Defense contractor Northrop Grumman Corp. (NOC) on Wednesday reported lower profit for the third quarter, reflecting primairly a charge from pension adjustments compared to a gain last year. Sales increased across all segments, but operating income declined in Electronic Systems and Shipbuilding units. Further, the company raised its full-year earnings forecast.
The Los Angeles, California-based company reported third-quarter net earnings of $490 million or $1.53 per share on 320.6 million shares, compared to the previous year's net income of $512 million or $1.51 per share on 340.1 million shares.
Earnings from continuing operations totaled $487 million, or $1.52 per share, compared to $509 million, or $1.50 per share, in the third quarter of 2008.
In the latest period, net pension adjustment, or FAS/CAS, reduced earnings from continuing operations by $47 million, or $0.15 per diluted share, compared to an increase to earnings from continuing operations of $42 million, or $0.13 per share, in the previous year.
The latest results also included a net tax benefit of $75 million, or $0.23 per share, primarily for final settlement of the Internal Revenue Service's examination of the company's 2001, 2002 and 2003 tax returns. In the previous year, the company recognized net tax benefits totaling $21 million, or $0.06 per share.
Pension-adjusted earnings from continuing operations increased to $534 million or $1.67 per share from $467 million or $1.37 per share in the prior year.
On average, 20 analysts polled by Thomson Reuters expected the company to report earnings of $1.18 per share for the quarter. Analysts' estimates typically exclude special items.
Total sales and service revenues for the third quarter increased 4% to $8.726 billion from $8.381 billion in the 2008 third quarter. Analysts had consensus revenue estimate of $8.58 billion for the quarter.
Product sales generated $4.982 billion, up from last year's $4.808 billion. Service revenues were $3.744 billion in the just concluded period, compared to $3.573 billion in the prior year.
Sales at Aerospace Systems segment grew 5% to $2.527 billion, principally due to higher volume for unmanned aircraft programs. Operating income of the segment advanced 14% to $265 million due to higher volume and improved program performance.
Electronic Systems generated $1.839 billion in sales, up 2% from last year, partly reflecting higher volume for the F-35 program. However, operating income of the segment dropped 18% to $215 million. As a percent of sales, operating income of the segment was 11.7%, compared to 14.4% in the prior year period. The company noted that the difference is due to a $40 million patent infringement settlement in the third quarter of 2008 and lower performance for government systems programs in the third quarter of 2009.
In Information Systems, sales advanced 4% to $2.513 billion due to higher sales for intelligence and defense programs and operating income increased 32% to $206 million.
Shipbuilding sales rose 14% to $1.650 billion, primarily due to higher volume for the LPD, Virginia-class submarines, and DDG programs. Operating income in this segment dropped 4% to $113 million.
In Technical Services, revenue rose 4% to $692 million due to higher volume for life cycle optimization & engineering, and training & simulation programs. Operating income grew 5% to $41 million due to higher volume.
For the group, cost of product sales increased to $4.027 billion from $3.682 billion, while cost of service revenues rose to $3.276 billion from $3.143 billion.
Operating income dropped to $655 million from $771 million. As a percent of sales, operating income declined to 7.5% from 9.2% in the prior year period.
Federal and foreign income taxes were lower in the just concluded quarter at $133 million, compared to $233 million last year.
Cash provided by operations in the just concluded period was $544 million, compared to $1.37 billion in the prior year, primarily driven by discretionary pension plan contributions totaling $586 million that the company made in the 2009 third quarter. Such discretionary pension plan contributions were not made in the previous year.
New business awards totaled $10 billion in the latest period. Total backlog rose to $71.5 billion from $70.4 billion in the previous quarter.
In July, the company reported a decline in profit for the second quarter, reflecting higher pension expense and charges related to shipbuilding programs in its Gulf Coast shipyards. Net earnings for the second quarter decreased to $394 million or $1.21 per share from $495 million or $1.44 per share in the year-ago quarter. Total sales and service revenues for the second quarter increased 4% to $8.96 billion from $8.63 billion in the year ago quarter.
For the nine-month-period, net earnings edged up to $1.273 billion or $3.90 per share, from $1.271 billion or $3.69 per share in the prior-year period. Total revenues for the period advanced to $26.003 billion from last year's $24.733 bilion.
Further, the company on Wednesday raised its 2009 earnings per share forecast to $5.00-$5.15 per share from the prior range of $4.65 - $4.90 per share. Analysts expect 2009 earnings in the range of $4.60-4.99 per share.
Commenting on the results, Ronald Sugar, chairman and chief executive officer of the company, said, "This was another solid quarter for Northrop Grumman, continuing our focus on managing risk, improving performance and driving growth. Based on this quarter's results we are raising our guidance for 2009 earnings per share to $5.00 to $5.15 per share."
Last month, the company said Sugar would step down from his positions at year end as part of his plan to retire from the company in June 2010. Wesley Bush, currently Northrop Grumman's president and chief operating officer, will replace Sugar as the company's chief executive officer on January 1.
The company's larger rival Lockheed Martin Corp. (LMT) on Tuesday said third-quarter net earnings rose to $797 million or $2.07 per share from $782 million or $1.92 per share reported in the same period in 2008. Net sales for the quarter increased to $11.056 billion from $10.577 billion in the year-ago quarter. The company also raised its full year earnings forecast.
NOC is currently trading at $50.85, up $1.06 or 2.13%, on 1.05 million shares.
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