Northrop Grumman Corp. slashed its 2005 profit forecast Monday after estimating that damages and work delays caused by hurricanes Katrina and Rita will cut about 40 cents a share from full-year earnings.
The Los Angeles-based military contractor estimated damage to its shipbuilding unit caused by the storms at $1 billion and said it expects to take a charge of 8 cents a share in the third quarter to cover work delays.
Northrop said it expects to book another charge of 30 cents to 35 cents a share to cover increased costs associated with existing ship contracts caused by the work delays and tighter margins.
The hurricanes damaged Northrop’s Ship Systems shipyards in New Orleans, Pascagoula, Miss., and Gulfport, Miss., although the company said damage from Rita was minor.
The shipyards reopened on Sept. 12 and production work has resumed on 11 ships under construction. About 12,500 of the shipyards’ 19,800 employees have returned to work, the company said.
“Hurricanes are a way of life in this region and we prepare for them and deal with them as a normal course of business, but this hurricane was truly extraordinary,” Chief Executive Ronald D. Sugar told Wall Street analysts during a conference call Monday. “While the damage is significant, Northrop Grumman has weathered this disaster and will come back even stronger than before.”
The company’s Gulf Coast shipyards alone — not including its aircraft carriers and submarine building business — account for between 30 cents to 35 cents of annual earnings per share, estimated Myles Walton, an analyst with CIBC World Markets Corp.
Walton said the impact of the storm on the company’s Gulf Coast shipbuilding business was significant, but noted that the company was taking a conservative approach with its recovery estimates.
“They’re not assuming any relief from the government, and they haven’t built in any relief from insurance companies as to reimbursement from work delays,” he said.
Northrop said it now expects 2005 revenue of $30.5 billion to $31 billion, compared with its previous estimate of $31 billion to $31.5 billion. It estimated its 2005 earnings per share would be $3.55 to $3.65, compared with its previous estimate of $3.90 to $4 per share.
For next year, the company said it expects revenue of about $32 billion and earnings per share of $4.10 to $4.30.