Aerospace Firms Feeling Pressure On Their Profits --- Lockheed, Northrop Warn Of Lower Net; Boeing Foresees Tough 1999
After six years of industry consolidation, an array of production and sales problems continue to bedevil leading aerospace and defense companies. Two companies, Lockheed Martin Corp. and Northrop Grumman Corp., are warning that their fourth-quarter earnings will drop below year-earlier levels. Boeing Co., which has struggled all year, is expected to do better in the quarter than it did in the year-earlier quarter but is warning of problems this year. Only Raytheon Co.'s prospects look brighter.</br></br>Boeing and Northrop Grumman, whose fortunes are partially tied to the Seattle plane builder, have both warned of 1999 profit shortfalls of as much as 25% and 20%, respectively, below Wall Street expectations, because of Boeing's miscalculation of the Asian economic crisis. The region's collapsing demand for jetliners -- especially the 747-led Boeing to announce sharp production cutbacks that will pressure margins in its commercial-jetliner division, which accounts for 60% of revenue.</br></br>For the quarter, however, analysts estimate that Boeing earned about 42 cents a diluted share, compared with a loss of 51 cents a share a year earlier, when the company struggled not with Asian fallout but with a costly production bottleneck at its Seattle-area assembly lines. Also in the year-earlier quarter, Boeing posted a one-time $1.4 billion pretax charge to phase out two jetliner models it inherited in its 1997 merger with McDonnell Douglas Corp.</br></br>Northrop Grumman, which derives about 12% of its revenue from building jetliner parts, most notably for the 747 jumbo jet, last week posted a $105 million charge stemming from increased costs to complete the fuselages because of Boeing's cutbacks. Additionally, Northrop Grumman, Los Angeles, posted a $20 million charge related to delays in a separate defense-electronics program. As a result, the company likely earned 90 cents a diluted share, compared with $1.71 a share in the year-earlier quarter, analysts say.</br></br>Northrop Grumman's smaller charge, for the test delay, was typical of problems among the largest defense contractors. Although encouraged by the Pentagon amid stagnating procurement budgets, "It would appear that the whole round of consolidation of all four companies, which has proceeded in quite a hurry, may be a factor" in programs that go awry as the companies struggle to digest their acquisitions, said Paul Nisbet, an industry analyst at JSA Research in Newport, R.I.