Los Angeles-based leading defense contractor,
Northrop Grumman Corporation
), reported fourth quarter and full-year 2012 results. The
company reported earnings of $2.06 per share compared with $1.85
in the fourth quarter of 2011. The reported figures also
comfortably surpassed the Zacks Consensus Estimate of $1.74 per
The upside in earnings was attributable to improved performance
and lower share count. However, this was partially offset by
higher effective tax rate.
Full-year 2012 earnings came in at $7.47 per share, up 15.1% year
over year. The results also easily exceeded the Zacks Consensus
Estimate of $6.64 per share.
Sales for the reported quarter decreased 0.5% year over year to
$6.5 billion. However, they were above the Zacks Consensus
Estimate by $154 million.
Full year 2012 revenue was $25.2 billion, down 4.5% year over
year. Full year revenue came below than the Zacks Consensus
Estimate by $112 million.
Northrop Grumman's total order backlog at the end of full year
2012 stood at $40.8 billion compared with $39.5 billion at the
end of 2011. New contract in full year 2012 was $26.5 billion.
Operating income in the fourth quarter of 2012 was $793 million,
up 13.1% year over year. In the reported quarter, earnings from
continuing operations decreased to $533 million from $550 million
in the fourth quarter of 2011. Net earnings in the reported
quarter decreased to $533 million from $548 million in the
Aerospace Systems' quarterly sales were up 6.6% year over year to
$2.6 billion driven by higher volumes for unmanned systems, F-35
and Advanced Extremely High Frequency satellite programs.
However, these were partially offset by declines in the F/A-18
and Joint Surveillance Target Attack Radar System programs as
well as lower volume for restricted space programs and the
termination of a weather satellite program.
Electronic Systems sales declined 5% to $1.8 billion. The decline
reflects lower volume for infrared countermeasures, LITENING
targeting systems, and postal automation programs. These
declines, however, were partially offset by higher volume for
space and international programs.
Information Systems sales of $1.9 billion were 1.6% lower than
the year-ago period. The downside reflects wind down and
completion of several programs and divestiture of Park Air Norway
in Apr 2012. However, these declines were partially offset by
higher volume for Consolidated Afloat Network & Enterprise
Services and the F-35.
Technical Services' sales decreased 6.6% to $738 million due to
portfolio shaping actions and lower volume for the KC-10 and ICBM
Northrop Grumman ended 2012 with cash and cash equivalents of
approximately $3.9 billion, up from $3 billion at year-end 2011.
Long-term debt remained approximately flat year over year at $3.9
billion at the end of Dec 31, 2012. Cash generated from
operations in 2012 totaled $2.6 billion versus cash from
operations of $2.1 billion in the year-ago period.
In full-year 2012, the company repurchased 20.9 million shares of
its common stock for $1.3 billion. As of Dec 31, 2012, the
company had $1.5 billion remaining under its current share
The company expects revenue to be approximately $24 billion in
2013. It expects earnings from continuing operations to be
in the range of $6.85 to $7.15 in 2013. Cash provided by
operations before discretionary pension contributions are
expected to be in the range of $2.1 billion to $2.4 billion.
Northrop surpassed the top and bottom line expectations due to
its strong presence in the current focus areas of cyber security,
modernization of defense and homeland security assets,
intelligence, surveillance and reconnaissance systems, advanced
electronics and software development. Moreover, the company's
focus on effective cash deployment, and portfolio alignment would
bring more healthy results in the current quarter.
However, we remained concerned due to the apprehension regarding
defense cutbacks on high-cost platform programs, over-exposure to
the Department of Defense budget, cost over-runs and reductions
in the Afghanistan and Iraq operations. The company presently
retains a short-term Zacks Rank #3 (Hold).
Falls Church, Virginia-based Northrop Grumman Corporation
supplies a broad array of products and services to the U.S.
Department of Defense, including electronic systems, information
technology, aircraft, space technology, and systems integration
Other stocks to consider are
Huntington Ingalls Industries, Inc.
Esterline Technologies Corp.
) that carry a Zacks Rank #1 (Strong Buy) and
Lockheed Martin Corporation
) with a Zacks Rank #2 (Buy).
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