Northrop shares fall after it says it will take $320M charge
Published 6:22 pm Wednesday, April 16, 2008
Northrop Grumman Corp. said Tuesday it would take a charge of at least $320 million because wiring problems will delay delivery of a ship it built for the U.S. Navy.
The move sent the company’s shares down nearly 7 percent.
The military contractor and shipbuilder said it expected to deliver the LHD-8 ship during the second quarter of next year, instead of November 2008. The company delayed delivery by six months once before.
Northrop said it would take a pretax charge between $320 million and $360 million, or between 61 and 69 cents a share, in the first quarter for costs associated with the delay. Analysts polled by Thomson Financial expected the Los Angeles-based company to earn $1.28 a share.
Northrop shares fell $5.27, or 6.9 percent, to $71.57. The company is expected to release its full first-quarter financial results April 25.
Joseph Nadol, an analyst at JP Morgan Securities, said the disclosure will not help the company shake its image for having problems with contracts, though most troubled deals predate current management.
“Management did not understand the degree of the problem until the ship was in testing, and the cost of rework at this late stage increased the charge substantially,” Nadol wrote in a note to investors.
Northrop said it found the ship needs substantial rework, mainly on electric cables. The ship was built at the company’s yard in Pascagoula, Miss., and was being prepared for sea trials. It will be commissioned in San Diego.
“We are deeply disappointed by the impact of this unanticipated development on our customer and our shareholders,” said Ronald Sugar, Northrop’s chief executive officer. “This is not acceptable to me or anyone at this company.”
The ship will be the Navy’s largest amphibious assault ship at about 40,000 tons.
The Navy said Northrop will swallow costs of the latest delay. It said in a statement that it was “encouraged by the (company’s) fresh look and new management” on the project.
“At the same time, the Navy remains concerned about the schedule issues and the associated impacts to the fleet, and is exploring options to mitigate that operational impact,” the statement read.