By Calvin Biesecker
Defense Daily
The acquisition last year of Orbital ATK, combined with strong results in the company’s Aerospace Systems, led to a solid opening quarter for Northrop Grumman, with sales and earnings higher and the outlook for earnings higher this year.
Net income increased 3 percent to $863 million, $5.06 earnings per share (EPS), from $840 million ($4.79 EPS) a year ago, whipping analysts’ expectations by 46 cents per share. Sales increased 22 percent to $8.2 billion from $6.7 billion, with the Orbital ATK deal accounting for $1.4 billion of the gain.
Outside of Orbital ATK, which makes up the company’s new Innovation Systems segment, the sales and earnings drivers were due to increased volume on the B-21 stealth bomber, F-35 fighter, E-2D airborne early warning aircraft, Triton unmanned aircraft system, and a secure satellite communications program at the Aerospace segment.
Sales were flat at Mission Systems while operating income was up slightly on improved performance, and sales were off 15 percent at Technical Services, which posted a 16 percent drop in profit on the sales decline. Mission Systems will return to growth in the second quarter and Technical Services late this year, Kathy Warden, president and CEO of Northrop Grumman, said on the company’s earnings call.
Northrop Grumman and Boeing are nearing the end of a competition to design Ground-Based Strategic Deterrence (GBSD) missiles, the replacements for the nuclear-tipped Minuteman III intercontinental ballistic missiles. The Pentagon awarded the companies three-year missile design contracts in 2017, which were worth $330 million and $350 million, respectively.
House Armed Services Committee Chairman Adam Smith (D-Wash.) has proposed freezing the GBSD program and instead upgrading the Minuteman III fleet for further service.
Northrop is also a junior partner on Consolidated Nuclear Security, the prime contractor for the National Nuclear Security Administration’s Pantex weapons assembly plant in Amarillo, Texas, and its Y-12 National Security Complex in Oak Ridge, Tenn. The latter site is the agency’s uranium processing hub and manufacturing center for the canned subassemblies that power the second stages of nuclear weapons.
While Northrop’s sales guidance was unchanged at around $34 billion, the outlook for earnings in 2019 was increased to between $18.90 and $19.30 EPS from prior projections of between $18.50 to $19 EPS due to lower than expected interest expense.
Orders in the quarter were $12.3 billion and backlog rose 7 percent to $57.3 billion from the end of 2018, driven by increases at Mission and Aerospace Systems. Free cash was a $1.2 billion outflow in the quarter.
This story first appeared in Nuclear Security & Deterrence Monitor affiliate publication Defense Daily. NS&D Monitor staff contributed to this report from Washington.
