Northrop Reports Flat Profit in Quarter

Defense giant Northrop Grumman Corp. posted flat fourth-quarter profit Wednesday but comforted investors by projecting that 2004 earnings would come in above current Wall Street estimates as employee pension costs declined.

Buoyed by strong defense spending, Century City-based Northrop expects to expand its global payroll this year, including hiring about 2,000 workers in Southern California, said Chairman and Chief Executive Ronald D. Sugar. The company is one of the biggest Southland employers, with 26,000 workers in the region.

Although pension costs depressed Northrop’s quarterly earnings, Sugar said, strong sales enabled the company to post a profit that just beat analysts’ estimates.

For the three months ended Dec. 31, Northrop reported net income of $224 million, or $1.22 a share, compared with net income of $224 million, or $1.72, for the same period a year ago. Per-share earnings fell because Northrop’s shares outstanding increased 45%, a result of new stock issued for the 2002 acquisition of TRW Inc.

Operating earnings, which exclude a one-time gain for the sale of discontinued operations, including TRW’s automotive business, fell 10% to $203 million, or $1.11 a share. That was down from $226 million, or $1.73, in the same quarter in 2002 but still above analysts’ forecasts of $1.10.

Fourth-quarter revenue increased 47% to $7.1 billion from $4.8 billion a year ago.

All the company’s business segments, including shipbuilding and electronic systems, posted double-digit revenue gains, Sugar said. The quarter’s performance included $1.7 billion in space-related sales from divisions it acquired in its purchase of TRW in 2002.

“It was a really good quarter, and a good year,” said Paul Nisbet, an analyst with JSA Research Inc.

For 2003, Northrop earned $866 million, or $4.64 a share, compared with $64 million, or 34 cents, the previous year. Revenue rose 52% to $26.2 billion from $17.2 billion.

Pension costs have tempered earnings in recent years and rose to $145 million in the fourth quarter. For the year, pension expenses totaled $568 million.

But those costs are expected to plummet this year to $330 million, Chief Financial Officer Charles Noski said.

Noski said that the lower pension costs would increase Northrop’s profit from continuing operations by 93 cents a share this year and that projected operating profit for 2004 would be $5.60 to $5.90 a share. That’s at least 13% above the $4.95 average forecast of analysts surveyed by Thomson First Call.

Sugar and Noski said Northrop probably would use its growing cash flow to continue retiring debt and to make small acquisitions. The company also is likely to consider raising its dividend, the executives said.

Northrop has been the beneficiary of rising defense spending, especially through its work on a new class of destroyers for the Navy and its growing role in President Bush’s domestic security programs and a missile defense project. The company expects continuing strong results.

“Almost every key Northrop Grumman project was provided for, in a way we were pleased with, in the president’s budget,” Sugar said.

Northrop shares Wednesday rose $1.10 to $99.10 on the New York Stock Exchange.