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Friday, February 18, 2011

Northrop Grumman Beats on Improved Performance

Los Angeles-based leading shipbuilder and defense contractor, Northrop Grumman Corporation (NOC), reported impressive fourth quarter 2010 results of $1.27 per share compared with $1.19 in the fourth quarter of 2009. Northrop results also exceeded the Zacks Consensus Estimate of $1.01 for the quarter. The upside in earnings was attributable to better performance across all its segments, barring Electronic Systems.

Fiscal 2010 earnings came in at $6.77 per share, easily beating the Zacks Consensus Estimate of $5.98 and fiscal 2009 earnings of $4.87 per share.

Operational Performance

Sales for the reported quarter decrease 3.6% to $8.6 billion, from $8.9 billion in the year-ago quarter, and was 1.9% lower than the Zacks Consensus Estimate of $8.8 billion. In the reported quarter, earnings from continuing operations increased marginally to $376 million from $375 million in the fourth quarter of 2009. Net earnings in the reported quarter decreased to $376 million compared with $413 million in the prior-year period.

Fiscal 2010 revenue was $34.8 billion versus the Zacks Consensus Estimate of $34.1 billion. Full year revenue also outdid the $33.8 billion generated a year ago.

Segmental Performance
Aerospace Systems

Aerospace Systems quarterly sales declined 4% year over year to $2.7 billion, principally due to lower volume for civil space and missile defense programs; along with fewer working days. Aerospace Systems’ operating income increased 11% to $322 million. Operating margin increased to 12.1% from 10.5% in the year-ago quarter. Higher operating income and margin rate were driven by improved program performances and lower costs.

Electronic Systems 

Electronic Systems sales declined 10% to $1.9 billion, due to fewer working days and lower volume for several programs nearing completion and contracts transitioning to their next phase. This was partially offset by higher volume for targeting systems programs. Electronic Systems’ operating income decreased 0.7% to $272 million. However, operating margin increased to 14.5% from 13.2% year over year. Higher margin rate reflects improved program performance for intelligence, surveillance and reconnaissance programs, including postal automation and improved performance for land and self-protection systems programs.

Information Systems 

Information Systems sales of $2.1 billion were 4.1% lower than the year-ago period, principally due to fewer working days and lower volume for intelligence and defense programs. This was partially offset by higher volume for civil systems programs. Information Systems operating income increased 66.4% to $178 million. Operating margin increased to 8.5% from 4.9% year over year. Higher operating income and margin primarily reflect improved program performance for civil systems programs.


Shipbuilding sales increased 4% to $1.7 billion, driven by higher volume for submarine and expeditionary warfare programs. Operating income also rose 52.3% to $134 million. Similarly, operating margin rose to 7.7% from 5.3% in the year-ago quarter. The rise in operating income and rate reflect higher volume and improved program performance for expeditionary warfare, aircraft carrier and submarine programs.

Technical Services 

Technical Services’ sales increased 6% to $795 million due to higher volume for integrated logistics and modernization programs. Technical Services operating income increased 22.5% to $49 million. Operating margin increased to 6.2% from 5.3% year over year. The improvements in operating income and margin were attributable to higher volume, improved business mix and improved performance.

Financial Condition 

Northrop Grumman ended 2010 with cash and cash equivalents of approximately $3.7 billion compared with $3.3 billion at year-end 2009. Cash generated from operations in 2010 totaled $2.5 billion versus cash from operations of $2.1 billion in the year-ago period. Long-term debt marginally decreased to roughly $4 billion at fiscal 2010 end from $4.2 billion at the end of fiscal 2009.


Northrop Grumman’s total order backlog at the end of fiscal 2010 stood at $64.2 billion compared with $69.2 billion at fiscal-end 2009. The company affirmed its revenue guidance for fiscal 2011 to about $27.5 billion. It expects its earnings per share (EPS) to be in the range of $6.40 - $6.60.
Los Angeles-based Northrop Grumman Corporation is one of the world’s leading shipbuilders and the second largest defense contractor in the U.S. The company supplies a broad array of products and services to the U.S. Department of Defense (DoD), including electronic systems, information technology, submarines and surface ships, aircraft, space technology and systems integration services.

Disclosure I am long NOC shares.

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