Kathy Warden
Chair, Chief Executive Officer and President at Northrop Grumman
Thanks, Todd. Good morning, everyone, and thank you for joining us. We delivered strong operating performance again in the third quarter, building on the momentum we achieved through the first half of the year. Global events continue to highlight the need for advanced capabilities to defend and deter against increasingly complex threats. This is driving the demand for our differentiated portfolio and is evident in our results.
In the third quarter, our book-to-bill was once again very strong, which drove backlog to a new record level. Our backlog is now $85 billion, which is more than two times our annual revenue, supporting our confidence in the future growth of this business. Revenue has increased 6% year-to-date, and we are on track to achieve our full year guidance of 5% growth. The Northrop Grumman team continues to deliver critical capabilities for our customers, remain disciplined in new business pursuits and drive cost efficiencies in our operations resulting in the strong performance.
Segment operating margins significantly increased both sequentially and year-over-year to 11.5% this quarter, our highest margin rate in over two years. Solid sales volume and strong operating performance drove earnings per share of $7 in the quarter, an increase of 13% from last year's Q3 results. Free cash flow of $730 million was in line with our expectations and continues to provide us the considerable flexibility to deploy capital in support of both growing our business and our shareholder return strategy.
Based on our solid year-to-date results and full year outlook, we are increasing our EPS guidance range by $0.75. We are pleased with this performance, because it's a direct result of the intentional steps we've been taking to realize continued growth and enhanced profitability. We continue to implement productivity and efficiency initiatives including advanced production capabilities, digital engineering tools and increased automation.
We are streamlining processes, reducing rework and improving our learning curves as we add scale, resulting in improved program and operating performance. The impact of these initiatives was again evident this quarter at AS, where execution was outstanding. The mature production portion of AS portfolio comprises more than half of its overall revenue, and it continues to perform very well.
The B-21 program has also made solid progress in achieving ground and flight testing milestones on the development contract and is continuing to execute the aircraft production contract in line with our estimates. This is our third quarter in a row of 10% or better margins at AS, due largely to our focus on total cost management and productivity. Space's performance was also excellent in the quarter. As we expected, revenue was down modestly year-over-year based on the wind down of NGI and a restricted program, but earnings were up substantially.
Strong program performance was the key driver as the team executed well, mitigating risks and realizing opportunities leading to improved EAC trends in recent quarters. Our Defense Systems business continues to see broad-based demand with a book-to-bill of 1.6 times in the quarter, building the foundation for future growth. Margin performance year-to-date is solid and consistent with our full year outlook.
While the timing of some of our shorter cycle programs affected sales this quarter, looking forward, DS is expected to be one of our fastest-growing segments, with margin expansion opportunities as we realized increased international sales. Like at DS, we also see continued strong demand in Mission Systems. This segment also had a book-to-bill of 1.6 times in the quarter and robust 7% revenue growth. Mission Systems is a leader in technology that's in high demand from our customers is reflected in their top line results.
And as we've seen this business grow, we've seen mix and productivity pressures, including in supply chain deliveries. The team is making good progress with the deliberate actions they've been taking to improve program performance and drive cost efficiencies. And I have confidence that we are on track to achieve higher MS margins in 2025. As we look forward, we see multiple trends across our portfolio that are supportive of continued margin expansion, including improving macroeconomic conditions, stabilizing supply chains, enhanced workforce productivity and gradual shift in our contract mix, as a number of our largest programs transition to production, and we build our international portfolio.
We also expect to see continued strong demand for the platform, sensors and systems we provide that allow our customers to deter adversaries and operate in the most demanding threat environment. This demand is reflected in US budgets where there's strong bipartisan support for national security priorities. And as a result, we are seeing upward pressure on defense budgets. Over the past several months, the Senate Defense Authorization and appropriations legislation proposed additional funding above the administration's fiscal year 2025 defense budget request.
And while the legislative process is still playing out, it is encouraging to see strong support for both the budget and our programs. As we look at markets outside the US, we continue to expect our international sales to grow faster than the rest of our business over the next several years. There is robust international demand for defense capabilities, particularly in Europe, where most NATO members are increasing defense spending from 2022 levels. This demand is reflected in our international book-to-bill, which was almost two times in the third quarter.
While executing on our current programs is an important driver of our profitable growth outlook, we also remain focused on winning new development programs. Our strategy is based on continuing to deliver technical innovations to create competitive advantage for our customers. A great example of this is our selection by the Missile Defense Agency to develop the Glide Phase Interceptor, or GPI.
This technology will address increasingly sophisticated hypersonic missile threats. In addition, this program is a collaboration between the US and Japan, and will further strengthen the alliance with Japan and further NGI's partnership with Japanese industry. Putting all of this together, as we look forward to 2025, we expect solid growth and strong performance to continue, based on our record backlog and continued focus on program execution.
At a company level, we project sales growth between 3% and 4%. This includes strong growth in three of our four segments. For Space, we expect a mid-single-digit decline due to the wind-down on programs I referred to earlier. We continue to expect the company's segment operating margin to improve in 2025, driven by favorable macro trends, program performance and cost discipline.
Our free cash flow outlook is consistent with our prior long-term forecast, with 2025 increasing greater than 20% year-over-year. Investing in our growing business remains a priority. We are coming through a period of peak capex and anticipate a reduced spending level in 2025, but still at a level above historical norms. And given our company's strong free cash flow outlook, we plan to continue our shareholder-friendly capital deployment strategy, returning approximately 100% of free cash flow to shareholders next year.
The dynamic global environment calls for our industry to offer our customers the technology innovations they need to compete. Northrop Grumman continues to invest in the capabilities and capacity needed to deliver that competitive edge for them. We are also intensely focused on the talent and digital infrastructure that enables our performance and competitive differentiation. Our team is delivering today while also building for our future.
Financially, this is translating into solid results now, a plan to rapidly expand cash flows over the next several years, and a business that is well positioned for profitable growth for the foreseeable future. Before turning things over, I'd like to welcome Ken Crews, who became our CFO on October 1. Ken will talk through our forward outlook in just a moment. But first, I'll turn the call over to Dave for a discussion of our Q3 results. And as I do so, recognizing this will be his last call, I'd like to thank Dave for his leadership and outstanding service to our company.
Dave, over to you.
