Northrop profit, sales top view; eyes higher EPS in 2014

WASHINGTON Thu Jan 30, 2014 2:15pm EST

WASHINGTON (Reuters) - Northrop Grumman Corp (NOC.N), maker of surveillance drones and other military equipment, on Thursday reported higher-than-expected quarterly earnings despite a drop in revenues and said share buybacks would drive earnings per share higher in 2014.

Chief Executive Wes Bush told analysts that a two-year budget agreement reached by Congress last year reduced some of the uncertainty that had been hanging over the aerospace and defense sector, and could stave off worse spending cuts in 2014.

But he said the U.S. budget environment remained challenging, and the Pentagon's budget for researching or buying new weapons was likely to remain under pressure into 2015, since personnel cuts take longer to implement.

International sales, by contrast, continued to grow, helping to offset declines in U.S. orders, he said. International sales grew 20 percent to $2.5 billion, or just over 10 percent of revenue, in 2013 and are expected to expand to about 13 percent of sales in 2014.

"We see emerging opportunities around the globe that our portfolio should allow us to address," Bush said, citing demand for unmanned platforms, airborne surveillance by manned military aircraft, electronics, cyber, and other offerings.

Bush said the company was making good progress on a program to build Global Hawk unmanned planes for NATO, and hoped to finalize a similar deal with South Korea this year.

Northrop shares gained 84 cents to $112.97 on the New York Stock Exchange around midday.

Northrop's quarterly net profit fell 10 percent to $478 million, or $2.12 per share, in the fourth quarter, from $533 million, or $2.14 per share, a year earlier.

Sales fell 5 percent to $6.16 billion. Sales from the aerospace business fell 7 percent to $2.43 billion.

Analysts had expected quarterly earnings per share of $1.94 on sales of $6.01 billion, according to Thomson Reuters I/B/E/S.

The company said it expects revenue of $23.5 billion to $23.8 billion in 2014, with short-cycle businesses likely to be hit particularly hard. But it said it planned to buy back about 8 percent of shares again in 2014, which would drive earnings per share higher to $8.70 to $9 a share. Earnings rose 7 percent to $8.35 per share in 2013.

Northrop also expects to return a "substantial amount of cash" to shareholders in 2014 as it continues to balance investments, share buybacks and competitive dividends, Chief Financial Officer Jim Palmer said.

Northrop repurchased 27.3 million shares for $2.4 billion in 2013, and still had authorization for $3.1 billion in buybacks. The company said it was about one third of the way to its goal of retiring 60 million shares of outstanding common stock.

Rob Stallard, analyst with RBC Capital Markets, said Northrop often beat Wall Street's expectations.

"We think this trend is likely to continue into 2014, and is particularly positive given the initial EPS guide is 4 percent above the street," Stallard wrote in an analyst note.

(Reporting by Sweta Singh in Bangalore and Andrea Shalal-Esa in Washington; Editing by Don Sebastian and Nick Zieminski)