Defense contractors are considered some of the safest stocks to hold in a recession, especially when government spending is expected to remain constant or increase to provide support for the economy during this prolonged recession. With over $600 billion allotted for the defense budget, it’s no wonder the big players in the industry are announcing record backlog orders and double digit profit growth. Northrop Grumman (NOC: 46.27, +0.09 (+0.19%)) is the latest contractor to release earnings, and unfortunately, is the latest company to get killed by one-time asset write-downs. Despite solid Q4 growth, Northrop posted a loss of $2.54 billion after writing off a $3.06 billion charge on goodwill impairment from assets acquired in previous acquisitions made in its shipbuilding and space operations.
The Numbers
Northrop’s CEO Ronald Sugar was completely satisfied with the Company’s results for the year. “(Northrop Grumman's) underlying fourth quarter operating results were outstanding and represent a strong finish to the year.” While fourth quarter earnings per share came in at a loss of $7.76 per share, compared to a profit of $457 million or $1.32 per share a year earlier, excluding the one-time charge, earnings were slightly above analysts’ estimates of $1.55, at $1.57 per share. Fourth quarter revenue increased 4% to $9.15 billion. Full year sales came in up 6% to $33.9 billion, making Northrop the second-largest defense contractor (behind Lockheed Martin (LMT: 81.10, +1.73 (+2.18%))). On top of solid top-line growth, the Company reported record-high total backlog orders of $78 billion, and record-high new business awards of $48 billion for the full year. Fourth quarter free cash flow climbed to $790 million, while full-year free cash flow increased to a record $2.4 billion.
Despite the profit-killing acquisition write-off of Litton Industries and TRW, Northrop’s strong balance sheet has allowed the Company to take measures to increase shareholder value. The defense contractor increased their dividend another 8% in 2008, nearly doubling the dividend since 2003. Additionally, the Company announced that they were able to continue with their stock repurchase plan, and bought back $21.4 million in common shares, leaving another $945 million authorized for repurchasing.
