Northrop Grumman [NOC] on Wednesday posted solid gains in its per share earnings due to its stock buyback program, which lowered the company’s overall share count, even though net income fell largely due to pension adjustments.
Net income slipped 5 percent to $473 million, $2.26 earnings per share (EPS), from $497 million ($2.14 EPS) although per share earnings were up 6 percent on the reduced share count. The results beat Wall Street estimates by 13 cents EPS. Free cash flow was $824 million.
The company’s earnings were hindered by a $62 million (30 cents EPS) impact related to recent legislation that reduced recoverable pension costs against federal contracts in 2014. The negative pension adjustment, which covers the first nine months of the year, was partially offset by the settlement of legal claims that increased earnings by $49 million (23 cents EPS).
At the operating level, the legal settlements benefitted results at Northrop Grumman’s Aerospace Systems segment, which posted a 22 percent rise in operating profit to $402 million. The segment also benefited from lower pension costs due to the legislation.
Sales at Aerospace Systems were up more than 2 percent to $2.5 billion, shouldered by the legal settlements that are related to the use of the company’s intellectual property, and a terminated program. Otherwise, sales would have declined due to lower volume on the B-2 bomber, Joint STARS ground surveillance, and F/A-18 fighter aircraft programs.
Sales at Northrop Grumman’s other segments, Electronic Systems, Information Systems, and Technical Services were all lower. Operating profit at Electronic Systems held level while the other two segments posted declines.
Overall, the company’s sales fell 2 percent to $6 billion from $6.1 billion.
Wes Bush, Northrop Grumman’s chairman, president and CEO, said on an earnings call in response to an analyst’s question that despite the recent increase in operating tempo in the Middle East by United States military forces, he doesn’t see any “big uptick” for the time being on the company’s results.
Bush did say that international business continues to partially offset domestic budget pressures. This year, international sales are expected to account for 13 percent of overall business versus 10 percent in 2013, James Palmer, the company’s chief financial officer, said on the call. Palmer added that the backlog consists of about 14 percent international business.
Total backlog at the end of the third quarter stood at $38.5 billion, 8 percent higher than the end of the second quarter and 4 percent higher than the end of 2013. Orders in the third quarter were a strong $9 billion.
Based on results so far this year, Northrop Grumman increased and narrowed its earnings guidance to between $9.40 and $9.50 EPS versus the prior outlook of $9.15 to $9.35 EPS. The company also said its sales are expected to be about $23.8 billion, which is the high end of earlier guidance.