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Northrop Grumman Lifts Profit Outlook After Beating Estimate

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A Northrop Grumman Corp. Global Hawk Drone
In July, Northrop Grumman Corp., the maker of Global Hawk drones raised its earnings forecast as F-35 jet work helped boost sales and profit in the second quarter. Photographer: Simon Dawson/Bloomberg

Oct. 23 (Bloomberg) -- Northrop Grumman Corp., the fifth-largest U.S. government contractor, raised its full-year profit forecast after reporting third-quarter earnings and revenue that exceeded analysts’ estimates.

The maker of Global Hawk drones forecast 2013 earnings of $8 to $8.15 a share, up from the $7.60 to $7.80 range it gave in July, the Falls Church, Virginia-based company said in a statement today. It predicted profit of as little as $6.85 a share in January.

Northrop’s performance echoes that of Lockheed Martin Corp., another prime contractor that yesterday boosted its annual earnings outlook after reporting lower quarterly sales. The companies’ profits rose even as across-the-board cuts stripped $37 billion from Pentagon programs in the fiscal year that ended on Sept. 30 and are set to cut $50 billion in the current fiscal year.

“Another quarter, another prime beating arguably low expectations,” Robert Stallard, a London-based analyst for RBC Capital Markets LLC, wrote in a note to clients after Northrop’s report.

The results were “a familiar story of sales down, profit up,” said Stallard, who has a “sector perform” rating on Northrop.

Beat Estimates

Northrop climbed 4 percent to $105.56 at the market close in New York in its biggest advance since September 2010. The shares have risen 56 percent this year even as contractors struggled with across-the-board budget cuts and this month’s partial government shutdown, compared with a gain of 22 percent for the Standard & Poor’s 500 Index during the same period.

Net income climbed 8.3 percent to $497 million, or $2.14 a share, from $459 million, or $1.82 a share, a year earlier. The earnings beat the $1.82-a-share average estimate of 18 analysts surveyed by Bloomberg.

Revenue declined 2.6 percent to $6.11 billion in the quarter, exceeding the average estimate of $5.95 billion.

Northrop also raised its full-year sales forecast by less than 1 percent to $24.4 billion.

In July, the contractor raised its earnings forecast as F-35 jet work helped boost sales and profit in the second quarter.

F-35 Jets

The military has protected large programs such as Lockheed Martin’s F-35, the Pentagon’s most expensive weapons system, from automatic federal spending cuts. Northrop, a subcontractor on the fighter, booked $1.3 billion last year for work on the F-35, according to a regulatory filing.

Congress has helped, too. Last month, Northrop received funding for the last three Global Hawk Block 30 surveillance drones. After the Pentagon tried to cut the unmanned aircraft, lawmakers passed legislation funding them.

Lockheed, the largest U.S. contractor, yesterday raised its full-year outlook as its third-quarter profit rose 16 percent.

United Technologies Corp., the No. 6 federal contractor, reduced its sales forecast yesterday. The Hartford, Connecticut-based company said Pentagon spending cuts contributed to a decline in revenue.

To contact the reporter on this story: Tim Catts in New York at tcatts1@bloomberg.net

To contact the editor responsible for this story: Stephanie Stoughton at sstoughton@bloomberg.net

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