Northrop Raises 2012 Forecast After Profit Gains 2 Percent

Northrop Grumman Corp. (NOC) maker of the U.S. military’s Global Hawk drone, raised its 2012 profit forecast after first quarter income rose 2 percent aided by higher sales and margins at its electronics unit.

Profit for 2012 will be $6.70 to $6.95 a share, compared with the forecast in January of $6.40 to $6.70 a share, the company said today. Northrop rose 2.7 percent to $64.44 at 9:42 a.m. in New York trading.

In the first quarter, net income from continuing operations was $506 million, or $1.96 a share, compared with $496 million, or $1.67 a year earlier, the company said today in a statement. The average estimate of 19 analysts compiled by Bloomberg was $1.59 a share. Sales declined 8 percent to $6.2 billion.

Northrop faces challenges from proposed cuts in the Pentagon’s fiscal 2013 budget that would affect the company’s top-selling programs, including the Global Hawk drone and the F-35 Joint Strike Fighter, on which it is a subcontractor to planemaker Lockheed Martin Corp. (LMT)

Wes Bush, Northrop’s chairman and chief executive officer, has said he is focused on increasing profit margins and returning cash to shareholders. He has raised dividends for eight consecutive years. In 2011, Northrop paid out about $2.8 billion as dividends and share repurchases.

Northrop of Falls Church, Virginia, rose $1.15 or 1.9 percent to $62.73 yesterday in New York trading and gained 7.3 percent percent this year before today.

Global Hawk Cuts

The Pentagon proposed in its 2013 budget saving $800 million by reducing purchases of Northrop’s Global Hawk Block 30 model. The Defense Department would also gain $1.6 billion from the F-35 program by eliminating 13 planes.

While Northrop’s business in cybersecurity, unmanned systems, intelligence, sensors and reconnaissance systems and logistics are well-aligned with Pentagon’s priorities, “we do not expect much growth in these areas over the next several years, given the budget situation,” Douglas Harned, an analyst at Sanford C. Bernstein LLC in New York, wrote in an April 23 note to clients. He rates the stock market-perform.

The Pentagon plans to cut about $490 billion from its planned spending over the next 10 years under budget-reduction legislation, with an additional $500 billion if automatic cuts take effect starting in January.

Improving Margins

Performance improvements at the company’s Electronic and Information Systems units contributed to an increase in operating income and profit during the quarter even as sales fell, Northrop said in the statement.

Sales at Electronic Systems, the maker of radar equipment, fell 4.6 percent to $1.72 billion, while profit rose 28 percent to $304 million, the company said.

Information Systems sales fell 9 percent to $1.84 billion whereas profit increased 5.6 percent to $205 million, the company said.

Sales and profit at the Aerospace unit, maker of Global Hawks, fell, according to the company. Revenue declined 8 percent to $2.38 billion and profit fell 2.7 percent to $279 million.

To contact the reporter on this story: Gopal Ratnam in Washington at gratnam1@bloomberg.net

To contact the editor responsible for this story: John Walcott at jwalcott9@bloomberg.net

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