Despite Slow Start, Northrop Grumman Reaffirms 2013 Outlook

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Northrop Grumman Corporation reported today its first quarter 2013 net earnings dropped by $17 million to of $489 million, (or $2.03 per diluted share), compared to the first quarter of 2012.

based on the funding levels provided for by the FY 2013 appropriations bill enacted on March 26, 2013 Northrop Grumman feels its financial outlook of $24 billion in sales and 10-11% operating margins is solid for 2013; “Considering the impact of sequestration, and assuming that an appropriations bill or continuing resolution for FY 2014 will be in effect beginning on Oct. 1, 2013, in each case continuing to support and fund the company’s programs.” the report said, “Guidance for 2013 also assumes no disruption or shutdown of government operations resulting from a federal government debt ceiling breach and no cancellation or termination of any of our significant programs.” the company report added.

“Strong operating performance and effective cash deployment drove first quarter results.” said Wes Bush, chairman, chief executive officer and president. “Looking ahead, we recognize that we are operating in an uncertain and constrained budget environment. We are maintaining our focus on program performance, effective cash deployment and portfolio alignment as we drive to best serve our shareholders, customers and employees.”

The effect on the earning per share was minimized due to the company’s shares repurchase campaign, Northrop Grumman purchased d 6.5 million shares of its common stock in the 2013 first quarter; $1 billion remains on its current share repurchase authorization.

First quarter 2013 total operating income decreased $37 million or 5 percent, and operating margin rate decreased 40 basis points to 12.4 percent due to lower segment operating income. Segment operating income declined $41 million due to a 2 percent sales decline and a lower segment operating margin rate than in the prior year period. The change in segment operating margin rate includes the impact of a $91 million decrease in net favorable adjustments, which was partially offset by the reversal of a $26 million non-programmatic risk reserve in Electronic Systems.

As of March 31, 2013, total backlog was $39.4 billion compared with $40.8 billion as of Dec. 31, 2012, and includes new awards of $4.7 billion during the first quarter of 2013. The decline in backlog and new awards is due to customer response to the current U.S. government budget environment.

The Aerospace Systems, Northrop grumman’s largest division increased sales by 4 percent in this quarter, to $2.485 billion, up from $2.383 billion in Q1/2012 due to higher volume for manned military aircraft and unmanned programs. The increase is attributed to deliveries of 10 major subsections for F-35 aircraft under low rate initial production lot 5 (LRIP 5). Higher unmanned volume reflects the ramp-up of the NATO AGS and Fire Scout programs, and the decline in space systems sales is due to lower volume for restricted programs. Aerospace Systems first quarter 2013 operating income declined 3 percent and operating margin rate was 10.9 percent.

Information Systems dropped significantly in the past quarter, where sales declined $170 million or 9 percent compared to Q1/2012. Besides program completion and organizational changes, that attributed to $25 million of the drop, the company stated the drop is attributed lower funding levels across the existing program portfolio, and in-theater force reductions. “Volume declined across a broad number of programs, and no single program accounted for a material amount of the total sales decline.” the report said.