Northrop Earnings Edge Up 3.3% in 1st Quarter : Pentagon Squeeze on Contractors Will Keep Growth Low in ‘87, Analysts Say

Northrop earnings grew 3.3% in the first quarter of 1987, a lackluster performance that analysts expect to continue throughout this year as the Pentagon continues to clamp down on defense contractor profits.

The Los Angeles-based aerospace firm earned $40.6 million on sales of $1.4 billion in the quarter ended March 31, up from a profit of $39.3 million on sales of $1.3 billion last year.

The quarter was the first time in half a dozen years that Northrop’s profit was not hit by spending on the F-20 fighter jet. But the firm now has heavy investment requirements on so many new military programs that the windup of the F-20 program will provide no earnings windfall.

Operating profit margins on the firm’s aircraft business dropped to 7.2% in the first quarter this year from 10% in the 1986 period when the firm spent $46 million on the F-20.

Spending on Key Aircraft

Wolfgang Demisch, First Boston aerospace analyst, said Tuesday that he expects Northrop’s aircraft profits to decline in 1987 and 1988 while the company spends money to develop such key aircraft as the advanced tactical fighter, the advanced tactical aircraft and the advanced technology bomber.

Demisch projected that Northrop will earn $3.35 per share this year, down sharply from the estimated $5.11 profit last year, excluding F-20 charges and a big writeoff on another aircraft program. Assuming a major setback doesn’t overtake all of these programs, Demisch said Northrop could double its earnings from 1988 to 1990 and double them again by 1992.

Another major program that may impose new investment burdens on Northrop is the Air Force’s Tacit Rainbow missile program, a 100-inch-long missile designed to loiter in flight and automatically attack enemy radars when they are activated.

Northrop began construction of a new plant in Perry, Ga., for the Tacit Rainbow program last week. The 2,200-acre facility will be completed in 1988 and employ 750 workers.

Budget details of the new missile program are classified, but it is considered to have a large potential.

The Army and Navy are both expected to purchase the missile, in addition to the Air Force. Other negotiations are under way with the Netherlands, West Germany and Britain.

The missile is under development by Northrop’s Ventura division, which builds drone aircraft used for targets and reconnaissance.