Kathy Warden
Chairman, Chief Executive Officer and President at Northrop Grumman
Thank you, Todd. Good morning, everyone, and thank you for joining us. Today, we are very pleased to announce another strong quarter. I'll begin by recognizing our Northrop Grumman employees for their continued focus on operational excellence. Our results represents a successful execution of our strategy, the strength of our portfolio and the commitment of our team to deliver for our customers and shareholders. As the global threat environment continues to rapidly evolve and other nations gain more complex and sophisticated capabilities, our customers need innovative and affordable solutions to be delivered with increasing speed and agility. With the investments we've made in advanced technologies, combined with our talented workforce and adoption of digital transformation capabilities, Northrop Grumman is well positioned to meet our customers' needs and continue to strengthen our position for the future. This quarter, we once again delivered strong growth and operating performance. Our sales increased by 3% to $9.2 billion. Adjusting for the effects of our first quarter divestiture of the IT services business, organic sales increased 10%. While we do expect this growth rate to moderate in the second half of the year, we continue to have a robust pipeline of opportunities in 2021 and beyond. Additionally, program execution across the portfolio was exceptional, which drove our segment operating margins to exceed 12%.
This follows on strong Q1 performance resulting in a year-to-date segment operating margin of 12.1%, and we continue to expect solid performance for the remainder of the year. Earnings per share increased 7% this quarter and transaction-adjusted EPS has increased 16% year-to-date. Transaction-adjusted free cash flow is also trending favorably and has increased 26% year-to-date. As a result, we ended the quarter with just under $4 billion in cash on the balance sheet. This provides us continued flexibility for capital deployment. We completed the $2-billion accelerated share repurchase in Q2 and continue to expect to repurchase over $3 billion for the year. Additionally, we increased our dividend by 8% in May. We are executing a balanced capital deployment strategy, which includes investing in the solutions our customers need and also returning cash to investors. Over the next couple of years, we continue to expect to return the majority of our free cash flow to shareholders through share repurchases and dividends. In terms of budget updates from Washington, the Biden administration issued its budget request for fiscal year 2022 in May. And it reinforces the administration's statements around investing in capabilities to maintain U.S. national security advantages.
The request aligns well with the investments we've made at Northrop Grumman as we've positioned our portfolio for the future. And while it's still relatively early in the budget process, we're pleased to see strong support for national security from the Congress, including a $25 billion increase to the president's budget request approved last week by the Senate Armed Services Committee. Both the House Appropriations Committee and SASC have voiced strong support for many of our programs, including B-21, GBSD, Triton and F-35, to name a few. We look forward to working with the Congress and the administration as they make progress on the fiscal year 2022 budget. NASA was also well-supported in the budget, with a 7% year-over-year increase in proposed funding. NASA priorities include returning to the moon via the Artemis program, where we are a key supplier of critical technologies, including the Habitation and Logistics Outpost or HALO, and the solid rocket boosters for the Space Launch System, also known as SLS. This provides meaningful opportunity for the company, and it demonstrates the diverse nature of our Space business. Turning to business highlights from the quarter. I'll share a few examples that helped to demonstrate the strength of our portfolio and our technology leadership across key markets. In partnership with the Air Force, the B-21 program remains on track, with two test aircraft in production today, and we continue to make solid progress towards first flight. This program leverages the confluence of Northrop Grumman's long history in aircraft development and advanced low observability capabilities.
The Air Force recently published an artist rendering and a B-21 fact sheet that provides additional insights into the program. The fact sheet highlights that the B-21 is being designed with open systems architecture to reduce integration risk and enable future modernization efforts to allow for the aircraft to evolve as the threat environment changes. As we've discussed on many of these calls, Northrop Grumman is a leader in communications and networking solutions, providing the connective tissue for military platforms, sensors and systems that weren't designed to communicate with one another, passing information and data using secure, open systems similar to how we use the Internet and 5G in our day-to-day lives. Our systems played an important role in the Northern Edge 2021 joint exercise, which was held in May, and showcased how we enable warfighters to easily communicate and securely share actionable information regardless of platform. As part of the exercise, Northrop Grumman systems were validated on three separate platforms. Our Freedom Pod was the part of a demonstration with the Air National Guard and our Freedom Radios were a key part of two demonstrations centered on advanced fifth-generation communication. And as a reminder, the Freedom Radios equip both the F-35 and F-22. We are also enabling joint all-domain command and control through our Integrated Air and Missile Defense Battle Command System or IBCS.
In July, the U.S. Army successfully engaged a cruise missile target in a highly contested electronic attack environment during the developmental flight test using Northrop Grumman's IBCS. This latest flight test integrated the widest variety of sensors to date, including a Marine Corps G/ATOR radar, which is our GaN-based expeditionary radar that entered full-rate production last year, as well as F-35 and other ground sensors and interceptors. This was the eighth successful flight test performed with the IBCS program. And the program is on track for a competitive down-select of full-rate production later this year. In addition, we are making great progress on the GBSD program. In the second quarter, the team officially closed out the EMD baseline review with our Air Force customer, and we completed the integrated baseline review. The IBR is a critical step in setting cost and scheduled baselines and is an important milestone for the program. And earlier this month, we were awarded a contract to continue our support of the Minuteman III ground subsystems until their successful transition to the GBSD system. So taking a step back, the examples that I just provided highlight our strong performance, technology leadership and broad portfolio and its tight connection to national security priority, from modernizing our strategic deterrents to breakthrough technologies that connect our forces. Based on the strong results and performance of our company year-to-date and our latest outlook for the remainder of the year, we are increasing our 2021 revenue, segment OM rate and transaction-adjusted EPS guidance.
Additionally, after two years of book-to-bill over 1.3, we expect our book-to-bill for the full year to be close to one this year, with key booking opportunities in the second half of the year that include HALO, SLS, F-35 and several restricted programs, laying the foundation for continued growth. Before I turn the call over to Dave, I'd like to talk about ESG. We are very proud of our ESG record and the high marks we've received in many environmental and in social rankings. We have built an organization with a robust governance structure, diverse and inclusive working environment, and an ongoing and evolving focus on responsible environment stewardship. In May, we published our most recent sustainability report. It provides transparency into the progress and actions we've taken in these areas and more. To help ensure we adhere to these priorities every day, key components of our ESG goals are reflected in nonfinancial metrics that are incorporated into the leadership team's annual incentive compensation. And just last week, we announced the appointment of a Chief Sustainability Officer, who will report to me and drive further enhancements to our ESG program. I want to, again, thank all of our employees for stepping up to the challenges our nation is facing and for remaining focused on delivering for our customers and our shareholders. Our second quarter results and enhanced 2021 outlook demonstrate that our strong fundamental trends continue. Over the long term, we are well positioned to provide our customers innovative and affordable solutions to help address national security threats while driving profitable growth and value creation for our shareholders.
So with that, I'll turn the call over to Dave, who'll provide more detail on our sector results and our updated 2021 guidance. Dave?
