Northrop Grumman Shares Hit Turbulence After Billion Dollar B-21 Raider Contract Charge

Northrop Grumman shares hit turbulence at the start of the US cash session after the defense contractor reported a $1.2 billion charge in the fourth quarter on its B-21 Raider program, a sign costs have skyrocketed since it won the contract in 2015. 

Under the fixed-price deal, Northrop will lose money on the first five B-21s. The defense contractor and the Pentagon agreed to cap the price of each next-generation stealth bomber that replaces the B-2 Spirit and B-1 Lancer at around $700 million.

B-21 RAIDER FIRST FLIGHT 11-10-23 #RAIDER33 #B21Raider pic.twitter.com/3tEKudqDiw

— Matt Hartman (@ShorealoneFilms) November 10, 2023

Investors were not pleased with the new development. Shares of the defense contractor tumbled 4% at the start of the cash open. 

Here’s an earnings snapshot of the fourth quarter (courtesy of Bloomberg):

• Sales $10.64 billion, +6% y/y, estimate $10.44 billion
• Aeronautics Systems sales $2.91 billion, +5.5% y/y, estimate $2.82 billion
• Defense Systems sales $1.65 billion, -0.7% y/y, estimate $1.55 billion
• Mission Systems sales $3.06 billion, +4.6% y/y, estimate $3.01 billion
• Space Systems sales $3.60 billion, +9.9% y/y, estimate $3.66 billion
• Aeronautics systems operating loss $1.27 billion vs. profit $289 million y/y, estimate profit $281.1 million 
• Defense systems operating income $202 million, +10% y/y, estimate $187.5 million
•  Mission systems operating income $462 million, +2.2% y/y, estimate $468.7 million
• Space systems oper income $304 million, +2.4% y/y, estimate $339.9 million
• Free cash flow $1.63 billion
• Capital expenditure $803.0 million, +27% y/y
• Backlog $84.23 billion
• Fourth quarter 2023 net loss totaled $535 million, or $3.54 per diluted share, and 2023 net earnings were $2.1 billion, or $13.53 per diluted share

And year forecast:

• Sees adjusted EPS $24.45 to $24.85, estimate $24.23 (Bloomberg Consensus)
• Sees sales $40.80 billion to $41.20 billion, estimate $41.15 billion
• Sees free cash flow $2.25 billion to $2.65 billion
• Sees capital expenditure about $1.80

Wall Street analysts tracked by Bloomberg show eight buys, 14 holds, and two sells on Northrop. 

Analysts have an average of $505.90 12-month price target.