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FURTHER STRONG RESULTS FROM U.S. MAJORS

FURTHER STRONG RESULTS FROM U.S. MAJORS

Northrop Grumman Corporation

27 Oct 10. Northrop Grumman Corporation (NYSE:NOC) reported that third quarter 2010 earnings from continuing operations increased to $489m, or $1.64 per diluted share, from $464m, or $1.45 per diluted share, in the third quarter of 2009. Net earnings for the 2010 third quarter increased to $497m, or $1.67 per diluted share, from $490m, or $1.53 per diluted share, in the prior year period. The 2009 third quarter included a net tax benefit of $75m, or $0.23 per diluted share. Third quarter 2010 sales increased 4 percent to $8.7bn from $8.35bn. Cash provided by operations totalled $978m in the third quarter of 2010 compared with $544m in the third quarter of 2009. New business awards for the 2010 third quarter totalled $7.4bn, bringing total backlog to $64.6bn as of Sept. 30, 2010.

“This was a strong quarter for Northrop Grumman. Third quarter
results demonstrate that our focus on sustainable performance improvement continues to gain traction across the corporation. All our businesses performed well, and based on year-to-date results, we are raising our 2010 EPS guidance to $6.85 to $7.00 per share. We are also confirming our guidance for cash from operations and free cash flow. Looking ahead, we continue to position the company to generate value for shareholders, customers and employees,” said Wes Bush, chief executive officer and president.

Third quarter 2010 operating income increased 29 percent to $801m from $619m in the prior year period, and as a percent of sales increased 180 basis points to 9.2 percent from 7.4 percent. The improvement principally reflects higher segment operating income and lower net pension adjustment. Third quarter 2010 segment operating income increased $107m, or 14 percent, driven by double-digit increases in operating income for four of five businesses. As a percent of sales, third quarter 2010 segment operating income improved 80 basis points to 9.8 percent from 9 percent. Net pension adjustment improved to an expense of $8m from an expense of $72m in the prior year period. Unallocated corporate expenses totalled $46m in the 2010 third quarter and $55m in the 2009 third quarter. Federal and foreign income taxes increased to $257m from $120m in the third quarter of 2009. Third quarter 2009 earnings included a net tax benefit of $75m, primarily for final settlement of the Internal Revenue Service’s examination of the company’s 2001, 2002 and 2003 tax returns.

The effective tax rate for the 2010 third quarter was 34.5 percent compared with 20.5 percent in the 2009 third quarter. Third quarter 2010 diluted earnings per share are based on 297.6m weighted average shares outstanding compared with 320.6m shares in the third quarter of 2009.

Free cash flow totalled $817m in the 2010 third quarter compared with $384m in the prior year period. The improvement in 2010 third quarter free cash flow reflects lower pension pre-funding and improved working capital. Third quarter 2010 cash from operations included a $60m discretionary contribution to the company’s pension plans. Third quarter 2009 cash from operations included discretionary pension contributions of $586m and $47m from discontinued operations, principally for the Advisory Services business (TASC), which was divested in December of 2009.

Business Results
Consolidated Sales & Segment Operating
Income1
Third Quarter Nine Months
($ ms)2010 2009 Change 2010 2009 Change

Sales

Aerospace Systems $2,706 $2,5277% $8,244 $7,65 68%
Electronic Systems 1,874 1,839 2% 5,740 5,59 43%
Information Systems 2,123 2,118 0% 6,310 6,362 (1%)
Shipbuilding 1,670 1,650 1% 4,989 4,549 10%
Technical Services 871 692 26% 2,435 2,02

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