Northrop’s Earnings Surge 129% During Year : End of Outlays for F-20 Program Cited; Analysts Disappointed by Size of Gain
Northrop reported Tuesday that its net income rose 129% in 1987, principally because the company was no longer pouring investments into its F-20 jet fighter program.
The sharp increase, however, fell below securities analysts’ estimates, and Northrop stock dipped 50 cents a share to $29.375 in normal trading volume on the New York Stock Exchange.
Northrop abandoned the F-20 in late 1986 after it was unable to obtain any orders for the plane. It spent $1.2 billion in company funds on the private development, including $236 million in 1986 alone.
Analysts had eagerly anticipated the day when Northrop would be freed from the risky and costly program. However, they pointed out Tuesday that new problems arose in 1987 that put extra burdens on the company.
“We were somewhat disappointed with the fourth quarter,” said Phil Friedman of the Drexel Burnham Lambert investment banking firm. “The numbers were less than we had thought.”
Northrop earned $94.2 million on sales of $6.05 billion in 1987, up from net income of $41.2 million on sales of $5.61 billion in 1986.
In the fourth quarter of 1987, Northrop earned $34.9 million on sales of $1.77 billion, up from net income of $9.3 million on sales of $1.66 billion in the same period a year ago.
The 1987 income amounted to $2.01 a share, 30 cents below the mean estimate of 22 aerospace analysts who follow the company, according to the Institutional Brokerage Estimate System, a service of the New York brokerage of Lynch, Jones & Ryan.
Operating profit for the year was up sharply in the company’s aircraft segment but down in the electronics segment, owing to problems with the MX missile guidance system program.
Aircraft operating profit rose to $220.1 million in 1987 from $66 million the year earlier. The year earlier results were affected by the F-20 charges but the 1987 results were negatively affected by a $124.3-million writeoff in the second quarter on a program widely believed to be the Stealth bomber. The company also stepped up other research and development spending, particularly for the Air Force’s Advanced Tactical Fighter program.
In the fourth quarter, Northrop also reduced its profit margin by an unspecified amount on a classified contract. When the company disclosed the earlier $124.3-million writeoff, it said it did not expect to make further adjustments to that secret program.
In the electronics segment, Northrop earned $70 million in 1987, down from $99.7 million in 1986, stemming from the MX problems. The company said it took a charge--or provision against earnings--"for certain estimated costs, related to examinations and audits conducted in the course of making operational changes at the company’s electronics division.”
Northrop did not disclose the amount of the fourth-quarter charge, but analysts said it did not appear to be substantial since profits in the quarter were $23.6 million, down from $36.8 the year earlier. Electronics sales were also down, which apparently contributed to the earnings decline.
Owing to late deliveries of MX guidance systems, the Air Force has suspended progress payments to Northrop. At the end of January, the Air Force was withholding $137 million, down from $145 million in December.
Since delivery schedules are tapering off on the program, Northrop is slowly catching up on its schedule of deliveries. Last year, the company predicted that it would catch up by this month but now is saying it may not catch up until summer.
The large amount of payments withheld has cost Northrop a substantial amount to finance. The company incurred net interest expenses of $50.5 million in 1987, up from $28.9 million in 1986.