B-21 headwind raids Northrop Grumman's Q4 earnings

By Pratyush Thakur and Mike Stone

(Reuters) -Northrop Grumman on Thursday said it swung to a loss in the fourth quarter from a year-earlier profit as it took a $1.17 billion charge related to the U.S. Air Force's next-generation B-21 stealth bomber.

Shares of the Falls Church, Virginia-based company, which lost around 15% of their value in 2023, were trading down 6.2% in New York.

The B-21 Raider started flight tests during the fourth quarter, after which the U.S. Air Force awarded Northrop a low-rate initial production (LRIP) contract for the bomber on a fixed-price basis.

"We believe it is probable each of the first five LRIP lots will be performed at a loss," Northrop said. The number of aircraft in those lots is unknown.

However, the B-21 program, which will ultimately yield more than 100 bombers, has most of its production covered under a cost-plus contract, which means it will reimburse the company for the extra expenses it incurs due to inflation.

The B-21 Raider, replacing the aging B-2, is a key weapon in the Pentagon's strategy to counter China.

Northrop reported adjusted free cash flow of $1.63 billion for the fourth quarter, better than Wall Street analysts' estimates of $1.58 billion, according to LSEG data.

"We generated free cash flow at the high end of our guidance range, significantly exceeded our sales guidance, and beat EPS consensus absent the B-21 charge we identified as a possibility this time last year," Chief Executive Kathy Warden said in a statement.

While the B-21 making Aeronautics division reported a 44% decline in operating margin, the continued ramp-up in development programs, primarily the Ground-Based Strategic Deterrent (GBSD), boosted the margin in the Space Systems division by 12%.

The Northrop Grumman-managed Sentinel program, to replace Minuteman nuclear missiles, busted through its $95.8 billion budget, the U.S. Air Force said last week.

Northrop posted a fourth-quarter loss of $3.54 per diluted share, compared with a profit of $5.96 per diluted share a year ago. Overall sales rose 6% to $10.6 billion.

Despite the B-21 headwinds, Northrop forecast 2024 sales of between $40.8 billion and $41.2 billion. Analysts estimates of $41.14 billion are slightly below the higher end of Northrop's forecast.

(Reporting by Pratyush Thakur in Bengaluru; Editing by Mark Porter and Sharon Singleton)