Northrop Beats EPS, Ups Guidance - Analyst Blog

By Zacks Equity Research,

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Defense contractor Northrop Grumman Corporation ( NOC ) reported impressive first quarter 2012 results. Earnings of $1.88 per share compared favorably with $1.44 per share posted in the first quarter of 2010. Northrop results also exceeded the Zacks Consensus Estimate of $1.59 for the quarter.

The upside in earnings was attributable to an improved performance besides lower costs and share count.

Total Revenue

Sales for the reported quarter decreased 7.9% to $6.19 billion, from $6.73 billion in the year-ago quarter, and were 1.0% lower than the Zacks Consensus Estimate of $6.26 billion.

Segmental Revenue

Aerospace Systems

Aerospace Systems quarterly sales declined 8.1% year over year to $2.4 billion, principally due to lower volume for manned military aircraft and space programs. Military aircraft sales suffered from lower F-35 and Joint STARS as well as fewer F/A-18 deliveries. Space systems sales were affected by lower volume for restricted programs and the cancellation of a weather satellite program.   

Electronic Systems

Electronic Systems sales declined 4.6% to $1.7 billion from $1.8 billion in the year-ago quarter. The year-over-year shortfall in revenue was due to lower volume for programs in intelligence, surveillance and reconnaissance, and targeting systems (ISR&T) and navigation systems programs.

Information Systems

Information Systems sales of $1.9 billion were 8.9% lower than the year-ago period, principally due to lower volumes in all its business areas.

Technical Services

Technical Services sales decreased 9.7% to $750 million due to portfolio shaping to improve performance.

Operational Update

During the reported cost of product and service decreased by 9.6% to $4.8 billion from $5.3 billion in the prior-year quarter. General and administrative expenses  decreased by $7 million from the prior year to $561 million.

In the reported quarter, operating income was $796 million reflecting a 2% drop year over year. However, operating margin expanded 80 basis points to 12.8% on the back of reduced costs.

Interest expenses were $53 million versus $58 million in the prior year, reflecting a small dip in the debt level.

Financial Condition

Cash and cash equivalents as of March 31, 2012 were $2.68 billion versus $3 billion as of December 31, 2011.

Long-term debt as of March 31,2012 were $3.9 billion, unchanged from the 2011 end level.

Capital expenditure during the quarter under review was $81 million versus $123 million in the year-ago quarter.

Peer Comparison

Raytheon Company ( RTN ), which competes with Northrop Grumman Corporation, is expected to report its first quarter 2012 earnings on April 26, 2012.

The Zacks Consensus Estimate, for revenue and earnings per share for first quarter 2012, is presently pegged at $5,772 million and $1.16 per share, respectively.


Northrop Grumman's total order backlog at the end of the first quarter of 2012 stood at $39.1 billion verses $39.5 billion at fiscal-end 2011. Despite receiving new contracts worth $5.8 billion during the quarter, the backlog effectively declined by $381 million from the 2011 year-end level.

For 2012, the company affirmed its revenue guidance in the range of $24.7 billion to $25.4 billion but increased it earnings per share projection to a band of $6.70 to $6.95 from the prior range of $6.40 to $6.70 per share.          

Our View

Northrop managed to surpass our earnings estimate and guided higher for the fiscal year. However, we believe the gradual decline in backlog is a cause of concern.

It is encouraging to see that the company is consistently working to increase shareholder value. During the quarter, the company repurchased 4.4 million shares for $263 million. The company still has $1.4 billion remaining in its share repurchase authorization. Besides, the company also paid $127 million for dividends to its shareholders.

The stock retains a Zacks #4 Rank, which translates into a short-term Sell rating.

Northrop Grumman Corporation is a leading global security company providing innovative systems, products and solutions in aerospace, electronics, information systems, and technical services to government and commercial customers worldwide.

NORTHROP GRUMMN ( NOC ): Free Stock Analysis Report
RAYTHEON CO ( RTN ): Free Stock Analysis Report
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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Stocks: NOC , RTN

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