Northrop Ups Profit Outlook on Stock Sale

Defense contractor Northrop Grumman Corp. raised its 2005 profit outlook Thursday to include a gain from the sale of shares in former subsidiary TRW Automotive Holdings Corp.

Century City-based Northrop, the world’s largest shipbuilder, said it now expected earnings from continuing operations of $3.60 to $3.75 a share, up from previous guidance of $3.45 to $3.60 a share. The new outlook results mostly from a gain of $45 million, or 12 cents a share, from the recent sale of TRW shares. The stock sale reduced Northrop Grumman’s stake in the Livonia, Mich.-based auto parts maker to 9.9%.

The company maintained its sales forecast of $31 billion to $31.5 billion.

Analysts polled by Thomson First Call expect 2005 profit of $3.53 a share, about the midpoint of the company’s prior guidance, on sales of $31.5 million.

For 2006, Northrop Grumman predicted that earnings from continuing operations would grow by a “solid double-digit” percentage from 2005, excluding this year’s stock gain. The company expects sales of about $33 billion, assuming the Navy’s stated plan to acquire the DD(X) program proceeds. Northrop Grumman is leading the team designing the DD(X) warships, the first of which is scheduled for delivery in 2011.

Analysts are looking for 2006 earnings of $3.97 a share on sales of $33.3 billion.

The company said it expected operating margins to be in the low 7% range in 2005 and the high 7% range in 2006, assuming constant pension expense in both years.

“They raised the guidance, and that’s good,” said Jim Zhao, an analyst at Pittsburgh-based Federated Investors Inc., which owned 982,764 Northrop shares as of December. “It looks like most of that gain is from the TRW sale, while the gain from the underlying businesses was about 3 cents a share.”

Sales in 2004 rose 13% to $29.9 billion and net income climbed 28% to $2.97 a share. Northrop spokesman Frank Moore declined to provide a net-income figure for 2005. The company gave its previous 2005 profit forecast last month.

Northrop also said Thursday that it would raise its quarterly dividend by 13% to 26 cents a share from 23 cents, payable June 11 to shareholders of record May 31.

Cash from operations will rise to as much as $2.5 billion this year and next, from $1.9 billion last year, the company said. That will provide funds to repurchase shares, make dividend payments and consider small “bolt-on” acquisitions, Chief Executive Ronald Sugar said at an investor conference Thursday in Redondo Beach.

Northrop shares rose 53 cents, or 1%, to $53.31 on the New York Stock Exchange.