Northrop Grumman Best Earnings Beat Among Defense Contractors (NOC)

Northrop Grumman NOC reports a strong EPS beat today, with earnings coming in at $1.27/share versus the Street consensus of $1.01/share. Despite this beat - the highest among any of the major defense contractors - the stock has not traded at different price levels than yesterday's close. This might be due to concerns about the Pentagon's statement today that major mergers and acquisitions in the defense industry will be opposed by the government, including spin-offs. Northrop Grumman Corporation reported that fourth quarter 2010 earnings from continuing operations totaled $376 million, or $1.27 per diluted share, compared with $375 million, or $1.19 per diluted share, in the fourth quarter of 2009. Fourth quarter 2010 results included a previously announced one-time, pre-tax charge of $231 million, or $0.51 per diluted share, principally related to premiums paid to redeem $682 million in debt through the company's November 2010 tender offer. Earnings from continuing operations increased to $2 billion in 2010, or $6.77 per diluted share, from $1.6 billion, or $4.87 per diluted share in 2009. In addition to the fourth quarter charge related to the debt tender offer, 2010 results included a $113 million pre-tax charge related to the consolidation of the company's Gulf Coast facilities and a $296 million tax benefit related to approval by the Internal Revenue Service (IRS) and the U. S. Congressional Joint Committee on Taxation of the IRS' examination of tax returns for the years 2004 through 2006. These three items, all of which were previously announced, resulted in a net increase in 2010 earnings from continuing operations of $0.24 per share. Fourth quarter 2010 sales totaled $8.6 billion compared with $8.9 billion in the prior year period. The 2010 fourth quarter had fewer working days than the prior year period. Sales increased 3 percent in 2010 to $34.8 billion from $33.8 billion in 2009. New business awards for the 2010 fourth quarter totaled $9.2 billion, bringing total backlog to $64.2 billion as of Dec. 31, 2010. New business awards totaled $30 billion in 2010. Fourth quarter 2010 cash provided by operations increased to $1.4 billion from $931 million in the prior year period. In the 2010 fourth quarter the company's discretionary pension contributions totaled $440 million, and in the fourth quarter of 2009 the company paid income taxes of $508 million on the sale of its Advisory Services business (TASC). Cash provided by operations totaled $2.5 billion in 2010 compared with $2.1 billion in 2009. Discretionary pension contributions totaled $830 million and $800 million for 2010 and 2009, respectively. Cash provided by operations in 2009 also included $102 million from discontinued operations, as well as the income taxes paid on the sale of TASC. "Northrop Grumman had a very good fourth quarter and a strong finish to 2010. Operating income and cash generation exceeded our guidance for the year, demonstrating that across all our businesses, our employees are focusing on performance and building a track record of consistent execution. Northrop Grumman is well positioned to continue creating value for our customers and shareholders," said Wes Bush, chief executive officer and president.