How the company works
What it sells, how it makes money, and the anatomy of the extremes: what has to break for the result to land far from the forecast, either way. In Northrop Grumman's own words, from its annual report for 2025.
Northrop Grumman builds the B-21 bomber, the Sentinel missile, satellites, radars and rocket motors for the US Department of War, which is 84 percent of its sales, and for allied governments.
How it makes money
Long contracts with one customer. Sales were $41,954M in 2025, up 2%; the US government was 84 percent, international customers $5,990M. Half the sales are on cost-type contracts, where the government pays costs plus a fee, and half on fixed-price contracts, where the company carries the risk, as the $477M loss provision on the B-21's first production lots in 2025 showed. Operating income was $4,511M, a margin rate of 10.8%; net earnings $4,182M, $29.08 a share. Total backlog was $95.7B at year end, against $91.5B a year earlier.
What it sells
| Segment, 2025 | Sales | Operating margin rate |
|---|---|---|
| Aeronautics SystemsB-21 Raider, B-2 sustainment, E-130J TACAMO, F-35 fuselages, E-2, Triton and Global Hawk; about 40 percent restricted | $12,992M | 6.3% |
| Mission Systemsradars (airborne, ground, marine), electronic warfare, communications, microelectronics | $12,506M | 14.6% |
| Space Systemssatellites and payloads, missile warning, missile defense interceptors, launch vehicles and solid rocket motors | $10,771M | 11.0% |
| Defense SystemsSentinel ICBM, IBCS command and control, precision weapons, solid rocket motors, ammunition | $8,002M | 10.9% |
Sales and operating margin rate by segment as the company reports them. Aeronautics carried the $477M B-21 loss provision.
Unit economics
Margins are set by contract type and by how well the company estimates costs: on cost-type work the fee is fixed and the risk low; on fixed-price work an estimate that goes wrong is booked at once as a loss, and one that goes right is booked as a gain. Segment operating margin rate was 10.4% and G&A 9.6 percent of sales. Cash is what the contracts throw off after capital spending of $1,450M: free cash flow was $3,307M, up 26%, and $2.9B went back to shareholders. 95,000 employees, about 7,500 hired in 2025, for work that largely requires security clearances.
Competitive position
A prime contractor on programs few can bid on: the only maker of the B-21 and the Sentinel, the B-2 and the Trident II motors. Its named rivals are Boeing, General Dynamics, L3Harris, Lockheed Martin and RTX, "as well as, increasingly, new entrants and startups"; in its own words the industry has "long operating cycles and intense competition", and a rival on one program is a supplier or customer on another. The customer can "delay, modify or cancel ongoing competitions, procurements and programs".
Biggest cost inputs
Engineers and production labor, with clearances; materials and subsystems from suppliers, including microelectronics and solid rocket motor inputs; the capital for factories and test facilities, $1,450M in 2025; interest, $665M; and pension costs, whose mark-to-market swings run through the reported earnings.
Anatomy of a large upside
- Strategic deterrence and air power get funded for a decade. The B-21 moves from loss-making early lots into production at a fee, Sentinel ramps (sales up $224M in 2025 already) and the backlog of $95.7B converts at better margins as the development programs become production.
- Allies rearm. International sales of $5,990M grow on IBCS in Poland, ground-based radars and munitions, with the mix of fixed-price export work that pays more than cost-type development.
- Space and missile defense scale. Missile warning satellites, interceptors and launch propulsion are what a new missile defense architecture buys; Space Systems returns to growth after the wind-down of restricted programs that cut it 8% in 2025.
Anatomy of a large downside
- Fixed-price programs keep taking losses. The B-21's production lots carry the company's risk; the $477M provision in 2025 came after a $1.56B one in 2023, and a cost overrun on Sentinel, under Nunn-McCurdy review, or on any large fixed-price program lands in one quarter.
- The budget turns. 84 percent of sales come from one customer that can delay, modify or cancel programs; a continuing resolution, a shutdown or a shift in priorities cuts the year, and a growing backlog is not a growing cash flow until it is funded.
- New entrants take the next programs. Startups and commercial space companies bid on satellites, launch and autonomous aircraft with lower costs; the company already lost $738M of Space Systems sales to the wind-down of restricted space and NGI work.
Written from Northrop Grumman's annual report for 2025, in its words and numbers. The extremes are the long view, what has to break for the result to land far from the forecast; the quarter's own cases, each model's, are on the quarter forecast.