Northrop Profit Jumps 22%, Easily Beating Expectations

Defense contractor Northrop Grumman Corp. said Tuesday that its fourth-quarter earnings rose 22% from a strong showing in its military electronics and intelligence equipment businesses, offsetting losses from hurricane damage at its Gulf Coast shipyards.

The Century City-based company’s results easily beat Wall Street forecasts. Its shares rose $1.32 to $62.08, nearing a three-year high.

The maker of the Global Hawk spy plane, aircraft carriers and spy satellites also raised its 2006 earnings-per-share estimate by 10 cents to 15 cents to a range of $4.25 to $4.40.

Northrop had “a good quarter,” said Paul Nisbet, longtime aerospace analyst with JSA Research Inc. Although its revenue growth is likely to flatten as Pentagon spending slows, Northrop should be able to keep boosting profit by cutting costs and landing lucrative contracts, he said.

In the fourth quarter Northrop reported net income of $331 million, or 92 cents a share, compared with $272 million, or 74 cents, a year earlier. Analysts expected Northrop to earn 83 cents a share. The company benefited from the sale of a wireless company and a tax settlement, though it had continuing problems with a fighter-jet program.

Revenue rose less than 1% to $7.86 billion.

Northrop said its ship sales fell 15% in the quarter because of hurricane-related disruptions in the Gulf Coast and slowing sales from a program to develop the Navy’s next-generation destroyer. Northrop is the nation’s second-largest defense contractor and the largest builder of military ships.

Northrop also blamed the flat revenue on a delay in the passage of the Pentagon’s defense budget, which hampered the awarding of contracts in the fourth quarter.

Overall, four of Northrop’s defense businesses posted profit gains.

Chief Executive Ronald D. Sugar said he was “pleased with the steady progress” in restoring operations at Northrop’s shipyards, which incurred about $1 billion in damage. Northrop builds warships in New Orleans and Mississippi and is still working with the Navy to adjust for the extra cost of programs delayed by Hurricane Katrina.

Excluding the hurricane-related problems, “it was a very strong year for the company, and we are very optimistic about the future,” Sugar said.

“Sugar is more of an inside operator than his predecessor, who liked to make big acquisitions,” Nisbet said, referring to former Northrop Chairman Kent Kresa. “[Sugar] is concentrating on solidifying what he’s got.”

For the year, Northrop’s net income rose 30% to $1.4 billion, or $3.85 a share, from $1.1 billion, or $2.97, in 2004. Revenue increased 3% to $30.7 billion.

However, Northrop said its revenue would be flat this year and cut its forecast by about $1 billion because of plans to exit the lower-profit-margin business of reselling computer equipment to the federal government.

Northrop’s operations in Southern California posted the highest profit gains in the fourth quarter. Northrop has about 27,000 workers in the region.

Northrop’s El Segundo-based Integrated Systems unit, which makes the fuselage for the F/A-18 fighter jets, saw its operating profit climb 17% to $118 million. The company’s Space Technology unit in Redondo Beach posted an 8% rise in operating profit to $57 million because of increased spy satellite sales.

Northrop’s fourth-quarter results were also helped by a pretax gain of $14 million from the sale of its stake in wireless communications equipment maker Endwave Corp. Northrop also received a $20-million tax refund from settling a case with the Internal Revenue Service.

Separately, Northrop said the San Diego County Board of Supervisors had approved a contract worth more than $650 million over seven years for it to manage the county’s information technology and telecommunication systems.