Northrop Profit Slumps 15.5% in 3rd Quarter

Northrop reported a 15.5% decline in third-quarter net income compared to the previous year, an indication of continued profit pressure on the firm’s stealth bomber program.

The Los Angeles-based aerospace company earned $28.8 million on sales of $1.36 billion in the period ended Sept. 30, down from a profit of $34.1 million on sales of $1.46 billion in 1987.

The continued decline in profitability of the stealth program, coupled with the recent disclosure that Northrop sales are expected to drop this year and next, signals that the profit windfall expected by analysts may still be a long way off. In addition, the company blamed the drop in net income on increased investments in the Advanced Technology Fighter competition.

The stealth program, estimated to be worth an estimated $68.8 billion in potential revenue, has transformed Northrop into a leading prime defense contractor, and investors have long waited for the profit stream from that program.

But so far this year, industry analysts have been forced repeatedly to reduce their earnings estimates.

Last year, the company said it would be booking profits on the stealth program at lower rates. It did not disclose why it took the action, but it is believed to be caused by development delays and technical problems.

Can Supply Data

Separately, Northrop confirmed that India is considering purchasing the now discontinued F-5 fighter for use as a trainer jet. India is holding talks with the U.S. government on licensing the Northrop jet for assembly in India.

Northrop confirmed that it has obtained from the State Department a “technical data license,” which enables the company to supply marketing information about the aircraft to India. A resurrection of the F-5 program would mark a historic turnabout in Northrop’s exit from the international fighter market. It is building five F-5s for Singapore, which would be the end of the program without additional orders.

In the third-quarter report, the company’s aircraft unit, dominated by the stealth program, posted an operating profit of $61.3 million, down from $79.6 million last year.

Although much about the stealth is now public information, the company is still forbidden by the Air Force from directly discussing the profitability of the huge nuclear bomber program.

Using the now familiar code words of “a long-term, customer-sponored classified program,” Northrop attributed the decrease in both third-quarter sales and earnings to the stealth program.

Joseph Campbell, aerospace analyst at Paine Webber Inc., estimated that the stealth program sales are running 13% below a year ago.

Nonetheless, Campbell said he expects higher activity in Northrop shares in response to the impending rollout of the first stealth. Air Force officials are expected to announce later this week a rollout date in mid-November.

Jobs to Be Eliminated

Wolfgang Demisch, an analyst at UBS Securities in New York, said he is not troubled by the poor earnings performance that Northrop has turned in this year. “When you are transitioning from research to production, you always expect a dip,” he said.

Operating profit in the firm’s electronics segment was flat in the third quarter on lower sales. The company said it took a $2-million charge on a contract for an F-15 electronic warfare system in the quarter, part of $12 million in writeoffs on that program this year.

A Northrop spokesman said about 200 jobs will be eliminated at the firm’s electronics division in Hawthorne by the end of the year through layoffs and attrition. The company has already notified 130 of the workers.