Northrop Grumman’s rendering of the Space Development Agency’s (SDA) Tranche 1 Tracking Layer. Photo: Northrop Grumman

Northrop Grumman’s Space business continued to grow in the second quarter of 2022, despite an overall dip in sales. Space Systems logged about $3 billion in sales in the second quarter, up 8% compared to the same time last year, while the company overall reported lower sales. 

Northrop Grumman reported second quarter financial results on Thursday, reporting overall $8.8 billion in sales, a 4% drop compared to the same time last year. CEO Kathy Warden said on Thursday’s investor call that a tight labor market and extended material lead times have caused headwinds. 

“In the quarter we did experience certain challenges from the broader macroeconomic environment, including a tight labor market and supply chain delay, which impacted sales timing,” Warden said. “However, we’re pleased with the progress our team continues to make in addressing these challenges. And hiring trends improved as we progressed through the second quarter, laying the foundation for sales growth in the second half.”

Warden emphasized that the dip in sales is not due to a decrease in demand, but rather the macroeconomic issues. She reports a “fundamental shift in global commitment of resources for defense and national security,” particularly in Europe driving demand. The company saw a strong increase in backlog, growing backlog 6% to $80 billion during the second quarter. 

“The supply-side challenges that we are facing are real. It depends on how they mitigate throughout the second half as to what that looks like going into 2023. We certainly could be delivering higher revenue growth this year if not for those supply-side constraints,” Warden said. “It really isn’t a demand question. [Government defense] budgets are strong enough for us to have even further accelerated growth into 2023, but we need to be able to deliver on that growth with the labor and the materials. We’re monitoring that very closely and we’ll have a better sense of what that looks like in October to be able to give you trends data in 2023.” 

Space Systems second quarter sales increased by $231 million, due to higher sales in the Launch & Strategic Missiles business area due to ramp-up on development programs including Ground Based Strategic Deterrent (GDSB). Sales in the Space business area were comparable with the prior year period. Northrop Grumman saw higher volume on restricted programs and the Space Development Agency (SDA) Tranche 1 Transport Layer (T1TL). The segment saw lower volume on the James Webb Space Telescope program after its successful launch in December 2021. 

Space has the largest backlog in the company, at $38.9 billion, up 5% from the start of 2022. Northrop highlighted the ULA order for $2.1 billion in GEM63 solid rocket boosters to support Amazon’s Project Kuiper launches as a significant second quarter award. 

Last quarter, Warden projected double-digit growth for the Space segment in 2022, and the company maintained that guidance in the second quarter. Warden said Thursday that national security space is one of the strongest growth drivers for the company. 

“Our customers have made it clear that space underpins many missions vital to our national security,” she said. We recognize that we need to think about space differently as a rapidly evolving, contested domain. Our focus is on providing safe space offerings that include a mix of exquisite solutions in combination with proliferated constellations of Low-Earth Orbit satellites, which together create a more resilient architecture.” 

CFO Dave Keffer on the investor call that the company is “incredibly pleased” with backlog growth in the Space segment and cited the Transport and Tracking SDA programs as a great example of supporting a national security program. Northrop Grumman was selected as one of three companies to build 42 satellites each for the the SDA’s Tranche 1 Transport Layer, and selected as one of two companies to build 14 satellites each for Tranche 1 of the Tracking Layer. 

“[Space] has been our fastest-growing business and we anticipate that it will continue to be our fastest-growing business — and not just in any one program,” SAID. “GDSB is obviously a large contributor to its growth last year and this year, but the growth is much broader based. … [It’s] broad based, outstanding growth not just in backlog, but converting to sales as well.”