BAIRD 2026 GLOBAL INDUSTRIAL CONFERENCE - NORTHROP GRUMMAN CORP

Explicit Guidance:

• 2027 Revenue Growth: Management anticipates 5–7% top-line growth for 2027, with accelerating growth trends expected to continue into 2028.
• International Sales Target: International sales are projected to more than double to $10 billion by 2031 (currently ~$4.3 billion YTD).
• Capex Outlook: Elevated capital expenditures expected to remain at approximately 4.5% of sales for 2027 and 2028 to fund capacity expansion; projected to normalize to approximately 3% of sales thereafter.
• Dividend Growth: Continued commitment to dividend growth with a 10% compound annual growth rate (CAGR) observed over the last 10 years; no specific future payout ratio guidance given, but supported by expected free cash flow generation.

Business-Segment Outlook:

• Munitions & Defense: Munitions demand is surging (double-digit growth expected); company positioning as a second-source provider for solid rocket motors, fuses, warheads, and casings. New product "Raid Hunter" (counter-drone defeat) and IBCS (integrated air and missile defense) are identified as revenue drivers into 2027.
• Strategic Deterrence (B-21): Production is in early innings; Air Force program of record is at least 100 units with potential for expansion. Significant growth and profitability inflection point expected later in this decade.
• Strategic Deterrence (Sentinel): Program estimated over $140 billion lifecycle; currently in development phase. Expected to equip over 450 missiles and full command/control architecture; major growth engine for the 2030s.
• Space & National Security: Space represents >15% of sales and is identified as a fast-growing US budget element. Shift toward "proliferated" high-quantity space assets (e.g., 21-satellite Space Development Agency launch) rather than solely exquisite satellites. Demand expected to expand rapidly over the decade.
• Microelectronics: Long-term growth driven by modernization of existing platform electronics (shorter replacement cycles) and emerging commercial demand for US-pedigree, power-efficient, and space-hardened chips. Opening two foundries and packaging facility to commercial markets.
• Quantum Computing: Commercial adoption is the near-term focus; investment is currently classified but expected to unlock value for financial, pharmaceutical, and high-performance computing sectors once scaled quantum computers are available.

Market and Competitive Outlook:

• Demand Cycle: Described as an "unprecedented demand cycle" in recent history, driven by global and allied needs. Demand is characterized as enduring across all business segments.
• Space Contested Environment: Space is increasingly contested; management views space assets as operating in a warfighting domain requiring resiliency, ensuring continued high demand for national security space capabilities.
• Competition & Moat: Competitive advantage derived from technology leadership over foreign adversaries, US pedigree in manufacturing, and ability to operate in harsh environments.
• Commercial Expansion: Microelectronics business targeting new revenue vectors by selling defense-grade components to commercial sectors requiring high reliability and small form factors.

Macro / Industry Outlook:

• US Budget Environment: Anticipated base case includes a Continuing Resolution (CR) extension through early 2027 to allow for the seating of a new Congress. Management expects programs (Strategic Deterrence, Space, Microelectronics) to receive bipartisan support regardless of political outcome.
• Geopolitics: View on global demand driven by modernization of weapons systems (sensors, surveillance, communication) and the need to maintain US technological edge.
• Supply Chain: Elevated capex spending is necessary now to "capacitize" for growth; capacity additions are expected to be sufficient to support production phases later in the decade.

Strategic Initiatives:

• Capacity Expansion: Current elevated investment in capacity is a strategic response to the demand cycle; expected to normalize post-2028 once programs shift fully to production phases.
• Partnership Ecosystem: Expansion of co-development and co-investment models to accelerate innovation. Specific examples include "Talent IQ" (autonomy testing environment) and co-investment in "Firefly" (new rocket development).
• Merger & Acquisition: M&A remains an option ("every model is on the table") but focus remains on organic growth via strategic partnerships and internal IRAD.
• Manufacturing Innovation: Investing in manufacturing process innovation to build faster and more affordably, including physics-based models for autonomy testing.

Risks and Headwinds to Outlook:

• Budget Continuity: While the CR is expected to extend to early 2027, potential for debate in the new Congress regarding base budget alignment with threat environments or specific program prioritization.
• Technology Adoption Timing: Commercial adoption of quantum computing is contingent on winning the race to the first scaled quantum computer; timeline remains uncertain.
• Development Phase Risks: Major programs like Sentinel and B-21 are in development/early production; profitability inflection points are projected for later in the decade, subject to execution risks.
• Capex Normalization: Future margin expansion relies on a successful shift from elevated capex (development/capacity) to normalized capex (production); any delay in capacity scaling could impact delivery.

Management Tone on the Future:

• Confidence: High confidence and optimism regarding the "unprecedented" demand cycle, bipartisan budget support, and the "purpose-built portfolio."
• Execution: Emphasis on "disciplined execution," strong momentum, and the ability to turn revenue growth into profit and cash flow despite high investment levels.
• Strategic Clarity: Tone indicates a clear, adapted strategy where technology leadership and performance discipline are the primary drivers of margin expansion and shareholder returns.