Northrop Profit Jumps on Higher Military Spending

Aided by acquisitions and increased defense spending, Northrop Grumman Corp. on Monday posted a 13% increase in second-quarter profit and raised its earnings forecast for the year.

The Century City-based builder of warships, bombers and battlefield electronics said net income climbed to $207 million, or $1.09 a share, up from $181 million, or $1.52, a year earlier.

The performance trounced analysts’ consensus estimate of 86 cents a share, sending Northrop shares up $5.26, or 6%, to $92.36 on the New York Stock Exchange.

Northrop’s TRW unit “is doing better than people anticipated,” said Christopher H. Mecray of Deutsche Bank Securities in New York, which owns stock in Northrop and is seeking an investment banking relationship with it. Although earnings declined at the ships division, the quarterly results were “pretty strong across the board,” Mecray said.

Northrop’s per-share earnings were based on 184.4 million outstanding shares, compared with 114.8 million shares a year earlier. The additional shares were issued as part of its $7-billion acquisition of TRW Inc. in December, which so far has proven to be a sound investment.

“We had great performance from our recently acquired businesses,” Chief Executive Ronald D. Sugar said during a conference call with analysts. “The company is getting stronger. We can feel this.”

The quarterly results were the first on Sugar’s watch. A former president and chief operating officer of the company, the 54-year-old Sugar took the helm when longtime CEO Kent Kresa retired in April.

Northrop on Monday brightened its financial outlook for the year, forecasting profit from continuing operations of $4 to $4.25 a share. That’s up from its previous forecast of $3.80 to $4.20 a share, and tops the $4.01 expected by the analysts surveyed by Thomson First Call. The forecast presumes no change in pension costs.

But the surprisingly robust second-quarter performance raised flags for some analysts, who said it could foreshadow weaker results for the second half of the year.

“Some things got pushed from the third quarter into the second,” said Eric Hugel of investment bank Stephens Inc., which has a banking relationship with Northrop. “That is somewhat of a concern.”

Northrop executives dismissed that worry, saying they wouldn’t have increased the earnings guidance for the year if they thought sales would slow.

“We are optimistic that we have the right business mix in place to achieve the guidance we put forward,” Northrop spokesman Randy Belote said.

Companywide sales for the quarter ended June 30 jumped 57%, to $6.6 billion, from $4.2 billion last year. The boost came largely on the strength of its acquisitions, including the Mission Systems and Space Technology units acquired from TRW.

Virginia-based Mission Systems, which makes missile defense systems and computers for battlefield management, posted second-quarter sales of $1.1 billion and operating profit of $74 million.

The Redondo Beach-based Space Technology unit, which makes space telescopes and surveillance systems, had sales of $733 million and profit of $55 million.

Earnings were up across all of the company’s businesses in the quarter except for the ships division, which recorded a $68-million charge for weather-related delays and increasing overhead in its troubled Polar Tanker crude oil tanker program.

The charge pushed earnings of that division down to $23 million, from $85 million last year.

Moreover, a jump in pension costs to $140 million, from pension income of $22 million in the second quarter of 2002, offset some of the gains Northrop made in sales of fighter planes, warships and its Global Hawk spy plane.