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INDUSTRY

Litton Rides Waves, Not Microwaves Into Future

Defense: The Woodland Hills firm survives by dumping its consumer divisions to concentrate on technology and military shipbuilding.

March 21, 2000|ANDREW BLANKSTEIN | TIMES STAFF WRITER

WOODLAND HILLS — Not long ago, analysts were writing off Litton Industries as a certain takeover target. But the company, while not the powerhouse it once was, has been a determined survivor.

Litton stock, which has been sliding downward since July, rebounded with other old-economy stocks last week as investors hunted for bargains.

"They've done a better job than the stock price reflects," said Byron Callan, who follows the company for Merrill Lynch. "They haven't come out with gigantic visions. But they've been a fairly well-run operation.

"It may not be the most exciting story in the stock market," Callan added. "But it's undervalued, and eventually the market should reward their steady and consistent performance."

Litton stock, which hit an all-time high of 72 last July, tumbled to 27 in February after the company announced quarterly profits were down 16% due to losses in its electronics business.

Down but not out, Litton stock climbed last week to 36 1/2, rebounding amid the broader rally in the New York Stock Exchange. It closed Monday at $35.

But some say the Woodland Hills-based firm's valuations are still low, continuing to make Litton vulnerable to a takeover.

"It's been a survivor up until this point," said Paul Nisbet, an analyst with JSA Research Inc. in Newport, R.I. "But the low stock price makes it a potential target."

Between 1995 and 1998 company profits climbed steadily from $135 million to $181 million. But profits fell by $60 million in 1999.

Nisbet and other analysts say the earnings decline is the temporary result of charges the company took when it closed its professional services businesses and its mainframe computer services business known as Litton Enterprise Solutions.

"If it hadn't been for that, they would have had steady improvement for five years straight," Nisbet said. "We expect them to continue earnings growth this year and for the foreseeable future."

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Litton's identity has been rooted in an industry drastically reshaped by a decade of downsizing and corporate mergers.

While Lockheed Corp. left the San Fernando Valley and Rocketdyne was swallowed up by Boeing, Litton stayed put and independent, becoming the nation's leading maker of nonnuclear military ships and the seventh-biggest defense contractor.

"We continue to be an independent, and why is that?" asked Litton spokesman Randy Belote. "We've been aggressive in expanding our business in growth markets."

Besides shipbuilding, which accounts for a third of its profits, Litton has expanded its reach in areas such as information technology, aerospace and marine navigation equipment and other advanced electronics.

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Along the way, the company has also shed many of its consumer businesses that made microwave ovens, typewriters, frozen foods and fake diamonds.

As defense firms go, Litton is no giant, especially compared to larger competitors such as Lockheed Martin Corp., Boeing Co., Raytheon Co. and General Dynamics.

Like those companies, Litton has made acquisitions over the past decade, albeit more modest targets.

Litton beefed up its military and civilian ship operations, buying Racal Marine Group, Sperry Marine and LIT, the world's leading producer of marine electronic navigation and guidance systems.

Its biggest purchase came last August when it acquired New Orleans cargo shipbuilder Avondale Industries Inc. for about $529 million.

In addition to building destroyers, supply vessels and other ships for the Navy, Litton Avondale Industries has been contracted to produce the first cruise ships to be built in the United States in the last 40 years, Belote said.

The contract calls for the company to build three $450-million ships for American Classic Vessels, he said. The cruise ships will travel between California and Hawaii and will be delivered in 2002.

Founded in 1954 in a rented factory in Beverly Hills, Litton grew from a small microwave-tube company to a multinational power worth $5.5 billion and a work force of 44,000 people, including 6,000 at its Woodland Hills headquarters.

One of the first conglomerates, adhering to a philosophy that market success depends not so much on products but on management of those products, Litton grew quickly. It acquired several electronics businesses and, in the '60s, the struggling Ingalls Shipbuilding Corp. in Pascagoula, Miss., and Western Geophysical, which provided mapping services.

The company also bought and later sold hand-tool, dental, X-ray equipment and publishing businesses as well as machine and supply companies that included Royal McBee typewriters.

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Oddly, the company is probably best known to the public for its microwave ovens, which it began producing in 1965. It also bought Stouffer Foods.

Both divisions were later sold.

During the 1990s, the company spun off Western Atlas Inc. for its commercial businesses while Litton pursued its other niche areas.

Litton at a Glance

Headquarters: Woodland Hills

Chairman, president and chief executive: Michael R. Brown

Worldwide employees: 44,000

Sales: $5.5 billion annually

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