Northrop Grumman's backlog reached a record $109.6 billion at the end of September, the defense contractor said on Tuesday 20 October, after $16.4 billion of net new orders in the third quarter, a book-to-bill ratio of 1.5.
The company raised its 2026 earnings outlook and kept its sales and cash forecasts, according to its earnings release. Sales were $11.122 billion, up 7 per cent from $10.423 billion, and diluted earnings per share were $7.89, against $7.67. The orders are strong. The cash is where the year will be judged, and the history matters more than the gap.
Where did the orders come from?
Mostly from programmes Northrop does not describe. The release lists five large awards: $4.6 billion for restricted programmes, $2.0 billion for Sentinel, the Air Force's replacement intercontinental ballistic missile, $1.4 billion for Virginia Class submarines, $1.3 billion for the F-35 and $1.0 billion for the E-2 airborne early warning aircraft. Those five total $10.3 billion, about 63 per cent of net awards by this publication's arithmetic.
Backlog grew 15 per cent from $95.681 billion at 31 December 2025. Defense Systems, the segment that holds Sentinel, grew fastest, up 31 per cent to $36.475 billion. Space Systems' backlog barely moved, up 1 per cent to $26.348 billion.
| Segment | Q3 2026 sales | Change | Backlog at 30 September | |---|---|---|---| | Aeronautics Systems | $3.575 billion | +14% | $26.799 billion | | Defense Systems | $2.307 billion | +12% | $36.475 billion | | Mission Systems | $3.155 billion | +2% | $19.975 billion | | Space Systems | $2.749 billion | +2% | $26.348 billion |
Aeronautics grew on a $195 million increase in F-35 sales and higher B-21 bomber sales, the release says, without giving a B-21 figure. Defense Systems added $180 million from Sentinel as the programme ramps.
What did Northrop change in its outlook?
Profit, not revenue. MTM-adjusted earnings per share, which strip out pension mark-to-market effects, are now forecast at $29.35 to $29.75, up from $28.60 to $29.10, a $0.70 rise at the midpoint. Segment operating income is forecast at $4.94 billion to $5.04 billion, up $65 million at the midpoint. Sales guidance stays at $43.75 billion to $44.25 billion and adjusted free cash flow at $3.1 billion to $3.5 billion.
Kathy Warden, chair, chief executive and president, said in the release: "I'm confident our new record backlog, well-positioned portfolio and investments, and industry-leading performance will continue to drive sales and earnings growth as reflected in our 2027 outlook."
Can Northrop reach its cash forecast?
The arithmetic says it needs $2.135 billion to $2.535 billion of adjusted free cash flow in the fourth quarter. Nine-month adjusted free cash flow was $965 million, against a full-year range of $3.1 billion to $3.5 billion.
The third quarter was flattered. Adjusted free cash flow was $1.810 billion, up 44 per cent, and included $371 million of proceeds from a sale of equipment to a customer. Without that, the quarter would have been $1.439 billion by our arithmetic. Net cash from operating activities was $1.745 billion, up 12 per cent, which the company put down to improved trade working capital.
The release does not say what will drive the fourth quarter. Northrop's own record suggests it is normal, though not guaranteed. In 2025, nine-month free cash flow was $72 million and the fourth quarter alone produced $3.235 billion, on the measure the company then called free cash flow, according to the company's fourth-quarter 2025 release. That release credited a large part of the jump to a $1.1 billion decrease in net tax payments, a benefit that may not recur. The fourth quarter of 2024 produced $1.762 billion.
So the 2026 requirement sits between the last two fourth quarters. That is our reading, not the company's. RTX this week showed the same pattern of record backlog and softer cash.
What to watch next
Northrop reports fourth-quarter results early next year; it reported 2025's on 27 January. The test is whether fourth-quarter adjusted free cash flow clears about $2.1 billion without another one-off sale, and how much of 2025's tax benefit has to be replaced by working capital. The restricted line deserves watching too: it supplied the quarter's largest award and the least information.
All third-quarter 2026 figures, segment results, award amounts, backlog by segment, guidance ranges and the Kathy Warden quotation come from Northrop Grumman's earnings release furnished on Form 8-K on 20 October 2026. The fourth-quarter and full-year 2025 cash flow figures, and the reason given for the 2025 fourth-quarter increase, come from the company's fourth-quarter 2025 earnings release of 27 January 2026. The implied fourth-quarter 2026 range of $2,135 million to $2,535 million, the $1,439 million quarterly figure excluding the equipment sale, the share of awards from the five named programmes and the midpoint changes are this publication's arithmetic. Northrop's release does not explain what it expects to drive fourth-quarter cash, and we did not find a call transcript; the comparison with earlier years is ours. The analysis is our own.
Topics businessdefenseearnings
