U.S. weapons maker Northrop Grumman Corp (NOC.N) reported higher-than-expected quarterly profit on Wednesday but said sales and earnings would fall sharply in 2013, given the mounting pressure on the U.S. defense budget.
Northrop, which builds Global Hawk unmanned surveillance planes, radar and electronic systems for the U.S. military, said revenue fell in three of its four business areas in the fourth quarter, but aerospace systems saw a 7 percent rise due to increased demand for unmanned systems.
Aerospace systems and electronic systems had higher operating income, but the information systems and technical services businesses had lower earnings.
Overall, earnings from continuing operations were $533 million, or $2.14 per share, far exceeding analysts' average forecast of $1.74 per share, according to Thomson Reuters I/B/E/S. In the year-earlier period, operating earnings totaled $550 million, or $2.09 per share. Earnings per share rose because of a decline in shares outstanding.
Fourth-quarter sales fell to $6.47 billion from $6.51 a year earlier.
Northrop forecast 2013 sales of about $24 billion, down almost 5 percent from 2012. It said earnings from continuing operations would be $6.85 to $7.15 a share, a sharp drop from $7.81 in 2012.
The guidance was in line with comments from Northrop last October, when the company raised its forecast for 2012 but warned that revenue would be lower in 2013.
Northrop shares were down 1 percent to $66 in premarket trading. JPMorgan analyst Joe Nadol said the shares could get a boost on Wednesday if the company followed the lead of other defense firms and underscored its plan to return cash to shareholders.
Northrop said 2012 earnings from continuing operations fell nearly 5 percent from 2011. It blamed the decrease on a $268 million decline in pension adjustments and a higher effective tax rate. Earnings per share rose due to a 10 percent decrease in the number of shares outstanding.
In 2012 the company repurchased 20.9 million shares of its common stock for $1.3 billion. It still has $1.5 billion in authorized funds for more buybacks.
Chief Executive Wes Bush called the fourth-quarter results "outstanding" and said they validated the company's focus on performance, effective cash deployment and portfolio alignment.
"As we look ahead, we expect challenges, but we are confident in the team's ability to address those challenges and continue to create value for all our stakeholders," Bush said.
The company's guidance for 2013 assumes no additional big cuts in Pentagon spending.
Northrop said segment operating income rose 13 percent in the fourth quarter, and the segment operating margin jumped to 13.5 percent from 11.9 percent a year earlier.
Segment operating margin rose 1 percentage point to 12.6 percent in 2012, but is projected to drop back to the low- to mid-11-percent range in 2013.
The company's backlog increased 3 percent to $40.8 billion at the end of 2012, buoyed by new business awards of $26.5 billion in 2012.
(Reporting By Andrea Shalal-Esa; Editing by Gerald E. McCormick and John Wallace)