Northrop earnings drop as R&D revenues wane; aerospace giant cites the B-2, old fixed-price contracts.

Northrop earnings drop as R&D revenues wane

Hurt by higher than anticipated costs on fixed-price contracts, aerospace giant Northrop Corp. last week reported third-quarter earnings fell 25 percent.

The company blamed the decrease on lower revenue in the research and development phase of long-term programs, including the B-2 advance technology bomber, which has passed the peak of its development phase and is now in initial production.

Higher costs on fix-priced research and development contracts undertaken years ago reduced Northrop's $102 million third-quarter operating profit by $23 million.

Revenues, meanwhile, fell 8.2 percent during the period.

Earnings for the quarter ended Sept. 30 were $21.5 million, or 46 cents a share, on revenues of $1.25 billion, compared with earnings of $28.8 million, or 61 cents a share, on revenues of $1.36 billion during the same period in 1988.

Northrop's stock, meanwhile, continued to suffer on Wall Street. The company's stock closed Thursday at $21.50 after hitting a 52-week low of $20.25 three days earlier. Northrop's 52-week high was $35.88.

"The quarter was kind of disappointing," said Phil Friedman, aerospace analyst in the New York office of Drexel Burnham Lambert. "Many companies continue to report these kinds of problems."

Early last year Northrop, like many aerospace firms, stopped accepting fixed-price contracts. The company, however, is still working on fixed-priced contracts begun before the change in policy.

Costs in research and development of the ALQ-135 countermeasures system for the F-15 fighter plane, for instance, reduced the third-quarter operating profit by approximately $8 million.

"The thing that is alarming is that the fixed price write-offs continue to be reported," Friedman said. "It's now become a reoccurring non-reoccurring event."

Analysts said the continued losses caused by cost overruns on fixed rate contracts make it hard to forecast earnings for companies like Century City-based Northrop.

Drexel's Friedman had forecast earnings for the quarter to be 55 cents a share. John N. Simon, an aerospace analyst in the Los Angeles office of Seidler Amdec Securities had forecast quarterly earnings to be 50 cents a share.

"The question really becomes when will they get through all these?" Simon said. "Is this really the end of it? We don't know. Because it is unclear if they are going to go away it makes it difficult to make projections. If they hadn't had that kind of loss there earnings would have been almost double. But if they've taken on a contract they've got to complete the contract."

Friedman said the losses from fixed-contract cost overruns were offset by a reduction in tax payments and unanticipated increases in miscellaneous income resulting primarily from the sale of leased aircraft.

Northrop paid $4.4 million in federal income taxes during the quarter compared with $8.6 million during the same period in 1988. Miscellaneous income climbed to $7.8 million, up from $2 million a year ago.

Interest expenses rose during the quarter. Interest expenses for the quarter were $35 million, $18 million higher than during the same quarter a year ago. The company's outstanding debt Sept. 30 was $1.22 billion, compared with $911 million a year ago.

Third quarter figures, however, were still better than those reported during the first two quarters of 1989.

Through the first nine months of the year, the company lost $46.9 million, or $1 a share, on revenues of $3.92 billion, compared with earnings of $190.3 million, or $4.05 a share, on revenues of $4.07 billion during the same period in 1988.

PHOTO : Stealth: Northrop blamed loss on expensive research-and-development programs, including the B-2 `Stealth' bomber