Team Infidel
Forum Spin Doctor
Los Angeles Times
April 16, 2008 The defense contractor reports that wiring problems on its ship Makin Island, built for the Navy, could slash its quarterly earnings in half.
By Peter Pae, Los Angeles Times Staff Writer
Shares of Northrop Grumman Corp. plunged 6.9% on Tuesday after the world's largest military shipbuilder said first-quarter profit could be cut in half because of wiring problems with a ship it built for the U.S. Navy.
The Century City company said it would take a pre-tax charge of as much as $360 million, which would reduce first-quarter earnings by up to 69 cents a share. The disclosure stunned Wall Street analysts who were expecting Northrop to post a profit of about $1.28 a share.
Northrop's stock fell $5.27 to $71.57. 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 conference call with analysts Tuesday, Northrop said that "substantial rework" was needed for the amphibious assault ship Makin Island, which was built at its shipyard in Pascagoula, Miss., and was preparing for sea trials.
The massive ship, second in size only to aircraft carriers, costs $1.9 billion and is designed to carry 2,000 Marines and as many as 30 helicopters.
Northrop executives said the company discovered the need for the rework after a detailed physical audit of the ship as it was preparing for tests at sea. It found that electrical cables installed throughout the ship had to be redone.
The latest setback marked the second time that Northrop had 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 profit from building the ship, which won't be delivered to the Navy until the second quarter of next year, or about a year behind schedule.
"I'm deeply disappointed," Northrop Chief Executive Ronald D. Sugar told analysts. He said that the problem was isolated to the Makin Island 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 with partner Airbus for the Air Force.
April 16, 2008 The defense contractor reports that wiring problems on its ship Makin Island, built for the Navy, could slash its quarterly earnings in half.
By Peter Pae, Los Angeles Times Staff Writer
Shares of Northrop Grumman Corp. plunged 6.9% on Tuesday after the world's largest military shipbuilder said first-quarter profit could be cut in half because of wiring problems with a ship it built for the U.S. Navy.
The Century City company said it would take a pre-tax charge of as much as $360 million, which would reduce first-quarter earnings by up to 69 cents a share. The disclosure stunned Wall Street analysts who were expecting Northrop to post a profit of about $1.28 a share.
Northrop's stock fell $5.27 to $71.57. 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 conference call with analysts Tuesday, Northrop said that "substantial rework" was needed for the amphibious assault ship Makin Island, which was built at its shipyard in Pascagoula, Miss., and was preparing for sea trials.
The massive ship, second in size only to aircraft carriers, costs $1.9 billion and is designed to carry 2,000 Marines and as many as 30 helicopters.
Northrop executives said the company discovered the need for the rework after a detailed physical audit of the ship as it was preparing for tests at sea. It found that electrical cables installed throughout the ship had to be redone.
The latest setback marked the second time that Northrop had 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 profit from building the ship, which won't be delivered to the Navy until the second quarter of next year, or about a year behind schedule.
"I'm deeply disappointed," Northrop Chief Executive Ronald D. Sugar told analysts. He said that the problem was isolated to the Makin Island 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 with partner Airbus for the Air Force.