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Northrop 3Q profit drops
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October 24, 2001: 11:20 a.m. ET
Defense contractor's pension income drops while sales double.
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NEW YORK (CNNmoney) - Northrop Grumman Corp. said Wednesday its third-quarter net profit fell 22 percent due to declining income from pension funds, but its sales more than doubled due to the purchase of shipbuilder Litton Industries.
The defense contractor, which got Pentagon backing Tuesday in its bid to acquire Newport News Shipbuilding Inc. over a rival offer from General Dynamics Corp., also affirmed its fourth-quarter profit targets.
For the quarter ended Sept. 30, the warship and military electronics firm said economic earnings, which exclude pension fund income, rose 58 percent to $161 million, or $1.79 per share.
Northrop derives roughly half of its net income from pension funds, making it unique among defense contractors and particularly vulnerable to weak stock markets.
The Los Angeles-based company reported net earnings of $117 million, or $1.28 per share, for the quarter, down from $150 million, or $2.11 per share, a year ago.
"We remain on track to achieve our 2001 economic earnings target of $6.25-$6.40 [per share] as well as double-digit economic earnings growth in 2002," Chairman and CEO Kent Kresa said.
Sales more than doubled to $3.6 billion from $1.7 billion a year ago, boosted by the addition of Litton, the largest builder of non-nuclear ships for the U.S. Navy, and organic growth in electronic systems and information technology.
Northrop (NOC: up $0.75 to $100.75, Research, Estimates) shares were lower early Wednesday but have climbed roughly 20 percent in a weak market since the terrorist attacks of Sept. 11 and subsequent bombing raids on targets in Afghanistan.
Defense, DOJ favor Northrop bid
The U.S. Department of Justice, following a recommendation from the Pentagon, filed a lawsuit Tuesday seeking to block General Dynamics Corp.'s bid for Newport News, saying a merger would eliminate competition for nuclear subs and harm competition for other military ships.
General Dynamics said it had "no statement at this time."
Newport News (NNS: up $0.80 to $69.91, Research, Estimates) merely acknowledged it was advised of the government decision.
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"We do not expect any issues with the Department of Justice on closure of the acquisition and look forward to a successful completion of this transaction in the near future," Northrop's Kresa said.
General Dynamics (GD: up $1.39 to $83.15, Research, Estimates) was set to acquire Newport for about $2.1 billion, but earlier this month Newport announced it was opening talks with Northrop Grumman with what could prove to be a higher offer.
Analysts were surprised by the decision.
"I don't believe it," said Loren Thompson at the Lexington Institute. "For Northrop, it means that they go from not being in the shipbuilding business at all to being the largest shipbuilder in the world. It's an extraordinary reversal of fortunes, and very important obviously for shareholders." 
from staff and wire reports
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