Northrop Posts Bad News
Trouble in a fighter jet electronics program and at a New Orleans shipyard swung Northrop Grumman Corp. from a profit to a loss in the third quarter and sent its shares tumbling 12% on Thursday.
Los Angeles-based Northrop, one of the nation’s largest defense contractors, also lowered its outlook for the year and said it couldn’t provide reliable guidance for 2003 because of the uncertainty of its pension asset returns.
Northrop lost $59 million, or 56 cents a share, in the third quarter contrasted with a profit of $79 million, or 84 cents, in the same period a year earlier. Revenue rose 24% to $4.2 billion.
The company also said it expects after-tax losses of $208 million from its sale of Component Technologies, a commercial electronics business based in Iselin, N.J.
Northrop’s loss in the third quarter included an $87-million pretax charge on its Polar Tanker program, which has been hindered by high turnover of workers at the Avondale shipyard in New Orleans, where Northrop builds the giant double-hulled crude oil transports for the petroleum industry.
Northrop also took a $65-million pretax charge on its contract to build F-16 fighter jet electronic warfare equipment and fire-control radar as part of a Lockheed Martin contract to sell the plane to the United Arab Emirates.
“We are not happy to have to do this,” Kent Kresa, Northrop’s chairman and chief executive, said of the charges.
The charges were partially offset by a $69-million gain from Northrop exiting a commercial cruise ship project it inherited with its acquisition of Litton Industries last year and an additional $20 million from a technology contract.
“Our core defense businesses are performing well,” Kresa said.
But Wall Street focused on the negatives, pushing Northrop shares down $13.51 to close at $101.50 on the New York Stock Exchange. Shortly after the report, Standard & Poor’s analyst Robert Friedman downgraded his assessment of the company’s shares from “hold” to “sell.”
“There are a lot of hope and dreams built into this stock price,” Friedman said. “The quality of earnings in the defense industry as a whole is not good.”
Northrop also lowered its earnings estimates for the current year to reflect its discontinued operations and account for the charges. The company now expects net income of $5.65 to $5.75 per share, down from an earlier forecast of $6.10 to $6.60.
Northrop won approval Wednesday from the European Union for its planned $7.8-billion purchase of defense contractor and satellite builder TRW Inc. U.S. antitrust officials also are expected to approve the deal, which Northrop says will be completed by year’s end.
