By Calvin Biesecker
Northrop Grumman [NOC] joined in the defense earnings hit parade yesterday, logging a hefty increase in net income helped by higher sales, improved margins, reduced corporate expenses and a one-time gain from the reorganization of a former joint venture.
Net income increased 62 percent to $489 million, $1.41 earnings per share (EPS), against $302 million (86 cents EPS) a year ago, topping Wall Street’s per share estimates by 14 cents. Margins increased 280 basis points to 10.2 percent. Earnings benefited from a $21 million gain related to the dissolution of the AMSEC joint venture with SAIC [SAI]. Last year’s earnings suffered from a $113 million charge for legal expenses.
Sales increased 7 percent to $7.9 billion from $7.4 billion on growth in the Ships and Information & Services segments.
Based on strong earnings so far this year, Northrop Grumman raised its EPS guidance to about $5.10, from between $4.90 and $5.05 EPS. Sales expectations were left unchanged at about $31.5 billion.
The Ships segment led the way in both earnings and sales growth, more than doubling profits to $183 million due to a variety of factors, including the AMSEC related gain. Other factors include improved performance, completing contract actions, and a favorable mix of contract work following Hurricane Katrina, Wes Bush, Northrop Grumman’s president and chief operating officer, said on yesterday’s earnings call.
Post-Katrina performance at the Gulf Coast shipyards continues to improve, Bush said. He noted that worker incentives have improved employee retention at the shipyards and that job recruitment is going well.
Ships sales increased 9 percent to $1.5 billion on higher volume related to a number of Navy and Coast Guard programs.
Despite a 19 percent increase in sales to $3.1 billion at Information & Services, segment profits fell 5 percent to $244 million due to lower performance on state and local information technology outsourcing programs and lower operating margins at the Technical Services component. The performance issues on the state and local programs are behind the company, Jim Palmer, Northrop Grumman’s chief financial officer, said. Segment sales were up on the Essex acquisition earlier this year, several missile defense and C3 programs, state and local programs, and work for the Nevada Test Site.
Aerospace sales and earnings were flat as lower sales of aircraft programs that were offset by higher sales on classified space programs and NASA’s James Webb Space Telescope.
Sales at the Electronics segment were also flat at $1.7 billion, but profits increased 7 percent to $211 million as operating margins increased due to favorable performance adjustments on several programs.
Backlog was a record $64 billion, up over $3 billion since the start of the year. Free cash flow was $873 million.
Ron Sugar, Northrop Grumman’s chairman and CEO, said the raging wildfires in Southern California have impacted some of the company’s employees but have not threatened any of its facilities. He also said that the Air Force was expected to begin flying the Global Hawk Unmanned Aircraft System over the region yesterday to conduct high altitude spotting of fires at the request of California Gov. Arnold Schwarzenegger (R).