Northrop CEO says technology services business is 'positioned to begin growing'

January 31, 2019

By Marjorie Censer

Northrop Grumman has consolidated two groups within its technology services business, seeking to bolster the unit's high-end work.

In a call with analysts today, Kathy Warden, Northrop's chief executive, said the contractor is combining within TS its advanced defense services and system modernization and services units into one group, dubbed global services.

"That is intended to create a more competitive, integrated services portfolio that is focused on high-end services for IT as well as analytics and operations in the areas of cyber, health care and intelligence," she said. "We now have that segment positioned to begin growing."

Northrop reported today its technology services unit saw an 8 percent decline in 2018 sales. The business' 2018 profit was down 1 percent.

Two years ago, Northrop said it was realigning the TS business to move it away from lower-margin work.

"2017 would likely be where we'd see the impact of restructuring, and we ought to see a different trajectory as we move forward from there," Wes Bush, then the company's CEO, said at the time.

Northrop Grumman also said today sales in its most recent quarter reached $8.2 billion, up 24 percent from the same three-month period a year earlier.

The company's quarterly profit hit $356 million, down 47 percent from the prior year.

Northrop attributed the discrepancy to its shift to using the "mark-to-market" method of accounting for pension and other post-retirement benefits. The change, Northrop said, generated an after-tax expense of $495 million in 2018 and an after-tax benefit of $404 million in 2017.

In 2018, Northrop said sales reached $30.1 billion, up 16 percent from 2017. The company recorded 2018 profit of $3.2 billion, up 13 percent from 2017.

Northrop was buoyed by its aerospace systems business, which reported an 8 percent increase in sales in 2018. The contractor attributed the growth to "higher volume for restricted activities and the F-35 program." Additionally, Northrop saw increased sales of autonomous systems and space programs.

Raytheon posts sales, profit gains

Meanwhile, Raytheon said today sales in its most recent quarter reached $7.4 billion, up nearly 9 percent from the same three-month period a year earlier.

The contractor's quarterly profit hit $832 million, more than double the prior year. The prior year's figure was affected by a payment related to tax legislation passed in late 2017.

Raytheon said its 2018 sales totaled $27.1 billion, up about 7 percent from 2017. The company recorded 2018 profit of $2.9 billion, up 44 percent from 2017.

The company saw quarterly sales growth in all of its business units.

For the year, Raytheon's intelligence, information and services unit had the strongest sales and profit gains. Raytheon pointed to increased sales on classified programs in cyber and space and the Department of Homeland Security's Development, Operations and Maintenance -- or DOMino -- cyber program.