Pension Income Creates Turbulence For Defense Contractor

April 24, 2001 ( - Defense contractor Northrop Grumman reported a 34% drop in first-quarter net profit as weak equity markets clipped pension fund income.

stGrumman shares fell nearly 5% on the news.

Pension fund proceeds account for a significant percentage of the company’s bottom line, making the nation’s fifth-largest defense contractor uniquely vulnerable to the volatile equity markets.

The company reported net income of $103 million in the first quarter, or $1.42 per share, 10 cents/share less than expected according to analysts surveyed by Thomson Financial/First Call.

Excluding pension income, Grumman reported flat operating earnings.

A Look Ahead

Northrop boosted its growth target for full-year economic earnings, excluding pension fund income, anticipating an increase of 15-20% over last year’s levels. Previously, the company had forecast 12% growth.

Pension income for 2001, excluding any income or expense from the Litton pension plans, is expected to be about $280 million, Northrop said. Including Litton, pension income was estimated at $330 million to $350 million for the year.

Northrop completed its acquisition of Litton during the first quarter and expects to finish integrating the businesses by the end of this year.

Litton’s financial data will be included in Northrop Grumman’s financial statements starting with the second quarter of 2001.