Northrop Grumman stock tumbles as stealth-bomber program gets off to slow start

By Steve Gelsi

One analyst sees further potential cost overruns for the defense contractor's B-21 after it took a 'monster charge' in the fourth quarter

Northrop Grumman Corp.'s stock fell by 6.3% Thursday after the defense contractor posted a fourth-quarter loss on its spending for the production launch of its B-21 stealth bomber.

The company also signaled that it could face cost overruns on the bomber, which is able to fly without human pilots onboard.

The stock's 6.3% drop marked its largest one-day plunge in more than a year, since it fell by 7.3% on Nov. 11, 2022.

Northrop (NOC) and other defense contractors are facing higher costs and a reduced chance of receiving inflation payments from the U.S. government.

Northrop said it lost $535 million, or $3.54 a share, in the three months ended Dec. 31. In the year-ago quarter, it earned $2.08 billion, or $13.46 a share.

The latest quarter included an impact of $1.56 billion, or $7.72 a share, in costs associated with the initial production phase of the company's B-21 stealth bomber.

"While we're disappointed that our assessment of conditions for the low-rate initial-production portion of the B-21 bomber program necessitated this charge ... we are confident in our ability to deliver on the company's forward outlook, which remain unchanged," Chief Executive Kathy J. Warden said on the company's earnings call.

Vertical Research Partners analyst Robert Stallard said Northrop "booked a monster charge" for its B-21 program, which is now in low-rate initial production (LRIP), a term in the military-weapon field that refers to the start-up phase of a product.

"While Northrop had flagged that it didn't expect to make any money on the LRIP portion of B-21, to book a $1.5 billion charge out of the blocks is not good," Stallard said. "The concern is likely to be that Northrop has several years to run on this contract, and we could easily see more overruns."

Northrop also booked a fourth-quarter charge of $316 million, or $2.09 a share, related to a mark-to-market loss on its pension program.

Breaking out these charges, Northrop would have earned $6.25 a share. Analysts expected Northrop to earn $5.80 a share.

Sales rose by 6% to $10.6 billion, ahead of the FactSet consensus estimate of $10.43 billion.

For 2024, Northrop expects sales in the range of $40.8 billion to $41.2 billion. Analysts currently expect the company to generate sales of $41.1 billion.

Adjusted earnings are projected to range from $24.45 a share to $24.85 a share, ahead of the analyst estimate of $24.28 a share.

Also read: RTX's stock rises as Q4 earnings move aerospace company past Pratt & Whitney engine trouble

-Steve Gelsi

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01-25-24 1608ET

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