Northrop Grumman Corp.’s stock experienced a 6% decrease on Thursday following the defense contractor’s announcement of a fourth-quarter loss attributed to expenses associated with the production launch of its B-21 stealth bomber.
Uncertainty Surrounding Cost Overruns
The company has also indicated that it may encounter cost overruns related to the advanced bomber, which has the capability to operate autonomously without human pilots on board.
Defense Contractors Facing Budget Constraints
Northrop, along with other defense contractors, is grappling with escalating costs and a diminished likelihood of receiving inflation payments from the U.S. government.
According to the company’s financial report, it incurred a loss of $535 million, or $3.54 per share, during the period ending on December 31. In the same quarter the previous year, it achieved a profit of $2.08 billion, or $13.46 per share.
Impact of B-21 Production Phase
The most recent quarter was significantly affected by expenses amounting to $1.56 billion, or $7.72 per share, stemming from the initial production phase of Northrop’s B-21 stealth bomber.
Despite these setbacks, Chief Executive Kathy J. Warden expressed confidence in the company’s ability to fulfill its future objectives, which remain unchanged.
Northrop Grumman Faces Challenges in B-21 Program
Vertical Research Partners analyst Robert Stallard has raised concerns about Northrop Grumman’s B-21 program, which has recently entered the low-rate initial production (LRIP) phase. Stallard notes that although Northrop had already anticipated no profit during this phase, the company’s $1.5 billion charge is alarming. He adds that with several more years remaining on the contract, further overruns are possible.
Additionally, Northrop Grumman incurred a fourth-quarter charge of $316 million due to a mark-to-market loss on its pension program. Even after excluding these charges, the company would have earned $6.25 per share, surpassing analysts’ expectations of $5.80 per share.
On the positive side, Northrop Grumman saw a 6% increase in sales, reaching $10.6 billion for the quarter, exceeding the FactSet consensus estimate of $10.43 billion. Looking ahead to 2024, the company anticipates sales ranging from $40.8 billion to $41.2 billion, slightly below analysts’ expectations of $41.1 billion.
Moreover, adjusted earnings are projected to fall between $24.45 and $24.85 per share, surpassing the analyst estimate of $24.28 per share.
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