Northrop's profit warning sends shares down 6%
Wall Street hammers the defense firm after it reports that wiring problems on a ship it built for the Navy could slash its projected first-quarter earnings in half.
Shares of Century City-based Northrop Grumman Corp. plunged by more than 6% today after the world's largest military shipbuilder said first-quarter profits could be cut in half because of wiring problems with a ship it built for the U.S. Navy.
Northrop said it will take a pre-tax charge of up to $360 million, which will reduce first-quarter earnings by up to 69 cents a share. The disclosure stunned Wall Street analysts who were expecting Northrop to post profits of about $1.28 a share.
Northrop's stock fell by nearly $5 to $72.10 a share. It was the largest drop since 2003.
"This is pretty serious," said Paul H. Nisbet, an analyst for JSA Research Inc. "It's substantial and quite a long way through the work they were doing on that ship. They should have known about the problem sooner."
In a hastily scheduled teleconference call with analysts today, Northrop said that "substantial rework" was needed for the LHD-8 amphibious assault ship, which was built at its shipyard in Pascagoula, Miss. and was preparing for sea trials.
The massive ship, second in size only to Navy aircraft carriers, costs $1.9 billion and is designed to carry 2,000 Marines and up to 30 helicopters.
Northrop executives said it discovered the need for the rework after a detailed physical audit of the ship as it was preparing for tests out at sea. It found that electrical cables installed throughout the ship had to be redone.
The latest setback marked the second time that Northrop has pushed back delivery of the ship by six months. Northrop took a $55- million charge last summer because of unrelated problems with the ship's control systems.
Combined, the charges will wipe out any anticipated profits from building the ship, which won't be delivered to the Navy until the second quarter of next year, or about year behind schedule.
"I'm deeply disappointed," Northrop's chief executive, Ronald D. Sugar, said during a conference call with analysts. He added that the problem was isolated to the LHD-8 and not systemic to shipbuilding.
The embarrassing disclosure came about a month after Northrop's shares surged on its upset victory in winning a $40-billion contract to build aerial refueling tankers for the Air Force.
peter.pae@latimes.com
