Northrop's profit is flat, before stock jolt

Quarterly net fell 34% when pension-fund results are included

April 24, 2001|By Robert Little | Robert Little,SUN STAFF

Northrop Grumman Corp. announced yesterday that first-quarter profit from its defense businesses was largely unchanged from last year, disappointing analysts who had expected gains - particularly from the company's Baltimore-area electronics division.

Although the Los Angeles-based defense contractor reported a 34 percent drop in net income for the first three months of 2001, the decrease was attributed almost entirely to stock market losses suffered by the company's pension fund.

Overall profit in the quarter, including pension income, was $103 million, or $1.42 per share, compared with $156 million, or $2.23 per share, reported for the first quarter of last year. But excluding pension profit, which can be reported as income when it exceeds a company's payout obligations, earnings in the quarter were nearly the same as last year at $101 million, or $1.39 per share.

The company's Electronic Sensors and Systems Sector in Linthicum reported a $36 million profit, which also was largely unchanged from last year - despite a 17 percent increase in first-quarter sales. "It was slightly weaker than I expected, and mostly because of Electronic Systems," said Christopher Mecray, an analyst for Deutsche Bank. "We expected significant growth there, but didn't see it."

Company officials attributed the Linthicum division's underwhelming performance to several large defense contracts that are still in their early stages and have yet to post profits. Among them are an Australian airborne radar system, called Wedgetail, and upgrades to the electronics systems on F-16 aircraft.

Chief Executive Officer Kent Kresa said the Linthicum division is still expected to post a significant increase in profit in 2001, but that most of it will be recorded in the last half of the year. The division received $987 million in new contracts in the first quarter, a 66 percent increase from the first three months last year.

"Those things are understandable, but execution is the key here," said Mecray. "We'll have to monitor this."

The Linthicum division, with more than 7,000 workers, is one of the Baltimore area's largest employers. Northrop Grumman officials consider it among the company's more promising and potentially profitable entities. Kresa called it "a key growth engine" yesterday.

Northrop Grumman announced last week that it will buy the Electronics and Information Systems Group of Aerojet-General Corp. for $315 million and make it part of the Linthicum division. The acquisition is seen as an effort to stake a claim to the national missile defense system under consideration.

Earnings announced yesterday did not include the performance of Litton Industries, which Northrop Grumman acquired earlier this month. Northrop Grumman's annual sales are expected to exceed $15 billion when those results are included, making it the nation's third largest defense contractor, behind Lockheed Martin Corp. and Boeing Co.

Northrop Grumman's shares fell $4.32, or 4.6 percent, to $88.88 on the New York Stock Exchange yesterday.

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