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Northrop's Profit Up 17%; Sales Decline

Operating income at the defense company's information technology and systems units overcomes a drop in its ships division.

July 28, 2006|From the Associated Press

Northrop Grumman Corp. said Thursday that second-quarter earnings rose 17%, as operating profit at its systems and information technology units overcame a decline at the company's ships division.

Despite a slight decrease in sales during the quarter, operating margins increased because of the company's cost controls and earnings per share benefited from a share repurchase program.

Net income climbed to $430 million, or $1.23 a share, from $367 million, or $1, a year earlier. Excluding a loss related to the shutdown of a discontinued business, earnings were $1.26 a share in the latest quarter.

Analysts expected, on average, earnings of $1.08 a share, according to Thomson Financial.

Revenue slid to $7.6 billion from $7.81 billion last year, missing analysts' average estimate of $7.8 billion.

Contract acquisitions, or orders received during the period for which funding has been contractually obligated by the customer, grew 52% to $8.1 billion.

The company booked a $2.5-billion Navy contract to build amphibious transport ships during the quarter and opened a production facility in Mississippi for its unmanned surveillance vehicles, including the Global Hawk.

Northrop said it was awaiting news on its bid to build a next-generation space exploration vehicle as well as funding for a new line of stealth ships for the Navy.

The Century City-based company said it had no plans to reenter the commercial shipbuilding sector after delivering the last Polar Tanker ship in the quarter.

Overall, despite some uncertainties about defense spending, the company said it felt confident that it would profit from expanded opportunities with the Department of Homeland Security as well as contracts with state and local government agencies.

"We continue to feel that Northrop Grumman is very well aligned with our customers' strategic direction," Chairman and Chief Executive Ronald Sugar said.

Sugar said Northrop should experience moderate revenue growth through 2007 as well as increased earnings per share, although the company did not give specific guidance for 2007.

Recent unrest in the Middle East and North Korea also point to the importance of the nation's missile defense program, Sugar said. Northrop supplies sensors, software and other components to the program and is the prime contractor on an interceptor missile.

"That's an area where the company is positioning itself very strongly," Sugar said.

The company has received $233 million from its insurance companies because of damage related to Hurricane Katrina, but is still pursuing a lawsuit to recover losses it believes should have been covered under its policy.

Northrop, which also makes submarines and the B-2 stealth bomber, now expects 2006 earnings of $4.35 to $4.45 a share, up from an earlier forecast of $4.25 to $4.40.

The company lowered its full-year sales forecast to $30.5 billion from a previous outlook of $31 billion.

Analysts anticipate profit of $4.39 a share on revenue of $31.13 billion.

Shares of Northrop Grumman fell 97 cents, or 1.4%, to $65.96.

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