July 25, 2018 / 11:09 AM / 5 months ago

Northrop tops profit estimates, but underwhelming outlook hits shares

(Reuters) - U.S. weapons maker Northrop Grumman Corp (NOC.N) reported earnings on Wednesday that exceeded analysts’ profit estimates, but frustrated investors betting on an even better quarter after rival Lockheed Martin Corp’s (LMT.N) strong results earlier this week.

Northrop’s shares fell 6.2 percent at the start of trading after reporting its first results to include its $7.8 billion acquisition of rocket-maker Orbital ATK.

Northrop also raised its earnings forecast for 2018, which it expected to be led by sales of parts used in fighter jets as well as a lower tax rate.

But analysts at Stifel said the fact the defense contractor “largely reiterated 2018 guidance except for a lower tax rate assumption,” could frustrate some investors expecting a bigger forecast lift following strong results from rival Lockheed Martin, including a boost to its sales forecast.

Earlier this month, the Falls Church, Virginia-based company announced that Chief Executive Wes Bush would step down at the end of the year and be replaced by Chief Operating Officer Kathy Warden.

The company now expects 2018 earnings, during Bush’s last year at the helm, of between $16.60 to $16.85 per share, compared with an earlier forecast of $16.20 to $16.45.

Sales at Northrop’s aerospace business, which makes the center fuselage for fighter jets, including the stealthy F-35, climbed 11 percent to $3.34 billion in the second quarter ended June 30.

This year, Lockheed Martin (LMT.N), the prime contractor on the F-35, is aiming to deliver 91 of the fighters.

Northrop, like U.S. peers Lockheed and Boeing Co (BA.N), is benefiting from stronger global demand for weapons, fighter jets and tanks. The company is also expected to gain from an increase in U.S. defense spending under President Donald Trump’s administration.

Senate and House negotiators on Monday reached agreement on a $716 billion defense policy bill.

Northrop’s net income rose to $689 million, or $3.93 per share, in the second quarter, from $555 million, or $3.16 per share, a year earlier.

Net sales climbed 10 percent to $7.12 billion.

Analysts, on average, had expected earnings of $3.83 per share and revenue of $7.10 billion, according to Thomson Reuters I/B/E/S.

Reporting by Mike Stone in Washington and Sanjana Shivdas in Bengaluru; Editing by Bernadette Baum and Jonathan Oatis

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