Northrop reports 8% rise in earnings
Northrop Grumman Corp. posted an 8% increase in first-quarter profit Tuesday, bolstered by higher revenue from developing communication and computer systems for state and local governments.
But the results fell short of analysts’ expectations, and Wall Street punished the nation’s third-largest defense contractor by bidding its shares down $2.45 to $74.17.
Northrop, based in Century City, reported net income of $387 million, or $1.10 a share, up from $358 million, or $1.02, a year earlier. Revenue rose 4% to $7.3 billion.
Analysts, however, were expecting Northrop to report earnings of about $1.14 a share, according to Thomson Financial.
Paul H. Nisbet, an aerospace analyst with JSA Research Inc. in Newport, R.I., said investors had grown accustomed to better-than-expected earnings from defense contractors, which have racked up record profits amid a surge in Pentagon spending.
Wall Street is “spoiled,” Nisbet said. “It’s been extremely consistent with the whole group to exceed expectations, and when they don’t, they get hurt.”
The shares, which reached a 52-week closing high of $76.62 on Monday, slipped despite Northrop’s upbeat conference call with analysts.
Northrop Chairman Ronald D. Sugar described the first-quarter results as “very good,” buoyed by a 12% increase in revenue from its information technology unit.
But some investors have expressed concern about lower profit margins from shipbuilding -- one of Northrop’s core businesses -- and growing tension among the industry, Congress and other federal government entities over problems with large contracts.
In recent weeks, Northrop and its partner Lockheed Martin Corp. have been hammered by critics over problems with a multibillion-dollar program to build ships for the Coast Guard.
Part of the program, known as Deepwater, is under a Justice Department probe. Although the subject of the inquiry is unclear, a whistle-blower last summer raised safety and security concerns with a program to convert 110-foot cutters into 123-foot ships.
But Sugar downplayed the controversy, saying that the root of the problems related to the conversion program by a subcontractor and that the work was not financially material to the company. The Coast Guard has since canceled the program and ordered the decommission of the eight ships.
About 90% of revenue from the joint venture with Lockheed is associated with the national security cutter, “and that is going very well,” Sugar said, referring to a class of large ships that Northrop is building for the Coast Guard.
Northrop said a four-week strike by more than 6,000 workers at a shipyard in Pascagoula, Miss., reduced earnings by about $50 million in the first quarter. The company expects to recover that income in the second quarter.
For the full year, Northrop said it was maintaining its earnings guidance of $4.80 to $5.05 a share on revenue of $31 billion to $32 billion.
