Los Angeles-based leading shipbuilder and defense contractor Northrop Grumman Corporation (NOC) reported impressive fourth quarter results, with EPS of $1.37 beating the Zacks Consensus Estimate of $1.26. The upsurge was also witnessed in fiscal 2009 results where an EPS of $5.50 swept past the Zacks Consensus Estimate of $5.16.
Out of the 21 analysts covering the stock, one has upped his or her estimate for fiscal 2010, while another traversed the opposite path. Northrop Grumman’s upsurge in earnings has yet to be reflected in the Zacks Consensus EPS Estimate of $5.57 for fiscal 2010.
The company expects fiscal 2010 EPS in the range of $5.70 – $5.95, while revenue is expected in the range of $34 billion – $34.6 billion. The upsurge in earnings is in-line with historical earnings surprises. In the past, the stock has fluctuated substantially over the last four quarters, with the average remaining positive at 8.31%.
Sales for the reported quarter increased 2% to $8.9 billion from $8.8 billion in the year-ago quarter. In the quarter, Technical Services sales grew by double digits (11%), with impressive growth from Aerospace systems (7%).
The quarter witnessed marginal growth in Electronic Systems (2%) and Information Systems (1%). Shipbuilding sales however decreased 4% year-over-year. Technical Services sales surged primarily due to higher volumes for life cycle optimization & engineering programs. Aerospace Systems were boosted by higher volume for unmanned and manned aircraft, and restricted programs. Shipbuilding sales fell due to lower sales volume.
The bottom line tells a different story, where operating income increased to $631 million from a loss of $2.2 billion in the year-ago quarter. Fortunes tumbled in the year-ago quarter due to a goodwill impairment charge of $3.1 billion. As a percentage of sales, operating income totaled 7.1% in the reported quarter. Of this Aerospace systems’ operating income rose 9.8% and Technical Services rose 17.6%.
Northrop Grumman’s total order backlog at fiscal-end 2009 stood at $69.2 billion, compared to $76.4 billion at fiscal-end 2008. The company bagged $32.3 billion in new orders during fiscal 2009. However, at the same time it witnessed the cancellation of the $5.8 billion Kinetic Energy Interceptor program.
Northrop Grumman ended fiscal 2009 with cash and cash equivalents of $3.3 billion compared to $1.5 billion after year-end 2008. The company has repurchased 23.1 million shares of common stock in fiscal 2009. The company generated $1.4 billion of free cash flow in fiscal 2009, compared to $2.4 billion generated in fiscal 2008. Long-term debt increased to $4.2 billion at the end of fiscal 2009 from $3.4 billion at the end of fiscal 2008.
We maintain our market Neutral recommendation on the Zacks #3 Rank (Hold) stock.
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