Northrop Grumman Q3 2025 Analysis: Segment Divergence in Latest 10-Q

Northrop Grumman, a titan in the global aerospace and defense sector, recently released its financial results for the third quarter of 2025. By examining the details in its latest 10-Q filing with the SEC, we can gain a clearer picture of the company's performance, highlighting areas of strength and identifying potential challenges. Overall, the quarter revealed solid top-line growth, but a closer look at its business segments tells a more nuanced story.

For the three months ended September 30, 2025, Northrop Grumman reported total revenue of $10.4 billion, a 4% increase from the same period last year. This growth translated effectively to the bottom line, with net income rising 7% to $1.1 billion. The company also improved its profitability, with its operating margin expanding to 11.9% from 11.2% in the prior-year quarter.

The following flow diagram provides a visual breakdown of how the company's revenue for the quarter was generated and how costs and expenses led to its net income.

In the diagram, the "Unallocated" figures in the revenue and cost streams represent financial adjustments needed to reconcile the individual segment results with the company's consolidated totals. The unallocated revenue of -$569 million is primarily due to the elimination of sales between different Northrop Grumman divisions. These intersegment sales are included in each division's results but must be removed from the company-wide total to prevent double-counting. Similarly, the unallocated cost of revenue of -$950 million reflects adjustments for costs associated with these intersegment activities.

A Tale of Two Halves: Segment Performance

While the consolidated results were positive, performance was not uniform across Northrop Grumman's four main business divisions.

• Defense and Mission Systems Shine: The standout performers were the Defense Systems and Mission Systems segments. Defense Systems saw its revenue jump 14% to nearly $2.1 billion, with operating income surging an impressive 46%. Mission Systems, which focuses on areas like cyber, C4ISR, and radar systems, also posted strong results, with a 10% increase in sales to $3.1 billion and a 32% rise in operating income. These two divisions were the primary engines of growth for the quarter.

• Aeronautics and Space Face Headwinds: In contrast, the other two segments showed signs of pressure. Aeronautics Systems, which includes iconic platforms like the B-21 Raider, grew sales by 6% to $3.1 billion, but its operating income slipped by 1%. This was partly due to unfavorable Estimate at Completion (EAC) adjustments on certain programs, a common occurrence in long-term defense contracts where cost estimates are revised. Space Systems experienced a 6% decline in revenue to $2.7 billion and a 14% drop in operating income, which the company attributed to lower volumes on specific programs.

Revenue Breakdown and Outlook

The U.S. government remains by far the company's largest customer, accounting for 83% of total sales in the quarter. However, international sales showed healthy growth, increasing their share of revenue from 12% to 15% year-over-year, indicating progress in market diversification. Geographically, the United States accounted for 85% of sales.

In conclusion, Northrop Grumman's third quarter demonstrates the benefits of a diversified portfolio. Strong execution in its Defense and Mission Systems segments successfully counteracted the challenges in Aeronautics and Space. As the company navigates a complex global security landscape, its ability to manage costs on major development programs and drive performance in its high-growth sectors will be critical for sustaining momentum.