FALLS CHURCH, Va. –-- Northrop Grumman Corporation reported fourth quarter 2018 sales increased 24 percent to $8.2 billion. For 2018, sales increased 16 percent to $30.1 billion. Fourth quarter operating income increased 40 percent to $943 million and 2018 operating income increased 17 percent to $3.8 billion. Fourth quarter and full year 2018 operating results reflect the addition of Innovation Systems in June 2018.
As previously announced, the company retrospectively adopted the mark-to-market method of accounting for pension and other postretirement benefits (MTM) as of Dec. 31, 2018 and revised prior period results to reflect that change. This change resulted in an after-tax MTM expense of $495 million in 2018 and an after-tax MTM benefit of $404 million in 2017. As a result, fourth quarter 2018 net earnings decreased 47 percent to $356 million, or $2.06 per diluted share. 2018 net earnings increased 13 percent to $3.2 billion, or $18.49 per diluted share, also reflecting the MTM expense.
MTM-adjusted earnings1 and MTM-adjusted diluted earnings per share1 are the measures the company will use to describe its comparative performance to prior periods and guide for diluted earnings per share.
MTM-adjusted fourth quarter and 2018 net earnings increased 220 percent and 51 percent, respectively, and for the same periods, MTM-adjusted diluted earnings per share1 increased 224 percent to $4.93 and 52 percent to $21.33, respectively. The two main drivers were the addition of Innovation Systems in 2018 and the impacts related to the Tax Cuts and Jobs Act (the “2017 Tax Act”) in 2017.
Fourth quarter and full year 2017 MTM-adjusted net earnings1 were reduced by higher tax expense resulting from the enactment of the 2017 Tax Act and a discretionary pre-tax pension contribution, which together reduced MTM-adjusted net earnings1 by $302 million, or $1.72 per share, in both periods, primarily related to the write-down of deferred tax assets.
On Jan. 4, 2019, the company completed its previously announced $1 billion accelerated share repurchase (ASR), which retired 3.84 million shares at an average price of approximately $260 per share. The remaining share repurchase authorization after completion of the ASR is approximately $4.1 billion.
“Our fourth quarter and full year financial results, along with our 2019 outlook, demonstrate that we are on a solid growth trajectory. I'm confident we are well positioned to deliver innovative and affordable solutions, with an enhanced degree of agility to create value for our customers and shareholders,” said Kathy Warden, chief executive officer and president.
Click here for the full statement (18 PDF pages) on the Northrop Grumman website.