Northrop Grumman swung to a loss in its fourth quarter due to a change it adopted a year ago in accounting for pension and other post-retirement benefits, but its adjusted earnings were well above consensus estimates, the company reported this week.
Also this week, the Falls Church, Va.-based defense contractor, now the presumed favorite to prime the roughly $25-billion Air Force program to build nuclear-tipped Ground Based Strategic Deterrent (GBSD) missiles to replace the aging Minuteman III fleet, forecast top- and bottom-line growth in 2020.
The company’s GBSD rival Boeing, meanwhile, posted a disastrous fourth quarter on the continuing woes of its commercial aircraft business. Boeing, which is taking big charges after a pair of fatal aircraft crashes and the worldwide grounding of the 737 MAX passenger aircraft, dropped out of the bidding for the GBSD engineering and manufacturing development procurement last year. However, the company has reserved the right to protest either the Air Force’s competition to build the missile or an eventual award to Northrop. The Air Force plans to award the GBSD pact in August.
Northrop’s adjusted quarterly earnings, which exclude the $1.4 billion accounting expense, rose about 12% to $949 million, or $5.61, $0.84 a share above analysts’ estimates.
Including the expense, Northrop’s net loss in the quarter was $409 million, or $2.43 a share, compared with earnings of $356 million, or $2.06 a share, in the 2018 fourth quarter.
Quarterly sales rose 7% to $8.7 billion from $8.2 billion a year ago, Northrop said.
For the year, sales increased 12% to $33.8 billion from $30.1 billion in 2018 and net income slid 30% to $2.2 billion, or $13.22 a share, from $3.2 billion, or $18.49 a share. That includes the fourth-quarter charge.
Classified work accounted for more than 25% of the company’s sales, Kathy Warden, Northrop Grumman’s chairman, president and CEO, said on an earnings call. Classified sales increased by a double-digit percentage over 2018, she added.
In 2020, Northrop Grumman expects sales to grow about 4% to 6% to between $35.3 billion and $35.8 billion. Adjusted earnings are expected to range between $22.75 and $23.15 a share. That guidance includes winning GBSD.
The Air Force plans to start replacing 400 active Minuteman III silo-based intercontinental ballistic missiles with GBSD missiles in 2030.
Boeing, meanwhile, swung to a $1 billion fourth-quarter loss, or $1.79 on a per-share basis, from net earnings of $3.4 billion, or $5.93 a share, in the 2018 quarter. The company took a $2.6 billion pre-tax charge related to potential concessions and other considerations to customers for the grounding of the 737 MAX, which after two high-profile, high-fatality crashes isn’t expected to return to service until mid-2020.
Boeing’s 737 program was also hit with $2.6 billion in additional costs to reflect updated production and delivery assumptions. Core earnings also swung to a loss in the quarter: $2.33 on a per share basis, compared with per-share earnings of $5.48 a year ago. That missed Wall Street’s consensus estimate by 50 cents a share.
Boeing’s Defense, Space & Security segment, meanwhile, took a $410 million charge after its CST-100 Starliner astronaut capsule failed to reach proper orbit after a test launch to the International Space Station. No one was aboard the capsule.
Overall in 2019, Boeing lost $636 million, or $1.12 a share, compared with earnings of $10.5 billion, or $17.85 a share, for 2018. Revenue for 2019 plummeted more than 35% to about $18 billion from more than $28 billion in 2018.
