Northrop's fourth-quarter profit leaps 71%

Ships, unmanned aircraft carry defense giant to $1.72 per share

January 29, 2003|By Robert Little | Robert Little,SUN STAFF

Northrop Grumman Corp. reported yesterday a 71 percent surge in fourth-quarter profit as it continued to reap the rewards of an aggressive three-year expansion that has propelled it to the top ranks of the nation's defense contractors.

Buoyed by increased sales of warships and unmanned aircraft, Los Angeles-based Northrop Grumman, which employs about 11,000 people in Maryland, posted net income of $224 million, or $1.72 a share, for the last three months of 2002, an increase from $131 million, or $1.28 a share, earned in the fourth quarter last year.

Profit for the year was $64 million, down from $427 million in 2001, but included more than $600 million in one-time charges related to an accounting change and the sale of discontinued operations.

Sales for the year increased 32 percent to $17.2 billion, due largely to the performance of two shipbuilding companies that Northrop Grumman acquired in 2001. The $5.2 billion takeover of Litton Industries and the $2.6 billion buyout of Newport News Shipbuilding, combined with last year's $10.7 billion takeover of TRW Inc., have transformed Northrop Grumman from primarily an aircraft and electronics company into the third-largest defense contractor in the nation and a primary shipbuilder and satellite electronics maker.

Northrop Grumman's pension assets have suffered along with the overall market, as have those of other manufacturers, and the defense giant said yesterday that it will spend $260 million in cash this year to cover additional pension expenses. But Wall Street seemed pleased with yesterday's results, running the price of Northrop Grumman's shares up $3.47, or 4 percent, to $91.86 on the New York Stock Exchange.

"These were very excellent results," said Paul H. Nisbet, a defense analyst for JSA Research Inc. in Newport, R.I. "The only fly in the ointment was the pension account, which seems to be stinging everyone."

"Other than that they're doing very well, probably better than any other firm in terms of growth in revenue," said Nisbet, who reiterated a "buy" rating yesterday on Northrop Grumman stock. "And they're going to keep growing."

Fourth-quarter sales at the company's Electronic Systems sector in Linthicum, its largest division, rose slightly to just over $1.5 billion with an operating margin of $163 million, compared with a $146 million margin in 2001.

The shipbuilding sector had $1.4 billion in fourth-quarter sales, compared with $803 million a year earlier, an increase due mostly to the acquisition of Newport News. The company's Integrated Systems unit saw sales increase 6 percent to $830 million, largely from unmanned vehicle sales and growth in its efforts to develop components of the F-35 Joint Strike Fighter.

Northrop Grumman Chief Executive Officer Kent Kresa characterized the fourth-quarter results as "outstanding," and said the company expects to grow as defense spending increases and the United States prepares for war. Northrop Grumman said yesterday that it foresees 2003 sales of as much as $26 billion, with net earnings as high as $4.50 per share.

"We are well positioned to benefit from increasing defense budgets and homeland security initiatives," Kresa said during a conference call with analysts. "We will have growth at a greater rate than the growth of the [defense] budget," he said.

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