Defense contractor Northrop Grumman Corp. (NOC) on Thursday reported a profit for the fourth quarter, compared to a loss last year when results were impacted by a hefty goodwill impairment charge. Revenue for the latest quarter increased 1.7%. Looking ahead to fiscal year 2010, the company forecast earnings per share from continuing operations above analysts' estimates.
The Los Angeles, California-based company reported fourth-quarter net earnings of $413 million or $1.31 per share, compared to net loss of $2.53 billion or $7.75 per share in the previous-year quarter. The latest quarter's results include a $574 million change in net pension adjustment from income of $263 million in the prior-year period to an expense of $311 million in 2009. In December 2009, the company completed the sale of TASC, Inc. its advisory services business, for $1.65 billion in cash and a net gain of $0.05 per share. TASC's operating results are accounted for as discontinued operations.
The year-ago quarter's results were significantly impacted by a goodwill impairment charge of $3.06 billion.
Earnings from continuing operations for the latest quarter totaled $375 million or $1.19 per share, compared to loss from continuing operations of $2.56 billion or $7.83 per share in the same period last year. Adjusted earnings from continuing operations for the quarter declined to $375 million or $1.19 per share from $499 million or $1.50 per share in the prior-year period. Pension-adjusted earnings from continuing operations for the quarter increased to $1.37 per share from $1.36 per share a year ago. On average, nineteen analysts polled by Thomson Reuters expected the company to report earnings of $1.26 per share for the quarter. Analysts' estimates typically exclude special items.
Total sales and service revenues for the fourth quarter rose 1.7% to $8.93 billion from $8.78 billion in the same period last year. Analysts had a consensus revenue estimate of $9 billion for the quarter.
Among Northrop's peers, Lockheed Martin Corp. (LMT) in late January reported an increase in profit for the fourth quarter from last year as sales increased across all of its business segments. For the fourth quarter, the Bethesda, Maryland-based company's net earnings increased to $827 million or $2.17 per share from $823 million or $2.05 per share in the previous year. Net sales for the quarter grew 13% to $12.52 billion from $11.13 billion in the same quarter last year.
Northrop's operating income for the latest quarter was $631 million compared to operating loss of $2.19 billion a year ago. Operating income was 7.1% of sales for the quarter. Federal and foreign income taxes were lower in the just concluded quarter at $195 million, compared to $264 million in the same period last year.
Cash provided by operations in the latest quarter totaled $931 million compared with $1 billion in the previous-year quarter. The change was primarily driven by a $538 million increase in pension plan contributions and $508 million in taxes paid in the latest quarter on the gain from the sale of TASC.
On a segmental basis, sales at Aerospace Systems segment for the fourth quarter grew 7% to $2.76 billion, principally due to higher volume for unmanned and manned aircraft, and restricted programs. Operating income for the segment was $291 million compared to operating loss of $305 million last year, reflecting higher volume and favorable net performance adjustments.
Electronic Systems generated sales for the quarter was $2.08 billion, up 2% from last year, reflecting higher volume for the F-35, postal automation, and navigation programs. However, operating income declined 1% to $274 million, reflecting higher volume partially offset by lower performance in government systems programs. In addition, operating income for the prior year includes $60 million of royalty income related to patent infringement settlements.
In Information Systems, sales for the quarter advanced 1% to $2.20 billion. Operating income for the segment dropped 35% to $109 million. The sale of TASC reduced operating income by $37 million. The latest quarter's results also includes lower performance for state and local programs, principally the outsourcing program for the Commonwealth of Virginia.
Shipbuilding sales declined 4% to $1.66 billion, primarily due to lower volume for the DDG and fleet support programs in addition to delivery of the LHD 8 in 2009. This was partially offset by higher volume for aircraft carriers, submarines, LPD and LHA programs. Operating income for the segment was $88 million compared to operating loss of $2.33 billion a year ago. The prior-year quarter's results included a goodwill impairment charge that reduced results by $2.5 billion.
In Technical Services, revenue rose 11% to $750 million due to higher volume for life cycle optimization & engineering programs. Operating income for the quarter grew 18% to $40 million due to higher volume and improved program performance.
As on December 31, 2009, Northrop's total backlog, which includes funded backlog and firm orders for which funding is not currently contractually obligated by the customer, was $69.19 billion. This compares with backlog of $76.42 billion as on December 31, 2008. The decline in backlog reflects new business awards totaling $32.3 billion during the year as well as a decrease of $5.8 billion for the Kinetic Energy Interceptor program termination for convenience and the DDG 1000 program restructure.
For fiscal year 2009, Northrop Grumman reported net earnings of $1.69 billion or $5.21 per share, compared to net loss of $1.26 billion or $3.77 per share in the prior year. The results came in above the company's projection for earnings per share in a range of $5.00-$5.15.
The prior year's results were negatively impacted by the goodwill impairment charge of $3.06 billion.
Earnings from continuing operations for the year totaled $1.57 billion or $4.87 per share, compared to loss from continuing operations of $1.38 billion or $4.12 per share last year.
Adjusted earnings from continuing operations for the year were $1.57 billion or $4.87 per share, down from $1.68 billion or $4.92 per share in the prior year. Pension-adjusted earnings from continuing operations increased to $5.50 per share from $4.42 per share a year ago. Analysts expected earnings of $5.17 per share for the year. Total sales and services revenues for the year increased 4% to $33.76 billion from $32.32 billion in the previous year. Analysts had a consensus revenue estimate for the year of $34.92 billion.
For fiscal year 2010, the company forecasts earnings from continuing operations in a range of $5.70-$5.95 per share and sales in a range of $34 billion-$34.60 billion. Analysts expect the company to report earnings of $5.58 per share on revenues of $35.87 billion for the year. The company also projects operating margin mid 8% for the year.
Wes Bush, chief executive officer and president of Northrop Grumman said, "Our guidance for 2010 calls for EPS from continuing operations to grow by 17 to 22 percent and to be accompanied by continued strong cash generation."
NOC is currently trading at $58.44, down $0.07 on a volume of 1.48 million shares. In the past 52 weeks, the stock has been trading in a range of $33.81-$59.83.
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