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Forum Spin Doctor
Wall Street Journal
April 25, 2008
Pg. B6
Navy-Project Setbacks Lead to Forecast Cut; Raytheon Profit Rises
By August Cole
Northrop Grumman Corp., riding high from military-aircraft contract wins, posted a 32% drop in first-quarter profit as its Gulf Coast shipbuilding operations continued to pose a financial drag.
The Los Angeles company said cabling problems with a Navy amphibious assault ship, the Makin Island, contributed heavily to a $326 million charge.
"Although the...charge was deeply disappointing, the remainder of our first-quarter performance was strong," Chief Executive Ron Sugar told analysts on a conference call.
What to expect from major companies -- including key themes and forecasts for profits and revenues -- as they report quarterly earnings.
The company reduced its 2008 earnings estimate by 60 cents, to $4.90 to $5.15 a share, because of the shipbuilding charge, which it disclosed last week.
Executives said Northrop is being careful that the focus on reworking and testing the Makin Island doesn't pull too many resources from other ships being built at the Pascagoula, Miss. facility.
Shipbuilding operations, which include Northrop's Newport News, Va., yards, brought in revenue of $1.26 billion, up 9% over last year, yet posted a loss of $218 million after the charges. The information and services segment's revenue climbed 6% to $3.14 billion, and operating profit was up 13% to $260 million.
Chief Operating Officer Wes Bush said he is reviewing the Makin Island's progress weekly. The company plans to complete modifications to the ship's fiber-optic cabling in the third quarter. After that, the ship must undergo testing before its scheduled delivery during next year's second quarter.
The company also said it will have delivered all of the Gulf Coast shipyard vessels affected by Hurricane Katrina by the end of 2009, a milestone that will help improve the group's margins.
Although much of the focus this quarter was on the ship contract, Northrop management is banking on a key Air Force-jet contract that promises billions of dollars in work in coming decades. Northrop said the Feb. 29 award of an Air Force aerial-refueling-tanker contract added $1.5 billion to the company's order backlog, now a record $68 billion after a total of $12.1 billion in new business during the quarter.
The $40 billion Air Force-tanker contract will cover 179 jets, which will be Airbus jetliners assembled and modified in Alabama. Work is halted because Boeing Co. filed a protest with the Government Accountability Office after its loss to Northrop. A ruling is due by mid-June.
Extending its run of recent victories, Northrop last week won a coveted $1.16 billion contract to provide the Navy with Global Hawk unmanned surveillance planes, defeating teams from Lockheed Martin Corp. and Boeing.
Meanwhile, increased sales across all of fellow military contractor Raytheon Co.'s businesses gave a big boost to its first-quarter profit. Net income rose 15% to $398 million, or 92 cents a share, from $346 million, or 76 cents a share, a year earlier. Net sales rose 11% to $5.35 billion.
Raytheon didn't raise its outlook for the full year as it waits to see how several international contracts play out, as well as the Defense Department's supplemental budget for the wars in Afghanistan and Iraq.
April 25, 2008
Pg. B6
Navy-Project Setbacks Lead to Forecast Cut; Raytheon Profit Rises
By August Cole
Northrop Grumman Corp., riding high from military-aircraft contract wins, posted a 32% drop in first-quarter profit as its Gulf Coast shipbuilding operations continued to pose a financial drag.
The Los Angeles company said cabling problems with a Navy amphibious assault ship, the Makin Island, contributed heavily to a $326 million charge.
"Although the...charge was deeply disappointing, the remainder of our first-quarter performance was strong," Chief Executive Ron Sugar told analysts on a conference call.
What to expect from major companies -- including key themes and forecasts for profits and revenues -- as they report quarterly earnings.
The company reduced its 2008 earnings estimate by 60 cents, to $4.90 to $5.15 a share, because of the shipbuilding charge, which it disclosed last week.
Executives said Northrop is being careful that the focus on reworking and testing the Makin Island doesn't pull too many resources from other ships being built at the Pascagoula, Miss. facility.
Shipbuilding operations, which include Northrop's Newport News, Va., yards, brought in revenue of $1.26 billion, up 9% over last year, yet posted a loss of $218 million after the charges. The information and services segment's revenue climbed 6% to $3.14 billion, and operating profit was up 13% to $260 million.
Chief Operating Officer Wes Bush said he is reviewing the Makin Island's progress weekly. The company plans to complete modifications to the ship's fiber-optic cabling in the third quarter. After that, the ship must undergo testing before its scheduled delivery during next year's second quarter.
The company also said it will have delivered all of the Gulf Coast shipyard vessels affected by Hurricane Katrina by the end of 2009, a milestone that will help improve the group's margins.
Although much of the focus this quarter was on the ship contract, Northrop management is banking on a key Air Force-jet contract that promises billions of dollars in work in coming decades. Northrop said the Feb. 29 award of an Air Force aerial-refueling-tanker contract added $1.5 billion to the company's order backlog, now a record $68 billion after a total of $12.1 billion in new business during the quarter.
The $40 billion Air Force-tanker contract will cover 179 jets, which will be Airbus jetliners assembled and modified in Alabama. Work is halted because Boeing Co. filed a protest with the Government Accountability Office after its loss to Northrop. A ruling is due by mid-June.
Extending its run of recent victories, Northrop last week won a coveted $1.16 billion contract to provide the Navy with Global Hawk unmanned surveillance planes, defeating teams from Lockheed Martin Corp. and Boeing.
Meanwhile, increased sales across all of fellow military contractor Raytheon Co.'s businesses gave a big boost to its first-quarter profit. Net income rose 15% to $398 million, or 92 cents a share, from $346 million, or 76 cents a share, a year earlier. Net sales rose 11% to $5.35 billion.
Raytheon didn't raise its outlook for the full year as it waits to see how several international contracts play out, as well as the Defense Department's supplemental budget for the wars in Afghanistan and Iraq.