Bloomberg News

Northrop Profit Rises 16% on Electronics; Forecast Raised

October 26, 2011

(Updates shares in last paragraph.)

Oct. 26 (Bloomberg) -- Northrop Grumman Corp., the third- largest U.S. defense contractor and the maker of the Global Hawk drone, said third-quarter profit rose 16 percent on electronic systems sales. The company boosted its full-year profit forecast.

Profit rose to $520 million, or $1.86 a share, from $448 million, or $1.51 a share, a year earlier, the Falls Church, Virginia-based company said today in a statement. Analysts had forecast $1.68 a share, the average of 20 estimates compiled by Bloomberg. Sales declined 6.5 percent to $6.61 billion.

Northrop raised its 2011 profit forecast to the range of $6.95 to $7.05 a share. In July, Northrop had forecast a full- year profit of $6.75 to $6.90 a share on sales of $27 billion.

The U.S. government, Northrop’s largest customer, has been “cautious” in releasing funds for contracts as Congress weighs spending cuts to reduce the federal budget deficit, Chief Executive Officer Wes Bush said in a conference call. Spending bills for fiscal year 2012, which began Oct. 1, haven’t been passed.

Northrop expects fourth-quarter revenue “to be roughly comparable” to the third quarter amid federal budget discussions and Pentagon funding through stopgap measures instead of its 2012 budget, said James Palmer, the Chief Financial Officer.

Spin Off

The company in March spun off its $6.7 billion shipbuilding unit to focus on electronics, aerospace, information systems and technical services. In August, Bush moved Northrop’s headquarters to Falls Church from Los Angeles, the company’s location since founder John Northrop set up shop in the 1930s.

Sales at the electronic systems unit, which makes military radars, rose 2 percent to $1.91 billion on increased volume for military intelligence, surveillance and reconnaissance equipment and targeting systems, the company said today. Still, land and self-protection systems programs had a decline in volume, the company said. The unit’s profit rose 12 percent to $293 million.

Revenue and profit at Northrop Grumman’s Aerospace Systems, Information Systems and Technical Services units declined during the quarter. Sales in the aerospace unit dropped 5 percent to $2.57 billion on reduced demand for weather satellites and a lower volume in Lockheed Martin Corp.’s F-35 Joint Strike Fighter program, the company said in a statement. Profit at the unit was comparable to the year before, at $303 million.

F-35 Pressure

Northrop sees “top line” pressure from the F-35 Joint Strike Fighter program, Bush said. Northrop is a subcontractor to Lockheed Martin. Bush said Northrop Grumman doesn’t have a “final deal” on the fourth lot of early production aircraft. On the fifth lot, the company has a $50 million “exposure” if the program were to be terminated, Bush said.

“We’re not in a business of financing these programs,” Bush said. “So there comes a limit in everyone’s capacity to deal with that.”

Northrop had a “strong” profit in the third quarter “driven by strong margins, despite soft sales,” Douglas Harned, a New York-based analyst for Sanford C. Bernstein & Co. LLC, wrote in a note to clients today. He has a “market perform” rating on the stock.

Northrop also builds the RQ-4 Global Hawk, which is used by the Navy and the Air Force for surveillance. The company is developing an unmanned combat airplane for the Navy.

Northrop Grumman fell 97 cents, or 1.71 percent, to $55.60.

--Editors: Steven Komarow, Jodi Schneider

To contact the reporters on this story: Roxana Tiron in Washington at rtiron@bloomberg.net. Gopal Ratnam in Washington at gratnam1@bloomberg.net.

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net.


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