Kathy Warden
Chair, Chief Executive Officer and President at Northrop Grumman
Thanks, Todd. Good morning, everyone. Thank you for joining us. As you saw from this morning's earnings release, we delivered excellent operating results again this quarter, building on our momentum from the first quarter. Our company's ability to respond to US and international customer requirements with a wide range of advanced capabilities continues to drive strong growth, with sales up 7% in the quarter and 8% year-to-date.
And our team's solid program performance, along with cost management discipline, led to operating income growth of 13% in the second quarter. The combined strength of our top and bottom line operating results was the primary driver of our 19% EPS growth. And in addition, we delivered robust free cash flow, which is up over $500 million compared to the first half of last year.
Based on these strong first half results and confidence in our team's ability to deliver on continued robust demand in the second half, we are increasing our 2024 revenue and EPS guidance. The breadth and depth of our portfolio is an important differentiator, particularly when coupled with the effectiveness of our strategy in aligning our resources to anticipate and deliver on our customers' needs. Given this, I'm going to take the next couple of minutes to provide important context on our portfolio.
When you step back and look at the key components of our business, you'll see that 85% of our sales come from a diverse collection of technology advanced capabilities, such as electronic, communications, crewed and uncrewed aircraft, space payloads, advanced weapons, command and control systems and other product areas, which are critical to global security. The capabilities we provide often as a supplier are in the nation's most advanced space air, land, sea and undersea platforms.
In the last several years, we've been selected through dozens of competition to develop and build differentiating technologies that will provide an advantage to the US and our allies through the 2030s. The remaining 15% of our sales is comprised of two prime programs in support of the nation's strategic deterrent, of course, that's Sentinel and B-21, with each generating a high single-digit percentage of our revenue today, and we expect that balance to continue for several years.
With the recent realignment of our SCS division to our Defense Systems sector, we have four strong and differentiated segments that are more equal in size with each having multiple avenues for profitable growth. Our business is well aligned with the US National Defense strategy. And as I've outlined in recent years, we've won significant roles on long-term programs that address the threat environment of today and are expected to do so for the next several decades.
In addition, we continue to expand exportable product offerings, and we are developing our international partner and supplier base to position us for the growing international markets. We have also invested to increase our capacity to deliver the quantities of rocket motors, armaments and air and missile defense capabilities needed by the US and our allies to defend freedom and deter aggression around the globe.
Examples of this growth include the Guided Multiple Launch Rocket System or GMLRS, where our year-to-date revenue has grown by nearly 60%. Additionally, we were awarded over $500 million in contract for ammunition that we will begin delivering in the third quarter. And we see additional demand for international ammunition opportunities in the coming quarters.
Overall, the key takeaway is that the breadth of our portfolio, our alignment to the key priorities for the US and our allies and our role on each leg of the US strategic trial provides us visibility into avenues for our business to grow even if US budget growth slows. And as we've discussed frequently over the last two years, we're not just focused on top line growth, we're taking deliberate actions to enhance profitability through digital enablement, productivity, supplier management and cost efficiency.
As we look at the remainder of this year and next, we expect solid growth across the portfolio to continue, particularly in areas such as weapon systems, advanced electronics and aeronautics. International sales are also progressing from our pipeline to our backlog and are expected to contribute to increased sales and profitability. Our outlook is supported by the national security spending environment.
In the US, the fiscal year 2025 defense budget is moving through the appropriations process with recent markups by Congress. We were pleased to see the Senate Arm Services Committee increased the FY 2025 top line by $25 billion and we're encouraged by continued support for investment in defense. Northrop Grumman programs broadly and particularly the B-21 Sentinel in Colombia, which provide the basis for the US strategic deterrent continue to receive strong support, bolstering our view that we're well positioned in this such an environment.
Given the importance of the triad to the nation's deterrence, I'll provide an update on two legs of the triad for which Northrop Grumman is the prime industry partner to the Department of Defense. So starting with Sentinel. Earlier this month, the DoD submitted to Congress certification of the of the Sentinel program as part of the Nunn-McCurdy process. This certification validates the need for the land-based leg of the triad and continued confidence in the Sentinel weapon system, the critical role it plays in safeguarding global security.
DoD and the Air Force are working to restructure program to reflect the latest cost and schedule estimates. The majority of the cost growth is expected to occur in the production phase of the program, which is beyond the current EMD phase and outside of the future year's defense program or fight it. We continue to execute on our existing EMD contract, which includes the design, development and testing of the full system.
We are partnered with the Air Force on completing the design of all aspects of the system and how many of the systems components already in development and tests, including all three stages of the missile, command and launch subsystems for launch activation, security and systems monitoring as well as transportation and support equipment. The progress we've made on the program is significant, and we remain committed to partnering with the US Air Force to identify ways to reduce the costs associated with feeling this system.
So turning to the air leg of the triad. The B-21 is progressing well through the testing program, and as you know, has entered low rate initial production. The team continues to perform exceptionally well, and we remain within our schedule and cost estimates. As we recently shared, B-21 test pilots report that the aircraft is flying like the simulator, which is another indication that our digital environment has effectively predicted the performance of aircraft, thus reducing new discovery and risk.
For these reasons and more, we continue to believe in the significant value this program will create for customers and shareholders over time. It's important to note that while the B-21 program is very important, it contributes less than 10% of our total sales, and we expect that to remain the case through the decade. Assuming stable economic conditions and continued strong performance by our team, we also expect program margin dollars to grow annually from here as we complete the EMD program and for five lots of production move into advanced production awards on the more profitable lots six and beyond and add modernization and sustainment revenue to the program.
As you can see, our portfolio includes a compelling mix of technology-driven capabilities and franchise programs that are well aligned to the evolving needs of all our customers. As a result, we've grown our organic revenue at greater than 5% compound annual growth over the past five years, including 5% growth projected in our increased 2024 guidance. We also continue to rapidly expand our cash flows, including generating over $1 billion of free cash in the second quarter.
Based on the strength of portfolio, backlog and performance trends, we are reiterating our long-term cash flow outlook, which assumes a greater than 15% compound annual growth rate through 2026. To support growth in our business, we're maintaining our investments and capabilities across the company. We continue to target $1.8 billion in capital expenditures this year, which is around 4.5% of revenue and well above the industry average.
Including R&D, we're investing approximately $3 billion in our portfolio. At the same time, we're efficiently returning capital to shareholders, including $2.3 billion in the first half of the year. In May, we increased the dividend by 10%. This is our 21st consecutive annual increase, as we continue to focus on delivering competitive sustainable dividend growth. Before I turn the call over to Dave to provide more details on our financial performance and outlook, I'd like to thank our team for another great quarter, as we continue to execute on our long-term strategy. We have an outstanding portfolio, a high-performing team and a bright outlook for the future.
So with that, I'm going to turn the call over to Dave.
