Northrop Says More Charges Will Sap Profit in 4th Quarter
Northrop Grumman Corp. said Wednesday that it would take additional charges against fourth-quarter earnings and warned that its 1999 earnings would fall as much as 20% below estimates as a result of lower production rates of Boeing Co.’s 747 jet.
The announcement came a month after the Century City-based aerospace and defense contractor said it would shed 1,100 jobs as a result of lower production of the 747. That took the total number of job cuts planned by the end of 2000 to 9,100, or 16.8% of the company’s 54,000-member work force.
Northrop, which makes the 153-foot-long main fuselage section of the 747, said Wednesday that it would take an additional $125 million in charges, reducing fourth-quarter earnings by $1.18 a share. Analysts had expected the company to earn $1.98 a share in the fourth quarter.
The new charges come on top of $44 million in fourth-quarter charges announced last year.
The company also said 1999 profit would fall 15% to 20% short of the earlier $7.51-a-share forecast by Wall Street analysts. Northrop will report 1998 earnings on Feb. 3--about $1.18 below the $6.66 a share that analysts had anticipated.
With similar announcements from Lockheed Martin Co., Boeing and Raytheon Co. in recent weeks, all of the industry’s top four contractors have now tempered investors’ earnings expectations as the industry struggles to adjust to a wave of consolidations.
After Wednesday’s announcement, Northrop shares slid $3.94 to close at $69.31 on the New York Stock Exchange, even as the broad stock market soared.
Most of the new charges, $105 million worth, relate to reduced 747 production rates. The remainder will cover delays in a series of tests on a joint defense program with the British Ministry of Defense and the U.S. Special Forces.
Northrop said lower commercial aircraft production would reduce 1999 sales by about $350 million but that it still expects overall sales to increase slightly.
Northrop generated $9.2 billion in sales in 1997, with Boeing accounting for about 12% of the total.
Boeing raised its 747 production in late 1997 to five a month from two, but a year later cut that to three and then two, causing problems for suppliers such as Northrop that had already taken steps to meet the short-lived production spike.
Northrop said fluctuation in 747 production had caused inefficiencies but that it aimed to recoup some of extra costs from Boeing. Those costs were not included in the charges.
The announcement completes a bleak picture for the top four companies in the industry. Paul Nisbet, a defense analyst at JSA Research, said all four companies appeared to have difficulty adjusting their operations to recent industry consolidation.
