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5 Mar 03. Northrop Grumman Corp. (NYSE:NOC – News)cut its 2003 earnings guidance due to higher-than-expected interest costs and unveiled a plan to pare down debt on Wednesday.

Shares of the company fell $4.75, or 5.4%, to $82.51 in
morning trading on the New York Stock Exchange (News – Websites).

The defense contractor said it expects net interest expense for 2003 to be about $10m higher than its previous guidance of $370m as a result of the anticipated timing and the composition of the debt to be retired.

The company now expects 2003 earnings of $3.65 to $4.15 a share, down from a prior estimate of $4 to $4.50 a share. A survey of analysts by Thomson First Call (News – Websites) projects earnings of $4.18 a share for the year.

Northrop intends to retire debt in phases, the first of which will be announced shortly. The company expects the debt-reduction plan to be complete by the end of the second quarter.

Earlier this month Northrop completed the sale of TRW Inc.’s automotive business to affiliates of closely held investment firm Blackstone Group for about $4.7bn. Northrop said cash proceeds from the sale would be used primarily to pay down debt and to meet corporate obligations.

Comment: 2003 was always going to be the year when Northrop took a breather from its acquisition spree of Litton and TRW. As well as digesting these acquisitions, Northrop has announced the retirement of Kent Kresa and a reorganisation of the main board. However sources close to BATTLESPACE at AUSA suggested that a new round of consolidation could take place in the spring with Raytheon being suggested as a possible break-up candidate with the military side going to General Dynamics. Rockwell Collins, Harris and ITT were also mentioned as other targets. In Europe Smiths is growing its Homeland Defence side but its avionics side could be vulnerable whilst Rolls-Royce’s pension difficulties could put it in the firing line once the Fiat Avio sale has been completed.

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