42.3bn), segment operating income of $4.20-$4.35bn ($4.65-$4.80bn prior, vs. consensus at $4.82bn), EPS of $24.95-$25.35 ($27.85-$28.25 prior, vs. consensus at $28.11), and free cash flow of $2.85-$3.25bn (reiterated, vs. consensus at $3.10bn).

Our $527 12-month price target is based on a target relative (S&P 500) CY25E P/E of 1.1X. Key risks include (1) Geopolitics, (2) DoD spending priorities, (3) capital deployment, and (4) margins.

Despite the earnings miss and guidance cut, CEO Kathy Warden stated in a press release, “Global demand for our products remains strong, which is reflected in our record first quarter backlog, and we are making significant progress on our key programs.” 

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