Northrop (NOC) Q2 2026: Record $104.7B Backlog, Margin 10.1%
Northrop Grumman's order book crossed $100 billion for the first time — backlog reached $104.7 billion at June 30, 2026, up 16.7% from $89.7 billion a year earlier and up about 9% from year-end 2025 — yet second-quarter operating income fell 23% to $1,096 million and the operating margin compressed to 10.1% from 13.8%. The composition of that record matters as much as the size: of roughly $20.0 billion in second-quarter net awards, $7.6 billion came from a single line — the 10-Q discloses that further definition and authorisation of the Sentinel program execution plan "result[ed] in a $7.6 billion increase in program backlog." That is a cost-type EMD restructure being formally scoped, not a newly competed win, and it carries the margin profile of cost-plus work. Strip it out and the quarter's book-to-bill on genuinely new business is far less spectacular than the headline implies.
Most of the headline earnings decline is an artifact of the prior-year $231 million gain on the training services divestiture, but the underlying picture is not flattering either: segment operating income slipped 5.0% to $1,158 million on sales that rose 5.1% to $10,876 million, and the earnings that did survive were carried by an effective tax rate of 6.3% rather than by program performance. For a prime contractor entering a defense budget cycle in which the FY2027 request — roughly $1.5 trillion, some 44% above the FY2026 level, though about $350 billion of that arrives through mandatory reconciliation funding rather than regular appropriations and none of it is enacted yet — points to years of expanding demand, the question is no longer whether demand exists. It is whether Northrop can convert record demand into margin.
1. Condensed Consolidated Statement of Financial Position
1-1. Principal asset movements
| Item | Dec 31, 2025 ($M) | Jun 30, 2026 ($M) | Change % |
|---|---|---|---|
| Cash and cash equivalents | 4,403 | 2,307 | −47.6 |
| Accounts receivable, net | 1,375 | 2,311 | +68.1 |
| Unbilled receivables (contract assets) | 6,544 | 7,953 | +21.5 |
| Inventoried costs, net | 1,309 | 1,415 | +8.1 |
| Property, plant and equipment, net | 10,972 | 10,297 | −6.2 |
| Goodwill | 17,437 | 17,439 | +0.0 |
| Total assets | 51,377 | 50,763 | −1.2 |
Two lines deserve attention. First, receivables. Accounts receivable and unbilled receivables together rose to $10,264 million from $7,919 million at year-end — but half-year comparisons flatter the trend, because Northrop's billing cycle always builds working capital in the first half. The honest comparison is year-over-year: at June 30, 2025 the same two lines totalled $9,329 million, so the balance grew 10.0% against sales growth of 5.1%. Receivables are still outrunning revenue by roughly two to one, and unbilled receivables — revenue recognized under cost-to-cost before the customer has been billed — account for the bulk of it.
