NORTHROP REPORTS AT THE LOWER END OF EXPECTATIONS
29 Jul 08. Northrop Grumman Corporation (NYSE:NOC) reported that second quarter 2008 earnings from continuing operations increased to $483m, or $1.40 per diluted share, from $472m, or $1.35 per diluted share, in the second quarter of 2007. Earnings for the 2007 second quarter included tax benefits totalling $16m, or $0.05 per share. Sales for the 2008 second quarter increased 10 percent to $8.6bn from $7.9bn in the 2007 second quarter. Cash provided by operations for the 2008 second quarter totaled $607m compared with $741m in the prior year period.
($ millions Second Quarter Six Months
except per ————————– ————————–
share data) 2008 2007 Change 2008 2007 Change
Sales $8,628 $7,878 10% $16,352 $15,192 8%
Operating income 806 763 6% 1,270 1,453 (13%)
as a % of sales 9.3% 9.7% (40 bps) 7.8% 9.6% (180 bps)
operations $ 483 $ 472 2% $ 746 $ 866 (14%)
Diluted EPS from
operations 1.40 1.35 4% 2.15 2.46 (13%)
Net earnings 495 460 8% 759 847 (10%)
Diluted EPS 1.44 1.31 10% 2.19 2.41 (9%)
operations 607 741 (18%) 801 1,141 (30%)
flow(1) 431 551 (22%) 447 763 (41%)
(1) Free cash flow is a non-GAAP measure defined as cash from operations less capital expenditures and outsourcing contract &related software costs. Management uses free cash flow as an internal measure of financial performance
“Solid sales increases for all four businesses drove nearly double-digit sales growth for the quarter. Operating income and margin rates for all four businesses are in line with our expectations. Based on this quarter’s solid performance and our $67 billion total backlog, we are on track to achieve our 2008 guidance. The long-term outlook for Northrop Grumman continues to be outstanding,” said Ronald D. Sugar, Northrop Grumman chairman and chief executive officer.
Operating income for the 2008 second quarter increased 6 percent to $806m from $763m in the 2007 second quarter. The increase in operating income reflects higher sales volume, lower corporate unallocated expenses, and improved net pension expense, offset by lower segment operating income. Second quarter 2008 segment operating income declined by $14m principally due to lower operating income and margin rates for the Shipbuilding and Information & Services businesses than in the prior year period. Interest expense improved by $11m compared with the prior year period and other income improved by $14m. Federal and foreign income taxes for the 2008 second quarter increased to $256m from $199m in the second quarter of 2007. The effective tax rate applied to income from continuing operations for the 2008 second quarter was 34.6 percent compared with 29.7 percent in the 2007 second quarter. In the 2007 second quarter the company recognized tax benefits totalling $16m after reaching a favorable settlement with the Internal Revenue Service regarding a portion of its audit for the years 2001 through 2003.
Net earnings for the 2008 second quarter increased 8 percent to $495m, or $1.44 per diluted share, from $460m, or $1.31 per diluted share, for the same period of 2007. Second quarter 2008 net earnings include a small after-tax gain on the sale of the company’s Electro-Optical Systems business. Earnings per share are based on weighted average diluted shares outstanding of 344.1 million for the second quarter of 2008 and 355.3 million for the second quarter of 2007. Weighted average shares ou