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July 24, 2009
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Los Angeles-based leading shipbuilder and the second largest U.S. defense contractor Northrop Grumman Corporation (NOC) reported unimpressive second quarter results, with EPS of $1.21 missing the consensus by 8 cents. Affected by pension costs and a weak shipbuilding segment, results were weaker than the peer group, which includes Boeing (BA), Lockheed Martin (LMT), and Raytheon Company (RTN). The company however reaffirmed its fiscal outlook. For fiscal 2009, we expect the company’s topline to be near the $35 billion mark with EPS hovering near $5.
However on the revenue front the company registered close to $9 billion, up 4% year-over-year, beating the consensus expectation of $8.7 billion. In the quarter, Electronic Systems and Technical Services sales grew by double digits, with impressive growth from the Aerospace systems, and the steady Information Systems segment.
However, the Achilles heel was the Shipbuilding segment where sales shrunk by 10% year-over-year. The downside came from lower volume for expeditionary warfare programs. The bottom line sank rock-bottom by 89% due to a pre-tax charge reflecting higher estimates for the LPD-class ships and the LHA-6.
Electronic Systems was the star of the quarter with operating income growing one-fourth year-over-year. Electronic Systems sales grew due to higher deliveries of Large Aircraft Infrared Countermeasures systems; higher volume for the Space Based Infrared System program; higher volume for postal automation programs, and higher inter-company sales for aerospace and naval & marine programs. Technical Services sales increased due to higher volume for life cycle optimization & engineering, and training & simulation programs.
But the real punch came from the cancellation of the Kinetic Energy Interceptor (KEI) program, where Northrop Grumman was the prime contractor. The order backlog of the company was therefore, reduced by $5.1 billion at the end of the quarter. As a result total backlog decreased to $70.4 billion from $78.1 billion sequentially. But here again Electronic Systems was able to increase its backlog albeit marginally to $10.8 billion from $10.5 billion.
Obama Administration’s stance against high-cost fancy weapon programs has affected all and sundry in the defense and aerospace segment. Even the goliath was not spared; Lockheed Martin Corporation’s (LMT) backlog was also cut by $2.6 billion on account of the termination of the VH-71 presidential helicopter, and Transformational Satellite or TSAT programs.
Read the full analyst report on "NOC"
Read the full analyst report on "LMT"
Read the full analyst report on "BA"
Read the full analyst report on "RTN"
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