Northrop profit falls 20 percent on pension, ship costs




Bloomberg News

Published: 7/23/2009 9:48 AM

Northrop Grumman Corp., the world’s largest warship builder, said second-quarter profit fell 20 percent as the company recorded higher costs on ship construction and pensions.

Northrup has operations in Rolling Meadows.

Net income fell to $394 million, or $1.21 a share, from $495 million, or $1.44, a year earlier, the Los Angeles-based company said in a statement today. Sales rose 3.8 percent to $8.96 billion.

Rising pension expenses, precipitated by declining returns on fund assets such as stocks, erased the benefit of increased revenue from defense electronics. Delays and higher costs on ships at the company’s yards in Mississippi and Louisiana also have been a “sore point” with investors, said Joseph Nadol, a New York-based analyst with JPMorgan Chase & Co.

“Northrop has struggled with its Gulf Coast shipyards since Hurricane Katrina hit nearly four years ago, and several efforts to improve profitability since then have failed to gain traction,” Nadol wrote in a report yesterday. He cut his rating on the shares to “neutral” from “overweight.” “We believe the outlook for shipbuilding has deteriorated further in recent months and have concerns about further charges.”

The average estimate of 16 analysts surveyed by Bloomberg was for earnings, excluding some items, of $1.29 a share. Analysts projected sales of $8.69 billion. Excluding a 21-cent- a-share charge for cost growth on ship programs in the quarter, profit would have been $1.42.

Legal Settlement

Results for the quarter included a gain of $64 million, or 13 cents a share, from a legal settlement Northrop announced in April. Northrop agreed to the largest whistleblower settlement against a defense contractor, for $325 million, to resolve claims on satellite parts the government deemed defective. The parts were made by TRW Inc. before Northrop acquired the company in 2002.

That settlement was offset by resolution for an equal value of Northrop’s suit against the government to recover costs on a canceled cruise-missile program. Because the cases canceled each other out, Northrop recorded a gain by reversing the reserve it had set up for the whistleblower case. On April 22, Northrop estimated the pretax gain would be $60 million to $70 million.

Northrop rose 2 cents to $47.13 in New York Stock Exchange composite trading yesterday. The shares have dropped 29 percent in the past year.

Northrop is the Pentagon’s third-largest supplier after Lockheed Martin Corp., and Boeing Co. Lockheed this week said second-quarter profit fell 17 percent to $734 million because of rising pension costs. Boeing yesterday said profit gained 17 percent to $998 million as it shipped more Apache helicopters and fighter jets.