Northrop Grumman reports 10 percent drop in fourth-quarter earnings

Northrop Grumman Corp. (NOC) fourth quarter and 2013 results

THE TAKE: With a 2014 bipartisan budget in place, defense contractors are going into the year with a little more certainty, but there are still plenty of challenges ahead.  The country’s sixth largest defense contractor in terms of sales saw growth in only two of its business units in 2013 — electronic systems sales were up by 3 percent and aerospace systems rose less than 1 percent —but the company still managed to beat analysts’ estimates even as sales fell.

THE NUMBERS:
Sales for Q4: $6.16 billion compared with $6.48 billion last year.
For the full year: $24.7 billion, compared to $25.2 billion in 2012.
Net earnings Q4: $478 million, for $2.12 per diluted share, compared to $533 million, or $2.14 per diluted share, in 2012.  
For full year: $2 billion, virtually unchanged from 2012 earnings.
Operating income for Q4: $768 million, compared with $824 million last year.
For full year: $3.1 billion, comparable to 2012. 

THE COMPANY'S TAKE: Wes Bush, chairman, CEO, and president: “Our team continues to deliver outstanding results. Although we are encouraged by progress toward a more normal budgeting process for our customers, we expect lower sales in 2014, particularly for our short-cycle businesses. Despite this top-line pressure, we expect other positive trends, particularly the benefit of our planned share repurchases, to support continued earnings-per-share growth in 2014. Our strategy remains the same. We are focused on superior program performance, effective cash deployment and portfolio alignment as the primary value creation drivers for our shareholders, customers and employees,”

OTHER HIGHLIGHTS: Bush said the company expects more international growth in 2014, particularly in its electronic sales and aerospace systems units. In 2013, internationals sales represented about 10 percent of the company’s total sales, and Bush looks for that figure to grow to 13 percent this year.

The company’s total backlog of contracts, as of Dec. 31, was $37 billion compared to $40.8 billion the year before.  Northrop Grumman is based in Falls Church.

Bush also told analysts on a post-earnings conference call — in a response to a question — that the company periodically reviews its options and has considered going private among a broad range of alternatives. However, what makes the most sense at this time, he says is the path the company is on, namely its aggressive share buyback program.  Northrop Grumman repurchased 27.3 million shares in 2013 for $2.4 billion toward its goal of retiring 60 million shares (or 25 percent) of its outstanding stock by the end of 2015, if market conditions allow.