Northrop Posts Sharp Gain in Quarterly Profit

In a sharp counterpoint to the troubles afflicting its defense industry competitors, Northrop Grumman Corp. on Wednesday reported a 41% jump in its fourth-quarter profit, helped by increased margins on B-2 stealth bomber and surveillance aircraft programs.

The nation’s fifth-biggest defense contractor said earnings increased to $138 million, or $1.96 a share, from $97.8 million, or $1.43, before a charge in the year-earlier period. Sales fell to $2.51 billion from $2.54 billion.

The Century City-based company generated a record $1.2 billion in cash and cut its net debt by $700 million to $2.1 billion during 1999. The cash gives Northrop the flexibility for either share buybacks or acquisitions, Chief Executive Kent Kresa said. He did not elaborate on the likelihood of either.

In a statement, the company also projected strong growth in earnings and revenue in 2001.

The news, however, evoked little investor enthusiasm. Northrop’s stock rose 13 cents to $47.88 on the New York Stock Exchange. The shares, which traded as low as $45.25 Wednesday, have slumped 37% from their 52-week high.

The decline could make the stock cheap enough to consider a buyback, Kresa told analysts during a conference call. He said Northrop’s stock has been hurt by profit warnings at aerospace rivals such as Lockheed Martin Corp. and Raytheon Co.

“We are not facing the same issues as others in our industry,” he said. “Many of you on Wall Street characterize us as a cash story, and we certainly validated that assessment in 1999.”

Northrop completed upgrades on more B-2 stealth bombers for the Air Force than expected last year and booked its first profit on the Joint STARS surveillance aircraft after reaching a settlement with the Air Force on contract claims. The two unexpected boosts led Northrop to say earnings in 2000 would be little changed before growth resumes in 2001.

“The market was expecting far less than what it got [in 1999] because of this movement forward of some of the earnings,” said Paul Nisbet, an analyst with JSA Research Inc. “Aside from that, the earnings were right on the mark.”

The average earnings estimate of analysts polled by First Call/Thomson Financial was $1.69 for the quarter and $6.66 for the year, followed by $7.21 in 2000. Northrop had earnings of $6.93 a share in 1999.

“It’s just moving earnings from 2000 into 1999 on the order of 25 to 30 cents,” said Nisbet, who has a “buy” rating on Northrop stock and expects it to hit $104 by year’s end.

Northrop recorded an extra $37 million in profit on the Joint STARS aircraft and $23 million for the B-2 program in the quarter. It also put into place a $27-million forward-loss reserve for its commercial-aircraft parts division, which faces declining production orders from Boeing Co., a major customer.

Northrop executives said they might not have to use all of that provision this year if production rebounds at Boeing, the world’s largest plane maker. Northrop makes fuselage sections for Boeing’s 747 jetliners. Boeing is considering boosting the production rate on the 747 later this year.

In the year-earlier quarter, Northrop took pretax charges of $104 million for declining production of 747 fuselages and $21 million for higher-than-expected costs on a laser-jamming system. It also had a $30-million pretax investment write down.

The charges totaled $1.46 per share, and resulted in a loss of $3 million, or 4 cents a share.